The political class is well aware of the ?revolution of rising expectations.? There is increasing empirical evidence that high-growth states are best able to attack poverty and increase employment, that there is no meaningful alternative to policies that focus on high economic growth. State governments need to focus on improving infrastructure, achieving sound law and order and attracting private investment in order to raise growth.

Based on the level of per capita income in 2003-04, states in India can be divided into three groups?the rich states, the middle-income states and the poor states. Punjab, Maharashtra, Haryana, Gujarat and Tamil Nadu are in the group of rich states. Karnataka, Kerala, West Bengal and Andhra Pradesh are the middle-income states. Rajasthan, Madhya Pradesh, Orissa, UP and Bihar are among the set of poor states.

A recent study on growth variation in Indian states examines the policies of state governments that impact growth rates. The paper, titled ?Mind the Gap? Is economic growth in India leaving some states behind,? by Catriona Purfield, finds that inequality among states has increased in the past 30 years. The gap in per capita income levels between the richer and poorer states has widened. In 1970, the richest state (Punjab) was 3.4 times richer than the poorest (Bihar). By 2004, this ratio had risen to 4.5.

The econometric analysis presented in the paper finds that state-level policies are a key factor influencing the pattern of economic growth across Indian states. The paper has an interesting innovation: the extent of T&D losses of the electricity sector in the state is viewed as a measure of the quality of governance there. Three factors are found to be associated with higher growth: greater private sector investment, smaller governments and better governance.

How does growth impact the welfare of the electorate? Purfield finds that richer and faster growing states have been more effective in reducing poverty and in generating employment. A state?s record in reducing poverty reflects differences both in the level of growth and in the effectiveness of this growth in reducing poverty. On average, richer states have been about 50% more effective in reducing poverty than poorer states for each percentage point of growth.

• Indian states can be divided into rich, middle-income and poor states
• In three decades, the gap between rich and poor states has widened
• State policies play a key role in ensuring the economic growth of states

In the period 1977 to 2001, for which the analysis has been conducted, some states have the best performance in both indicators. Andhra Pradesh, Gujarat and Tamil Nadu had high poverty elasticity and witnessed high growth. This is why they were effective in reducing poverty more than any of the others. Interestingly, Karnataka and Maharashtra, though they witnessed high growth in the period, were not as effective in reducing poverty because of their very low poverty elasticities. Bihar, UP and MP had both low growth and low poverty elasticities, giving them among the poorest outcomes in terms of poverty reduction.

Purfield?s evidence on organised sector employment shows that while employment has risen across all states in the past three decades, the pace of job creation in middle and high-income states far outstripped that of poorer states. While 40% of the population lives in the poorest and most populous states, only a quarter of organised sector employment is found there.

There is an alternative to making a state richer. This is to allow the state to wallow in poverty and rely on migration to get people out. Net outward migration is highest from the northern and central states of Bihar, Uttar Pradesh and Punjab. The prime destinations for migration are Delhi, Maharashtra and Gujarat.

Migration is a powerful tool for equalising incomes within the country. If enough people leave, say, West Bengal, then wages in West Bengal will go up owing to a shortage of labour. In addition, the flow of remittances by the migrants will improve consumption in West Bengal. Such migration flows reduce inequalities.

While these arguments in favour of the benefits of migration within the country are solid, the empirical fact is that the existing level of labour mobility in India across state borders is very low and does little to reduce disparities. Only 6% of migration in rural areas and 20% of migration in urban areas occurred across state boundaries. In other words, there is no option but to first and foremost focus on growth, through which the problems of poverty and employment will be addressed.