Widening disparities

Updated: Jan 28 2002, 05:30am hrs
The Planning Commission’s recent exercise on computing inter-state disparities merely confirms what is already known. Inter-state disparities in per capita income began to increase in the 1980s and were accentuated in the 1990s. Among the 16 states for which figures are available, Delhi is the richest and undivided Bihar the poorest: Delhi earns double the all-India average, while Bihar earns less than half the all-India average. Following Delhi are Maharashtra, Punjab, Haryana, Gujarat and Tamilnadu. And just ahead of Bihar are Orissa, Assam, undivided Uttar Pradesh, undivided Madhya Pradesh and Rajasthan. Poverty and backwardness are thus concentrated in the Bimaru fold, with Orissa an addition to this category, subject to the caveat that there is fairly robust evidence that Madhya Pradesh and Rajasthan are clawing their way up. Per capita income is a function of income growth and population growth. States are also growing at uneven rates, with Gujarat close to East Asian miracle rates. Faster growing states also tend to have lower rates of population growth. For instance, population growth has dipped not only in Kerala, but also in Tamilnadu and Andhra Pradesh.

The Planning Commission’s mindset is to argue that disparities are a serious problem and need to be addressed through effective cross-subsidisation of backward states by more forward ones. While disparities and resultant socio-economic tensions are indeed a problem and India (unlike China) has a polity where tensions do become explicit, there is no evidence to show that fiscal transfers help. This is in addition to the political economy of resenting perceived cross-subsidisation of inefficiency by efficiency, a problem that became acute in course of the Eleventh Finance Commission’s recommendations. There is no substitute for improving physical and social infrastructure and governance in laggard states. It is hypothesised that laggard states will eventually learn through the losing-out process and if nothing else, voters will throw out non-performing governments. There is no evidence yet to indicate that voting behaviour reflects such rationality. The moral seems to be that India will have to live with disparities unless agricultural reforms take place. Initial agricultural reforms led to broad-based income and consumption growth in China. The salvation for backward states lies not in manufacturing, IT and other buzzwords, but in old-fashioned agriculture.