The Covid-19 pandemic has brought the focus back on ‘unbalanced’ regional development among Indian states. As large industrial states recover from a badly hit economy, governments must keep in mind that the same old development model cannot be applied. A recent study showed how India’s prosperous states such as Gujarat, Maharashtra, Karnataka, and Tamil Nadu rely on manufacturing and high-tech services, while farming contributes only 10-15 per cent to their economies.
But substantial economic inequality is only one side of the story. There is another view to it — that of an even higher degree of intra-state disparity.
To capture this, we looked at the share of a district’s income in the state’s economy to bring out inter-district disparity for three of the most prosperous Indian states: Maharashtra, Karnataka, and Tamil Nadu. The new post-pandemic policy thinking should address the important point of regional disparity that data reveals.
In general, any discussion about economic disparity is usually restricted to two aspects: 1) comparison of per-capita income across major Indian states, and 2) the sectoral contribution in the state’s economy. An important reason for this is the easy availability of State Domestic Product (SDP) and various sectors (like agriculture, industry, and services) that contribute to it. The District Domestic Product (DDP) started becoming available only since the late 2000s. Also, the comparison across states is questionable given differing methodologies employed by statistical agencies of the state governments.
Inter-state geography of growth
We take DDP data from the Department of Economics and Statistics (DES) of Maharashtra, Karnataka, and Tamil Nadu. Lack of DDP data for Gujarat precludes us from analysing the state. We consider data for three years: 1999-00, 2004-05, and 2009-10. The data for recent years is yet to be uniformly compiled and put in public domain by the states. Additionally, depending on the states’ resource availability, DDP data is generally compiled with a substantial time lag. This delay has been highlighted in a recent report prepared by the National Statistical Office. Nonetheless, the observations from these available DDP estimates convey a trend that appears to be persistent over time. Also, this was a period of high growth for the Indian economy. A clear trend during this decade-long period would support our belief in persistence within state inter-district disparity.
A recent article in ThePrint has explored the economy and sectoral composition of these prosperous states, focussing on the contrasting models they have followed. We intend to bring in a geographical dimension to it. Prosperous states like Maharashtra and Karnataka perform well in terms of overall state-level gross domestic product (GSDP); the growth, however, may not be evenly spread across the state.
The results from this exercise were starker than what we thought was the case before we looked at data. It is important to keep in mind here that the disparity observed through these graphs is, in fact, an underestimate. The way DDP is computed assigns equal labour productivity across the districts in a state. This is especially problematic in the services sector, where agglomeration effects matter more than other sectors.
Maharashtra and Karnataka have a disparity model
In the state of Maharashtra (Figure-1), Mumbai has the largest share in the state’s economy, contributing over a fifth of the state’s output. Interestingly, the top three districts (Mumbai, Thane, and Pune) contribute about half of the state’s total economy. The economic activities are concentrated in the western region of the state. The trend has persisted over this ten-year period. It is important to note here that these three districts are geographically contiguous, and are located on the western coast. The most important district in the eastern part of the state, Nagpur, contributes only 5 per cent to Maharashtra’s income.
The case of Karnataka is even starker (Figure-2). Bangalore (Urban) contributed over a fifth of the state’s income in 1999-00. Belgaum comes at distant second, contributing just 5 per cent in the state’s economy. The share of Bangalore (Urban) has increased to over a third in 2009-10, in a span of just ten years. This indicates that the growth in Karnataka’s income is mainly because of the performance of its capital district, where the IT- based services sector boomed during this period.
Tamil Nadu’s balanced growth
In contrast to Maharashtra and Karnataka, the development path followed by Tamil Nadu seems to be more ‘balanced’. The two largest districts (Chennai and Coimbatore) together contributed just under a fifth of the state’s economy. It is important to note here that Chennai, the capital city, is located in the eastern part of the state, while Coimbatore is located in the western part. Interestingly, their shares over the years have shown opposite trends. The next two districts (Tiruvallur and Kancheepuram) show a rising trend, suggesting that these could be the emerging districts.
Why it matters, what govts can do
In conclusion, Maharashtra and Karnataka show that economic growth has been mostly concentrated in only a few selected pockets within a state, capital and adjacent districts. More importantly, this unequal contribution of districts towards the states’ output has been persistent over time, suggesting that development has been geographically ‘unbalanced’. Tamil Nadu, on the other hand, has dealt with inter-district disparity in a much better manner.
These findings have important policy implications. Regional economic disparity is evident even in prosperous states. Economic growth or prosperity in a state is usually concentrated around the capital district. The state governments need to actively intervene so as to ensure that each district or region participates equitably in the state’s progress. Otherwise, the relatively under-developed region may start feeling alienated. The situation may aggravate to the extent that the demand for a separate state for the region intensifies, for instance, the demand for Vidarbha in eastern Maharashtra.
A solution may be to develop all regions within a state based on its comparative advantage, and produce goods for domestic exports. It may not be a far-fetched dream in a country like India where the government still wields a lot of economic power, especially on the production side.
Vikash Vaibhav is Assistant Professor, Dr. B.R. Ambedkar School of Economics, Bangalore.
Varun Kumar Das is Assistant Professor, Delhi School of Economics. Views are personal.