Significant difference in the levels of economic performance across regions is a source of instability as much as it is also an indication of missed opportunities. Such disparity in economic performance is common at any geographical level, among nations, states or within states. Regional differences, across states, especially, in the growth performance have always been a matter of policy concern. Although there has been a greater attention to the rural-urban divide in economic growth and other indicators of progress, the gap in economic growth across regions has been an equally important issue. At one time, it was felt that the development of irrigation in the northwest provided a push to the fortunes of only the northern states but the location advantages of the west, such as the access to ports, made the west prosper faster. The IT revolution was seen as providing a head-start to the south because of the investments in technical education system- public or private. But clearly, the new systems can only be expected to have an impact over small areas within regions and there are always limits to the transmission of growth impulses. And some of the sources of new growth did not remain limited to just one region. What are the prospects for better regional equity in the coming years of more inclusive growth?
The interesting point is whether regional equity will be better served in an economy where investments are driven by private sector motives. At the international level, investment flows have accelerated to the less developed world. But the lessons from such flows are that they accelerate growth in specific sectors and not regions.
The concern is limited to some broad regional level economic disparities. The focus is increasingly on inter-district differences rather than merely inter-state differences. Despite the success at the state level, some districts continue to suffer from weak performance over prolonged periods of time. The strategy of providing assistance to infrastructure development and incentives to investors has been the standard intervention to bring about equitable development. Given that it is the public investment that should lead in bringing about equitable regional development focus on these two sets of interventions is to be expected. However, in most cases, the interventions go beyond mere investments in infrastructure development. There are a host of public enterprises at the state level set up to accelerate economic growth. Although they may have succeeded in expanding the scope of economic activities, they may not have narrowed economic disparities within the state.
Although the initial conditions relating to infrastructure, location and a host of other factors that make up the ?geographic capital? continue to have a major say in the level of performance of a regional economy relative to another, there are instances of policies succeeding in overcoming some of the handicaps. Concerted efforts to improve infrastructure and develop human resources have often paid off. In some cases technological and marketing innovations that improve the productivity of land have paid off as well. In other words certain types of interventions bring about the same benefits wherever they are applied. They may not quite reduce disparities but will help raise economic growth in all regions.
But, is it just the equitable infrastructure development and investments in human resources that can bring about uniform economic growth across regions? Each region would have its own resource endowments and comparative advantages and the development of infrastructure and human resources will complement these advantages. It is interesting that when it comes to accelerating convergence in economic performance across nations, the focus is on economic reforms and stimulating private sector activities both for achieving greater efficiency and also for speeding up economic decisions. However, at the level of regions within the country, the focus is on public interventions and fiscal incentives. Although in the case of development of natural resources, there is greater debate on reforms relating to regulatory environment it has not been possible to apply the same principles as in the case of national level strategies. The task of achieving better regional balance is left as a matter of policy requiring initial steps to be taken through public investment and expenditure.
As the task of achieving economic development at the national level is subject to many decisions, it may be expected that the task of achieving more equitable regional development within the country would be relatively easier. On a similar note, one may expect that inter-state disparities are more difficult to bridge than within- state disparities. Can decisionmakers be sensitive enough to provide more equitable distribution of infrastructure and other services within their own jurisdictions? This again points to the central role of public investment in achieving more equitable regional growth. What may make a difference to outcome now compared to the past experience would be the institutional reforms in governance. If such reforms can help improve mobility of resources such as labour and capital across regions, they can speed up the bridging of regional imbalances.
The author is senior research counsellor, NCAER. These are his personal views