What
is well known, of course, is that economic growth
and per capita income may not be directly correlated
with human development indicators. Table 1 presents
the human development rankings of the major states
as calculated by the Planning Commission, from 1981
to 2001. It is evident that Kerala, which consistently
holds the top position in terms of human development
indicators, is among the middle-income states. Some
of the higher income states are only in the middle
ranks of human development.
Table
1 >> Click
to Enlarge
Further, growth trends also do not seem to be necessarily
correlated with human development improvement. It
is true that Tamil Nadu, which experienced a relatively
higher rate of growth, has also shown a substantial
improvement in human development ranking. However,
other fast growing states such as Karnataka, Gujarat
and Andhra Pradesh actually slipped in terms of human
development ranking. Meanwhile, Rajasthan, a state
with low income and low growth rate, showed continuous
improvement in its human development rank.
The question, of course, is what explains such regional
(or rather, state-wise) disparities in income and
human development, and in particular, what explains
the increase in disparity between richer and poorer
states in the most recent decade. What was it about
the overall growth pattern of the 1990s which, relatively
speaking, caused the poorer states to stagnate, while
some states, especially in the southern and western
regions, seem to have accelerated their growth even
in per capita terms? What explains the performance
of states like West Bengal and Kerala, which are not
generally accepted to be fast growing states? And
why do income and human development indicators diverge
so much?
Parts of the last question can be answered in terms
of the difference between income and consumption,
which is indicated in Table 2. This table suggests
several features of interest.
Table
2 >> Click
to Enlarge
First, there is a wide divergence between the per
capita consumption estimates of the NSS and the per
capita SDP data, even at the top of the hierarchy.
Thus, Kerala, which is only seventh in ranking in
per capita SDP, tops the list in per capita consumption.
Maharashtra, which is second in per capita SDP ranking,
is fifth in per capita consumption.
Second, the inter-state disparities are less in terms
of per capita consumption that emerges in terms of
per capita SDP. Thus, the gap between the highest
per capita consumption figure (in Kerala) and the
lowest (in Orissa) was 1.98 times in 1999–2000, which
is lower than the gap of 4.5 times which we observed
for per capita SDP in 2000–01.
Clearly, human development indicators (which capture
longevity and educational attainment along with income)
are more likely to be affected by per capita consumption
in a state than by per capita income. Therefore, it
is not surprising that we find greater correlation
between the consumption and human development rankings,
than we do between SDP and human development rankings.
The question remains why some of the high income states
exhibit relatively less per capita consumption. This
anomaly points to higher savings and investment ratios
in such states, but it should be noted that some of
these states, such as Maharashtra, have not necessarily
been high growth states, especially in the recent
times.
Until the 1970s, there was actually a convergence
of per capita incomes across states, or at least a
decline in the extent of inter-state disparities in
this regard. This reflected deliberate government
intervention, expressed in various ways. The successive
Finance Commissions showed positive discrimination
in favour of poorer states in the transfer of tax
revenues of the government, and funds also were partly
directed with this in mind. Incentives for industrial
investment and activity in poorer states and more
backward regions were also provided. As these became
less significant, the forces making for convergence
got weakened, and the greater play allowed to market
forces began to strengthen the process of divergence
of per capita incomes across states.
In general, the 1990s are likely to have been associated
with greater inequality of per capita SDP across states,
also because of fiscal patterns across India and within
particular states. This was a period of greater centralization
of tax revenues, and reduced fiscal transfers from
the Central to the State governments. It is important
to remember that, unlike the Central government, State
governments do face budget constraint, and this affects
their ability to spend in important ways. This meant
that state governments found they had less resource
to undertake important infrastructure and other investment,
which in turn had adverse effects on growth and on
subsequent economic activity.
While all state governments were adversely affected,
and indeed there is now a fiscal crisis in practically
every state, some states were worse off than others.
These were the states where previous growth and per
capita incomes were low as they were unable to generate
more sales tax and other such revenues from economic
activity. On the other hand, states where economic
activity grew at a faster rate were able to generate
more tax revenues and were therefore able to invest
in infrastructure, transport, power and so on. This
was certainly true in the southern states of Karnataka
and Tamil Nadu, where, in the recent decade, there
has been substantial expansion of transport infrastructure
in particular. By contrast, states such as Bihar,
Orissa and Uttar Pradesh found themselves to be so
cash-strapped that they could not maintain the existing
infrastructure projects, and the providing of basic
facilities in per capita terms too showed a further
decline. So the fiscal constraint operated to add
to the stagnationary tendencies already present in
certain states, which meant the widening of the gap
between the richer and poorer states over the 1990s.
In this context, the relatively better growth performance
of states like West Bengal and Kerala in the 1990s
deserves further investigation. Different forces may
have been operating in the two states. In West Bengal,
while agriculture led the growth of the 1980s, in
the 1990s the impulse seems to have come more from
the expansion of services and rural industrialization.
In Kerala on the other hand, services growth played
a significant role, especially driven by the effect
of the inflow of remittances from migrant workers
from Kerala in the Gulf region.
What all this discussion indicates is that the actual
behaviour over time of per capita SDP in the various
states, and of per capita consumption, is rather different
from that projected by the more stereotypical notions
regarding economic differences in different parts
of India.