When Rich States Get Richer (GS Paper 3, Economy)
Context
- The article from The Indian Express explores the growing economic disparity between India's richer southern and western states, such as Andhra Pradesh, and poorer northern states like Bihar.
- It underscores the widening income gap and the challenges of achieving economic convergence.
Economic Disparities Between Indian States
Income Disparity:
- In 2023-24, the average income in Andhra Pradesh was approximately four times higher than in Bihar.
- Projections suggest this gap will widen further by the decade's end.
- Even if Bihar were to match Andhra's growth rate, significant income disparity would persist, highlighting entrenched economic differences.
Growth Trajectories:
- Southern and western states have historically leveraged favorable market conditions and government policies to boost their manufacturing and services sectors.
- These regions are major hubs for industries such as IT and manufacturing, contributing significantly to India's formal sector employment and exports.
- Conversely, northern, central, and eastern states have lagged, deepening the economic divide.
- These areas, despite having a substantial population, struggle with slower growth rates due to historical and systemic disadvantages.
Challenges in Economic Convergence
Economic Advantages:
- Richer states benefit from established industrial bases, superior infrastructure, and agglomeration effects that enhance their economic dynamism.
- These advantages create a reinforcing cycle of growth, making it difficult for poorer states to catch up.
- For instance, despite lower wages in states like Uttar Pradesh and Bihar, the economic incentives for companies to relocate are insufficient due to the entrenched advantages of wealthier regions.
Manufacturing Incentives:
- Schemes like the Production-Linked Incentive (PLI) further entrench the economic dominance of richer states by offering incentives for manufacturing in established regions, thus reinforcing the existing disparities.
Migration and Socioeconomic Impacts
Increased Migration:
- The widening income gap is likely to lead to increased migration from poorer to richer states, exacerbating infrastructure strains in urban areas and intensifying demands for local job reservations.
- This can lead to social and political unrest as cities grapple with increased population pressures.
Impact on Poorer States:
- Poorer states may face rising demands for job creation but struggle to generate sufficient low-skilled jobs, potentially leading to populism and fiscally imprudent policies as they attempt to address these challenges.
The Role of Government in Structural Transformation
Addressing Structural Impediments:
- Governments need to implement long-term strategies to overcome structural barriers to growth in underdeveloped regions.
- This includes enhancing infrastructure, fostering industrial growth, and improving education and skill development in poorer states.
Fiscal Transfers and Reforms:
- While fiscal transfers from richer to poorer states can help, they are not a panacea.
- Structural reforms are necessary to create a conducive environment for growth in less developed states.
- Effective policy interventions are crucial over the next decade to address the unique challenges of states with higher population growth and fewer job opportunities.
Long-Term Consequences and Policy Interventions
Future Trajectories:
- If current growth trends persist, the income gap between rich and poor states will likely continue to widen, leading to long-term economic and social consequences.
- This includes increased migration pressures, regional tensions, and fiscal strain.
Need for Balanced Development:
- To prevent further divergence, governments must prioritize structural reforms that promote balanced regional development.
- Investments in governance, infrastructure, and human capital are essential to fostering equitable growth and achieving economic convergence.
Conclusion
- The growing economic disparity between richer and poorer states in India underscores the need for targeted policy interventions and structural reforms.
- By addressing the underlying causes of economic divergence and investing in the development of underperforming regions, India can work towards more balanced regional growth and reduce income inequality.
- The National Sickle Cell Anaemia Elimination Mission and other similar initiatives must be supported by comprehensive strategies to address economic disparities and promote inclusive development across the country.
