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“Whenever there is great prosperity, there is great inequality” observed Adam Smith, known as the father of modern economics. That economic growth exacerbates income inequality is a common theme of discussion in growth theories.

In India, regional imbalance has always been one of the major concerns before policy makers and planners. There is a huge gap between active and vibrant states in terms of availability of facilities and this has resulted in the form of unequal levels of development both in terms of economic and human.

And as Adam Smith professed of greater inequality with higher prosperity, India is experiencing a widening economic inequality among regions with higher economic prosperity. The Indian economy has been experiencing rapid growth in recent years and is now the fastest growing major economy. The economic disparity is impacting balanced development, resource sharing and policy implementation as developed states are attracting more investment and less developed states are struggling to get investors.

While India’s GDP has been growing rapidly in recent years, economic disparities among states and regions are widening suggesting that not all states or regions are benefiting equally from the overall economic progress. Factors contributing to this widening disparity include unequal natural resource distribution, different industrial development levels, and infrastructure gaps, differences in educational attainment and governance and policy differences. The states of western and southern regions are consistently performing better than those of the northern and eastern regions.

Inter-state economic disparity widens

Regional imbalance has traditionally been one of the major concerns before policy makers and planners in India. After independence, reduction in inter-state disparities was emphasised during successive Five Year Plans, but the menace continued unabated. What is disturbing is that with higher economic growth the economic divergence among states has widened further – rich states have become richer and poor have become poorer.

The economic disparity is evident in per capita income, disposable income, and overall economic development. Several factors contribute to this widening gap, including varying levels of industrialisation, access to resources, infrastructure development, and educational disparities. 

The question is: How to measure the economic disparity? There is no single parameter to measure economic disparity, but per capita income seems to be the best single indicator to compare economic prosperity of different states.

The latest data on per capita income reveals significant variations among Indian states. While the per capita income of states, like Karnataka, Maharashtra, Haryana, Tamil Nadu, Gujarat and Kerala show higher income levels, Bihar, Uttar Pradesh, Jharkhand, and Madhya Pradesh exhibit low income levels.

Per capita income in top ranking states like Karnataka (Rs 1.86 lakh) and Haryana (Rs 1.85 lakh) is nearly six times the per capita income of the lowest ranking state like Bihar (Rs 32, 164). The data on per capita income across Indian states reflects a dynamic economic landscape. The disparities underscore the importance of targeted policies and initiatives for inclusive growth.

The relative income performance of various states broadly suggests a pattern of widening disparities as the richer ones have steadily pulled apart from the poorer ones. In 1960-61, the most prosperous state in the country was Delhi whose per capita income was more than double the national average at 218.3%, and it rose further to 250.8% in 2023-24. The poorest state of Bihar’s relative per capita income deteriorated from 70.3% to 32.8% over this period although this stems also from its bifurcation. The implications of this are indeed dismal as it implies that an average person in Bihar still has an income level 77% lower than an average Indian.

The trend has continued, rather worsened in recent years. In last ten years, between 2013-14 and 2023-24, richer states have gone ahead further compared to their poorer counterparts. For example, in 2013-14, Karnataka’s per capita income, which was 4.47 times that of Bihar, has gone up to 5.78 times in 2023-24. No wonder, while Bihar’s per capita income has increased by 41.3% during the period, the per capita income of Karnataka has increased by a huge 82.6%.

Bihar was not an exception. Take the case of Uttar Pradesh or Jharkhand, the story is the same. The per capita income of Telangana, the newly formed state is now 3.62 times that of Uttar Pradesh against 2.82 times ten years ago, in 2013-14. Telangana’s per capita income has increased by 91.4% during this period compared with a less than 50% increase of Uttar Pradesh.        

What is disturbing is that some of the states, which once led India’s early economic prosperity, have failed to take advantage of the country’s growth drive. The latest working paper of the Economic Advisory Council to the Prime Minister highlights the persisting decline of West Bengal, which had an early start in industrialisation along with Maharashtra and Tamil Nadu at the time of Independence. The state’s relative per capita income was among the top but now trails even Odisha.

The worsening performance of the agrarian state of Punjab in comparison with neighbouring Haryana also is a source of concern leading to speculation whether the state’s excessive focus on agriculture has contributed to a form of Dutch disease hindering its transition to industrialisation.

West Bengal’s failure to protect and develop its industrial inheritance is considered among the important reasons for its economic downhill and this despite a vibrant agriculture. West Bengal is the largest rice producing state in India.

The differences in per capita Income among states are attributed to varying levels of economic development. States with higher income levels often have robust industrialisation, infrastructure, and diverse economic activities. On the other hand, those with lower income levels may face challenges related to agriculture, education, and healthcare. The disparities highlight the need for targeted policies to address specific challenges in each state.

South-west and north-east divide

The poor performance of Bihar, Jharkhand, Uttar Pradesh or West Bengal is not an isolated phenomenon. The northern and eastern states are steadily falling behind their western and southern counterparts over the years.

Geographical advantage and favourable government policies have facilitated the growth of southern and western states as compared to the eastern and northern states. These states benefit from historical and market forces as also emergence of new entrepreneurs fostering sectors such as software and manufacturing.

Tamil Nadu has become the country’s automobile hub. A number of big automobile companies including BMW, Royal Enfield, Hyundai, Renault-Nissan, Citrorean, Caparo Group, Ashok Leyland and TVS have their manufacturing facilities along the 60 kilo meter automobile corridor.

Bengaluru has established itself as India’s ‘silicon valley’ while Pune, Mumbai, Hyderabad and Chennai have increasingly become the epi-centre of IT facilities. Apple’s manufacturing ecosystem, including Foxconn, is largely based in these regions. Of the five semiconductor projects approved by the Centre recently four are in Gujarat.

Better infrastructure, availability of skilled workforce and an efficient financial network have helped these regions to grow at higher rates than northern and eastern states.

The growth of northern and eastern states, on the other hand, suffers from infrastructure deficits, skill gaps and excessive thrust on agriculture that hinders diversification. Poor and inadequate road network often causes logistic bottlenecks for smooth business operation. 

Poor infrastructure and lack of political will have also failed to attract private investors in these states. The poor educational quality and failure to develop ready-to-use-skill also hinder the ability of these states to compete in modern technology-driven industries. Another significant and common missing point of these states was the dedicated political will.

Multidimensional poverty index

The widening income inequality among states had its impact on the everyday life of the people; the incidence of poverty has varied substantially among states over the years. The multidimensional poverty index (MPI) that measures poverty not just by income but by capturing deprivations in multiple dimensions like, health, education and living standards shows wide disparity among states.

The index varied from zero and 0.1 in Kerala and Tamil Nadu, respectively, to 0.16 in Bihar and 0.13 in Jharkhand. That is, while 16% and 13% of the population in Bihar and Jharkhand, respectively, suffered from multidimensional poverty during 2019-21, none in Kerala and only 1% people in Tamil Nadu suffered from it during the same period.  And if the MPI value for the country as a whole and that of most of the states has declined between 2013-14 and 2023-24, some states like Bihar, Jharkhand and Uttar Pradesh still have double-digit scores.          

The varied MPI figures reflect the divergence in the living facilities of different states. To begin with, the poor MPI score affects the health of the children. According to National Family Health Survey 5, about 36% of children below five years were found stunted in India during 2029-21. Stunting, also known as stunted growth or linear growth failure is a condition where a child is too short of height and weight for his or her age. It is caused by chronic or recurrent malnutrition and can lead to physical and cognitive development.

Nineteen percent of children under age five years are wasted (too thin for their height), which is a sign of acute undernutrition; while 32% of children under age five years are underweight. Among the major states, the prevalence of stunting in children under age five is the highest in Bihar (43%) and Uttar Pradesh and Jharkhand (40% each), and it is the lowest in Kerala (23%) and Tamil Nadu (25%). Bihar has the highest level of underweight children (41%).   

The incidence of malnutrition that caused stunting of children often led to their death also. According to NFHS5 (2019-21) the under-five mortality rate in India was 41.9 deaths per 1,000 live births. This indicates that one in 25 children in India die before their fifth birthday. More than four fifths (83%) of these deaths occur during infancy.

Infant and child mortality is relevant to a demographic assessment of the population and is an important indicator of the country’s socioeconomic development and quality of life. This is reflected in the varied numbers of children death across states – states with higher per capita income have lower child mortality rate compared to their poorer counterparts. States with low per capita income such as Uttar Pradesh had the highest under-five mortality rate of 59.8 per 1,000 followed by Bihar (56.4 per 1,000) and Jharkhand (45.4 per 1,000).

At the other end, Kerala recorded the lowest under-five mortality rate of just 5.2 deaths per 1,000 during this period. Admittedly, besides higher per capita income Kerala has a better healthcare system as well as better education, which have helped keep the children mortality rate low. Another southern state, Tamil Nadu, which has a better healthcare system, too has successfully contained the children mortality rate at 22.3 per 1,000 against 41.9 for the country as a whole.

India, as the world’s fastest growing major economy, may well be catching up with the richer economies in terms of absolute size – it’s now the fifth largest economy. But economic convergence within the country remains a distant dream as poorer states continue to lag behind the richer ones in economic growth. Worse, the inter-state disparities have widened in recent years even as the economy grows in size and influence on the global stage

This is a big challenge for our policy makers. There is no apparent solution to this problem but may be by investing in human capital, public infrastructure for better logistics, education and targeted rural development in less developed states the divergence can be reduced. But the priority of the government right now is to become a five billion dollar economy and then the widening economic disparity will be considered as collateral damage.