- It’s heartening to note that the Indian economy is not only showing signs of growth despite stressful challenges over the last two years but is also set to surge ahead of other acclaimed economies, including some of the most advanced nations. Incredibly, when most of the better-known economies are struggling to fight the inflationary trends staring at them, the Indian economy pulling through on the back of some well-intentioned economic stratagems should be welcomed. Yes, Indian citizens too are not shielded from the vagaries of the slowdown and the accompanying inflationary trends. But the hardships are cushioned by positive measures initiated right during the pandemic which has helped tide over the crises in a better manner.
PC: Guy Ben Simon
- However, there are certain subtleties and undercurrents of economic considerations that should be comprehended prudently to follow up with further measures. An economic theory backed by considerable evidence says that the income of countries and regions tends to converge over time. The underlying logic is that areas with low-hanging fruit tend to attract capital and other resources that allow them to catch up. Let’s look at how this plays out in the Indian scenario. As statistic suggests, India’s regions might be an exception to this trend. A national survey on incomes by economic thinktank Price shows that the gap between states in southern and western India and many of those in the north, central, and east is wide. The worrying part is that it’s diverging.
- Take for instance the per capita incomes of Bihar and Karnataka in 1989-90, the eve of economic liberalization. Karnataka’s per capita income at Rs 2,055 a year was almost two times that of Bihar. In 2019-20, the gap had widened to over five times with Bihar’s annual per capita income at Rs 29,794 and that of Karnataka at Rs 1,55,869. This trend generally holds across states, with the west and south of India pulling away from eastern and central Indian states such as UP and MP. Further, a 2016 paper by IDFC Institute observed that India is the only major economy bucking the trend of subnational convergence. Needless to mention, the divisible pool of taxes in a manner that brings about a degree of equity between states is essential to mitigate the gaps.
PC: Current Affairs Review
- Thus, India’s fiscal architecture and related institutions such as the finance commission is precisely designed for the purpose. However, a combination of economic and fertility divergences makes for an explosive mix. The Government of India has projected a national population increase of 311 million between 2011 and 2036. Note that only 9% will come from the five southern states, which the Price survey shows currently contribute 30% of national income with 20% of the population. These trends are playing out in the backdrop of an impending delimitation of political constituencies that can widen fault lines. A lopsided economic structure usually has consequences that ripple out into other areas. Thinktank should seriously embrace convergence as the answer to curtail lopsided developments across the country.
