Wednesday, April 14, 2021

Economic disparities

The Centre’s claim of India as world’s fast growing major economy may be catching up with the richer economies in term of absolute size but economic convergence within the country remain a distant dream. Most of the poorer states in India continue to lag behind the richer ones in economic growth in terms of Gross Domestic Product (GDP) by size but they have no Gross Value Addition (GVA) year over year. This is the main reason why the poor states within the country have continued to have big disparity in their economic progress and they have continued to show a dismal performance. It is also interesting to note that the a recent report of the rating agency Crisil has also found that the inter-state disparities have widened in recent year even as larger economy grows in size and influence on the global stage. The growth in size is a matter of discussion at the international level without giving a serious thought to the disparities between the states within India. It is also important to note that many low income states have experienced isolated years of strong economic growth above the national average but they have not been counted when their growth is compared to the richer or poorer states of the country. In fact, some of the states that have witnessed better growth compared to the national average have failed to keep pace with the economic growth in other fields and facing a dead end phenomenon. In this connection, the case of Bihar is interesting because it was the fastest growing states this year among the 17 non-special category states evaluated by the report. But they have still failed to bridge their widening gap with the richer states since they have simply not been able to maintain a healthy growth rate over a sustained period of time. In this case, the richer states like Gujarat, for instance, have been able to achieve sustained economic growth and increase their gap over other states of the country for various reasons. The report has pointed out that there was a slight, though weak, convergence in the per capita income levels of the poorer and richer states between the fiscal years 2008 and 2013, but the trend was reversed in the subsequent years. In between fiscal years 2013 and 2018, there has been a significant divergence rather than convergence in the economic fortunes of the poorer and richer states. This was the result of richer states continuing to show strong growth while the poorer states fell behind. Somehow, only two of the eight low-income states in 2013 had growth rates above the national average over the next five years. On the other hand, six out of the nine high-income states have recorded rates higher than the national average during 2013-18. It is not that easy to find the reasons for the convergence in the economic fortunes of States. The Crisil report suggests that at least during fiscal year 2018, it is the government spending that boosted GDP growth in the top-performing states, particularly in Bihar and Andhra Pradesh, whose double-digit growth rates have come along with a burgeoning fiscal deficit. The impact of greater spending was that 10 of the 17 states breached the 3% fiscal deficit limit set by the Fiscal Responsibility and Budget Management Act. But many other big-spending states have not been able achieve growth above the national average. Punjab and Kerala, which are at the bottom of the growth table, are ranked as reckless spenders by the report. This suggests that the size of public spending is probably not what differentiates the richer states from the poorer ones. There are other variables like the strength of state-level institutions, as gauged by their ability to uphold the rule of law and create a free, competitive marketplace for businesses to thrive, and the quality of public spending could be crucial determinants of the long-run growth prospects of states. Apart from this, the policy makers and planners have to be innovative in ensuring an overall development in different spheres in all the states so that their gap with the richer states is reduced to a large extent paving way for reducing the gap between them.