India’s Growth Paradox: Economic Rise Amid Persistent Regional Disparities

Syllabus: GS3/Economy

Context

• There are substantial gaps in per capita income and development across states in India while it has emerged as one of the world’s largest economies since the 1991 economic reforms.

India’s Growth: From the 1991 Reforms Till Now

• The LPG Reforms 1991 (liberalisation, privatisation and globalisation) integrated India more closely with the global economy and accelerated growth. 
• It is now the world’s sixth-largest economy in nominal terms, behind only five economies i.e. the United States, China, Germany, Japan and the United Kingdom.
  • It is the third-largest in purchasing power parity  (PPP) terms.
• Economic activity tends to cluster around regions with existing infrastructure, markets, skilled labour and industrial networks.
• Consequently, growth has altered the composition of leading states more often than it has enabled sustained convergence among lagging states.

Growth in India’s Per Capita Income

• India’s per capita income has increased manifold since the reform era, reflecting significant economic transformation and poverty reduction.
  • But, India remains a lower-middle-income economy, and its per capita income continues to lag behind that of many countries.
• According to the International Monetary Fund (IMF), India’s per capita income has risen more than 40 times in three and a half decades.
  • But, on a per capita income basis, India trails more than 140 nations.
• It reflects India’s demographic challenge: a large population makes it difficult for aggregate economic growth to translate automatically into high average incomes.
• For India to achieve developed-country status by 2047, rapid and sustained growth in per capita income, rather than GDP alone, will be crucial.
• Other Achievements: India’s post-reform journey has witnessed:
  • Expansion of the services and digital economy;
  • Growth of a large middle class and improved consumption levels;
  • Greater integration with global trade and investment;
  • Development of world-class capabilities in IT, pharmaceuticals, space and digital public infrastructure; and
  • Improved infrastructure and financial inclusion.
• These achievements demonstrate the transformative potential of reforms, but their benefits remain unevenly distributed.

Concerns and Issues: Challenge of Regional Disparities

• The most persistent concern is inter-state inequality. 
• Bihar and Uttar Pradesh have consistently remained among the lowest-income states, while their per capita incomes have fallen substantially relative to the national average over the long term.
  • Jharkhand too has remained a lagging state.
• Conversely, states such as Delhi, Goa and, more recently, Karnataka have remained or emerged among the higher-income economies.
• Maharashtra and Punjab illustrate that historical advantages do not guarantee continued relative leadership; population growth, structural rigidities, agricultural dependence and external shocks can affect relative performance.
• The GST’s destination-based structure may have supported consumption measurement and revenues in poorer states, but it alone cannot ensure structural convergence.
• Other challenges include inadequate human capital, weak industrial ecosystems, uneven infrastructure, climate vulnerability and limited employment opportunities.

Way Ahead: Road to Viksit Bharat@2047

• India’s development strategy must shift from merely pursuing high GDP growth to broad-based and inclusive growth. Key priorities should include:
  • Place-based development policies tailored to lagging regions;
  • Investment in education, health and skills to improve productivity;
  • Better connectivity and industrial clusters to overcome geographical disadvantages;
  • Strengthening cooperative federalism and outcome-based fiscal transfers;
  • Promoting employment-intensive manufacturing and MSMEs; and
  • Building climate-resilient and sustainable infrastructure.

Source: BS