of the many aspects of growing economic inequality
in India in the period of economic reforms has been
spatial, expressed for example in regional and state-level
differences in per capita income. This feature has
been much less commented upon than other vertical
measures of income distribution, but it is nonetheless
The Central Statistical Organisation (hereafter CSO)
provides information on both gross and net State Domestic
Product. While the CSO emphasises that differences
in methods of data collection imply that the data
are not strictly comparable across states, the information
can nevertheless be used to get some idea of the differences
across space and over time. In what follows, the data
underlying Charts 1 to 5 have been calculated from
estimates of per capita Net State Domestic Product
provided by the RBI based on these CSO estimates.
All the numbers are at constant 2004-05 prices, derived
by splicing various series since 1980-81.
The growing income disparity across states is evident
from Chart 1, which shows the coefficient of variation
of per capita NSDP at 2004-05 prices for 24 states
(some of the Northeastern states had to be excluded
because of insufficient data). It is evident that
the real increase in such inequality was in the 1990s,
which was a period of sharply rising divergence. This
process reached a climax in 1998-99, with a standard
deviation of 56 per cent across the different states.
By contrast, the period of the 1980s showed relatively
lower variation across states, while the 2000s have
been a period of high but stable differences.
(Click to Enlarge)
a trend is confirmed by Chart 2, which indicates the
difference between the richest (Goa) and poorest (Bihar)
states. Throughout the 1980s, the per capita NSDP
in Goa was around 4.5 times that of Bihar. In the
1990s, however, this difference increased sharply
and continuously, reaching a peak of nearly 11 times
in 1998-99. In the subsequent and most recent decade,
the ratio fell slightly but stabilised around a high
level, at an average of nearly ten times.
(Click to Enlarge)
Clearly, the economic reforms that began in 1991 were
associated with processes that generated rising horizontal
inequality, which peaked around the close of that
decade. In the 2000s, state per capita income divergences
remained high, but did not keep increasing.
This was then reflected also in broader regional differences
as well. Chart 3 groups the states into five major
regions as follows:
Southern - Tamil Nadu, Kerala, Karnataka, Andhra
Northern – Punjab, Haryana, Himachal Pradesh, Jammu
and Kashmir, Uttar Pradesh, Uttarakhand
Western – Goa, Maharashtra, Gujarat, Rajasthan
Eastern – West Bengal, Assam, Bihar, Jharkhand (the
smaller Northeastern states are excluded)
Central – Orissa, Madhya Pradesh, Chhattisgarh.
is true that these regional groupings bring together
some of the richer and poorer states (for example the
Northern region contains both one of the continuously
richer states Haryana and one of the continuously poorer
states Uttar Pradesh). Nevertheless it is evident that
through most of the 1980s regional differences were
very subdued and did not increase much. But from the
end of that decade, and especially from 1991-92, the
per capita SDP of the western and southern regions rose
much faster. The last decade of the 2000s was marked
by an acceleration of per capita income in all the regions,
even though it was still slower in the eastern and central
(Click to Enlarge)
Some of this can be related to the nature of the aggregate
growth process in the country from the 1990s, which
was heavily biased in favour of corporate expansion.
The regions with a greater spread of large capital
in organised activities – such as the western and
southern regions, which include the states of Maharashtra
and Tamil Nadu respectively – therefore showed more
rapid growth in per capita incomes.
This process can be further unbundled into an examination
of the growth rates of per capita income by decade
for the poorest and richest states, so as to provide
more insights into what exactly was happening in these
three periods. Chart 4 provides data on annual compound
growth rates of per capita NSDP, calculated by taking
three year averages of the beginning and end of each
decade. The six poorest large states are those that
have been referred to as ''BIMAROU'', while the richest
states include the western states of Goa and Maharashtra
and the northern states of Punjab and Haryana.
Several interesting points emerge from this chart.
First, growth rates of per capita income in the 1980s
were broadly similar across the richest and poorest
states, at between 2 and 3 per cent per annum. Although
Assam experienced slightly lower growth and Goa and
Maharashtra slightly higher growth in this decade,
the differences were not large. In the 1990s, Goa
and Maharashtra in particular grew much faster than
the poorer states, accentuating the gap. Indeed, in
this period Bihar and Assam showed stagnation/decline
in per capita incomes, while Uttar Pradesh also had
slow growth. However, growth also slowed down in Punjab
(Click to Enlarge)
The most recent decade indicates an acceleration in
expansion of per capita incomes across all of these
states. While the fastest growth was experienced in
Maharashtra, surprisingly some of the poorer states
– particularly Orissa followed by Bihar – also had
relatively rapid growth. The base effect meant that
this did not translate into reduction in state-wise
inequalities, but therefore they also did not increase
Obviously, increasing per capita income need not translate
into better performance in terms of poverty reduction
if the growth within the state has been unequally
distributed. However, in fact Orissa does also show
significant reductions in poverty as well, according
to the latest National Sample Survey of 2009-10.
One interesting feature of the past decade in particular
has been that this rapid aggregate growth has generated
a change in the relative ranking of states. (Of course
the caveat that these NSDP figures are not strictly
comparable across states should be borne in mind here.)
In particular, some of the previously middle-income
states have grown rapidly enough in the last decade
to overtake Punjab, which earlier had the second highest
per capita NSDP in the country after Goa.
Chart 5 shows that five states have overtaken Punjab
in terms of per capita income by 2009-10. Both Maharashtra
and Haryana now have significantly higher per capita
NSDP, though that is not really so surprising since
they were both relatively high income states even
in the 1980s and they both overtook Punjab at the
turn of the century.
But there are other surprises, particularly Tamil
Nadu and Kerala. In 1980-81, per capita income in
Punjab was 56 per cent higher than in Tamil Nadu and
27 per cent higher than in Kerala – quite substantial
differences. The advantage of Punjab remained through
most of the period, really until the middle of the
2000s. However, in the latter half of the 2000s, faster
growth in both of these states meant that they now
have higher per capita incomes, with the difference
between 6-8 per cent.
(Click to Enlarge)
This is not really due to income stagnation in Punjab,
since Chart 5 indicates that even in Punjab there
was an acceleration of growth from around 2005-06.
Rather, it was because growth in these other states
was even faster from the early part of the last decade.
What explains this movement, and these differing trends
across the decades? Obviously this is a complex issue
and many factors would have contributed, both at an
all-India level as well as state-specific factors.
Much more research is required to delve into the causes
of these varying trends. However, some broad hypotheses
can be formulated.
The initial period of economic reform was one in which
the state – at both Central and State levels – significantly
reduced its own spending on both consumption and investment
as shares of GDP. This is confirmed by Chart 6, which
provides aggregate public spending data from the national
accounts. The various liberalisation measures introduced
in the early 1990s generated a much greater role for
private investment, which did actually rise to fill
the gap, but did so in a way that reinforced or aggravated
existing regional inequalities. This can be expected,
since market incentives tend to follow the hysteresis
created by earlier patterns of investment and thereby
lead to enhanced regional (or state-wise) concentration
of economic activity.
(Click to Enlarge)
The latest decade has been rather different, however,
because it has been marked particularly by some revival
of public investment, as Chart 6 illustrates. Public
capital investment (by both Centre and States) fell
continuously as a share of GDP from the peak of nearly
12 per cent in 1986-87 to as low as 6.1 per cent by
2002-03 (just above half of the previous peak rate).
Since then there has been some recovery and increase,
such that by 2009-10, the rate (at just above 9 per
cent) was similar to that achieved in the early 1990s
before the economic reform programme began in earnest.
If this argument is developed, it can then be surmised
that an important means of reducing regional and spatial
income differences is through increasing public investment.
This also leads to a somewhat different understanding
of the nature of the recent aggregate economic success
of the country as a whole: from the generally acclaimed
but somewhat simplistic role ascribed to private investment,
to a more balanced and nuanced appreciation of the
important role of public spending.
This article was originally published in the Business
Line, 14 May 2012, and is available at