REGIONAL DISPARITIES IN ECONOMIC DEVELOPMENT IN NET STATE DOMESTIC PRODUCT AND PER CAPITA NET STATE DOMESTIC PRODUCT

Transcription

1 REGIONAL DISPARITIES IN ECONOMIC DEVELOPMENT IN NET STATE DOMESTIC PRODUCT AND PER CAPITA NET STATE DOMESTIC PRODUCT Regional disparity is a ubiquitous feature of developing countries. Economic development being a multidimensional concept, its measures are many and varied but per capita income is the most prevalent indicator for measuring economic development and it can be used as an important starting point for measuring economic development. In the present study some aspects of development have been focused on and examined and a comparison made between the pre-reform and the post reform period in terms of Net State Domestic Product (NSDP), Per Capita Net State Domestic Product (PCNSDP).In the present chapter inter-state variations in terms of income have been examined in the pre-reform and post-reform period 4.1 Net State Domestic Product State-wise (at constant prices) First of all we discuss the NSDP of the different states during the period as shown in table 4.1 (A) and 4.1 (B). It is clear from the table that Maharashtra, Uttar Pradesh and West-Bengal have been the top states in terms of NSDP. Being large states in terms of area total output these states also higher than many of the smaller states like Gujarat, Karnataka and Punjab which otherwise fare better in terms of growth and development. This superiority is maintained throughout the period under consideration as is evident from Tables 4.1(A) and 4.1(B).

2 75 Table 4.1(A) Net State Domestic Product State-Wise in India (At Constant Prices) Base: Year Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu (Rupees crore) Uttar Pradesh West Bengal Source: Central Statistical Organization (CSO) website as on

3 76 Table 4.1 (B) Net State Domestic Product State-Wise in India (At Constant Prices) Base: (Rupees crore) Year Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal Source: Directorate of Economics & Statistics of respective State Government - Central Statistical Organization (CSO) Uttarakhand, Jharkhand and Chhattisgarh up to 2001 are included under Uttar Pradesh, Bihar and Madhya-Pradesh respectively. 77

4 78 Table 4.2 Growth rates in Net State Domestic Product (NSDP) in India ( to ) States to to Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal Average (above fifteen states) Standard deviation Coefficient of variation (%) Source: calculated from tables 4.1(A) and 4.1(B).

5 Growth Rates in NSDP The growth rates of net state domestic product (NSDP) for the selected states are given in Table 4.2. Average growth in NSDP of the selected states has increased from 4.90 percent per annum during the period to to 5.09 percent per annum during to The coefficient of variation which was 21.8 percent during the period to increased to 22.8 percent during to During the first decade to at prices it may be seen that Maharashtra witnessed the highest growth rate in NSDP at 6.58 percent p.a. followed by Rajasthan (6.50 percent p.a.), Haryana (6.11 percent p.a.), and Andhra Pradesh (5.70 percent p.a.). On the other hand Bihar (3.32 percent p.a.), Assam (3.38 percent p.a.), Orissa (3.58 percent p.a.), Kerala (4.05 percent p.a.), Madhya-Pradesh (4.28 percent p.a.) and West-Bengal (4.70 percent p.a.) have recorded growth rates lower than the average growth rate. During the second decade, i.e., to at prices West Bengal (7.10 percent p.a.), Karnataka (6.80 percent p.a.), Haryana (6.00 percent p.a.) Rajasthan (5.70 per cent p.a.), Gujarat (5.70 percent p.a.), Andhra Pradesh (5.30 percent p.a.) and Kerala (5.20 percent p.a.) are the states that exceeded the average growth rate. In West Bengal, Gujarat and Kerala growth rates accelerated and exceeded the average growth rate in the second decade. The performance of these states shows that a positive impact of reforms was experienced during the second decade. On the other hand in Punjab and Tamil Nadu where the growth rates were higher than the average growth rate in the first decade, but decelerated below the average growth rate in the second decade. Maharashtra also experienced deceleration in growth rate in the second decade. Assam, Bihar, Orissa, Madhya Pradesh and Uttar Pradesh experienced less than the average growth rate in both the decades.

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7 81 Table 4.2 and Chart 1 show the differential growth rates among the states in terms of NSDP in the pre and post-reform period. As it revealed from the table that Bihar, Gujarat, Karnataka, Kerala, Orissa and West-Bengal have improved their relative positions and acquired increased NSDP in the post-reform period. In West- Bengal drastic increase in the growth rate of NSDP was observed. In contrast, the states where the growth rate of NSDP have decreased during the period to are Andhra Pradesh, Assam, Haryana, Madhya-Pradesh, Maharashtra, Punjab, Rajasthan, Tamil-Nadu and Uttar-Pradesh. These states have experienced relative deterioration in terms of NSDP growth. Co-efficient of variation increased from 21.8 percent during the first decade to 22.8 percent during the second decade showing that disparities in growth rates of states had increased in the post-reform period. It is also clear that Kuznet s hypothesis is not applicable in India. 4.3 Levels of Per Capita NSDP across Selected States It has already been mentioned that per capita NSDP better reflects development than NSDP. Data on per capita NSDP has been taken up for study and is given in Table 4.3. The table shows that in , for which data has been taken per capita income ranges from less than Rs.4000 (Rs.3773) in Bihar to four times more, (Rs.16, 878) in Gujarat expressed in terms of constant prices ( ). Average per capita NSDP (all-india average) has increased from Rs in to Rs in and to Rs in and further to Rs in The average PCNSDP (per capita net state domestic product) of the selected states has on the other hand increased from Rs to Rs and to Rs and further to Rs during the corresponding years. The discrepancy is because, some of the high income states such as Goa, Himachal Pradesh are not included in our analysis.

8 82 Punjab, Maharashtra, Haryana and Gujarat have had high per capita NSDP throughout the period and in the later years Gujarat s position improved and it ranked second after Maharashtra. However, in the post reform period Tamil Nadu also performed better than other states and its per capita NSDP stood above the national average. Karnataka from and Kerala from also posted increase in their PCNSDP (per capita net state domestic product) and moved closer to the national average. Kerala that recorded above average PCNSDP (per capita net state domestic product) has maintained its favorable position throughout the whole post reform period. Thus, Kerala and Karnataka too can be included in the better off states along with Punjab, Gujarat, Maharashtra and Haryana as mentioned above. Andhra Pradesh and West-Bengal came closer to the average PCNSDP and cross it in the later post-reform period ( ) these states along with Rajasthan can be included in the category of intermediate states. On the other hand Assam, Bihar, Madhya-Pradesh, Orissa and Uttar-Pradesh which have below average per capita NSDP are included in the category of poorer states.

9 Table 4.3 Levels of Per capita net state domestic product (PCNSDP) across Selected States in India ( to ) (In Rs. at prices) States Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal All India Mean Standard deviation C.V (%) Contd 83

10 2 States Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal All India Mean Standard deviation C.V (%) Source: For Sl. No Directorate of Economics & Statistics of Respective State Governments (as on May 01, 2009) Created in 2001, Uttarakhand, Jharkhand and Chhattisgarh up to 2001 are included under Uttar Pradesh, Bihar and Madhya Pradesh respectively. It is clear from this table that Kuznet s hypothesis is not proved. 84

11 85 Maharashtra, Gujarat, Punjab, Haryana and Tamil Nadu have been the leading states throughout the period with only minor changes. Similarly Bihar, Orissa, Madhya Pradesh, Uttar Pradesh, Assam have been the bottom states again with some minor changes. The levels of PCNSDP (per capita net state domestic product) depict interstate disparity as shown by the increasing coefficient of variation. The coefficient of variation has increased from 32.6 per cent in to 38.4 per cent in showing increased inter-state disparity in economic development. Evidence of increasing disparity between states is reflected in a higher co-efficient of variation in per capita NSDP than in NSDP figures. Per capita income as we know is more representative of the situation. As is revealed from table 4.3 except for an initial decline in few years inter-state disparity has almost continuously risen. Increase in coefficient of variation indicates clearly that Kuznet hypothesis is disproved. The data is plotted in Fig. 1, the curve showing trends in inequalities. 4.3 (i) Trends in Inequalities Figure 1 Trends in Inequalities

12 86 A look at the graph in figure 1 suggests that the coefficient of variation has been below the thirty five percent till and has subsequently increased especially from The graph line in figure 1 reveals, in general, an upward trend. In spite of government policies regarding balanced regional development there has been rising disparity in the per capita income of the states more so after initiation of economic reforms in the country. 4.4 Ranks of Per Capita NSDP of Selected States These results are further confirmed in the analysis of the ranks in the table 4.3. In the whole period Maharashtra, Punjab, Haryana, Gujarat and Tamil-Nadu are the top five states with only minor movements. Similarly, Orissa, Bihar, Uttar-Pradesh, Madhya-Pradesh and Assam have been the bottom states with some minor changes. Thus, it can be said that ranking have not changed as top five states in terms of PCNSDP (per capita net state domestic product) have continued to move ahead and backward states continue to lag behind.

13 75 Table 4.4 Ranks of Per Capita NSDP of Selected States in India ( to ) (In Rs. at prices) Rank MAH PUN PUN MAH PUN PUN PUN PUN PUN MAH MAH PUN MAH MAH MAH MAH MAH MAH MAH MAH MAH PUN MAH MAH MAH 2 PUN MAH MAH PUN MAH MAH MAH MAH MAH PUN PUN MAH PUN PUN PUN PUN PUN PUN PUN PUN PUN MAH PUN GUJ GUJ 3 HAR HAR HAR GUJ HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR HAR GUJ GUJ GUJ GUJ HAR HAR HAR HAR PUN HAR 4 GUJ GUJ GUJ HAR GUJ GUJ GUJ GUJ GUJ GUJ GUJ GUJ GUJ GUJ GUJ HAR HAR HAR HAR GUJ GUJ GUJ GUJ HAR PUN 5 KER AP AP AP TN TN TN TN TN TN TN TN TN TN TN TN TN TN TN TN TN TN TN TN TN 6 AP TN KER TN AP AP KAR AP AP AP AP KAR KAR KER KER KAR KAR KAR KAR KAR KAR KAR KAR KAR KAR 7. TN KER TN KAR KAR KER AP KAR KAR KAR RAJ AP KER KAR KAR KER KER KER KER KER KER KER KER KER KER 8. KAR KAR KAR RAJ KER ASS WB WB RAJ KER KER KER RAJ AP AP AP AP RAJ AP AP AP AP WB AP AP 9 WB ASS ASS WB WB WB KER KER KER RAJ KAR WB AP WB RAJ WB RAJ WB WB WB WB WB AP WB WB 10 ASS WB WB ASS ASS KAR ASS ASS WB WB WB RAJ WB RAJ WB RAJ WB AP RAJ RAJ RAJ RAJ RAJ RAJ RAJ 11 RAJ RAJ RAJ KER RAJ RAJ RAJ MP ASS ASS ASS ASS ASS ASS ASS ASS MP MP MP MP ASS MP MP MP MP 12 MP MP MP MP MP MP ORI RAJ ORI ORI MP MP MP MP MP MP ASS ASS ASS ASS UP ASS ASS ORI ORI 13 ORI ORI UP ORI ORI ORI UP UP MP MP UP UP UP UP UP UP UP UP UP UP MP ORI UP ASS ASS 14 UP UP ORI UP UP UP BIH ORI UP UP BIH ORI ORI ORI ORI ORI ORI ORI ORI ORI ORI UP ORI UP UP 15 BIH BIH BIH BIH BIH BIH MP BIH BIH BIH ORI BIH BIH BIH BIH BIH BIH BIH BIH BIH BIH BIH BIH BIH BIH Note : AP Andhra Pradesh, ASS Assam; BIH Bihar, HAR Haryana; KAR Karnataka; KER Kerala; MP Madhya Pradesh; MAH Maharashtra; ORI Orissa; PUN Punjab; RAJ Rajasthan; TN Tamil Nadu; UP Uttar Pradesh; WB West Bengal. 87

14 Growth Rates in Per Capita NSDP As it revealed from the table 4.4 the average growth rate of per capita net state domestic product (PCNSDP) of 15 states has increased from 2.55 Percent during to 3.30 percent during and to 4.26 percent during Table 4.5 Growth Rates in Per Capita NSDP ( to ) States Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal India Average Standard deviation Coefficient of variation Source: Calculated from Table 4.2

15 89 Tamil Nadu and Karnataka recorded the highest growth rate of 4.44 per cent per annum for the 24 year period. Other states that also recorded high growth rates are: Kerala (4.05percent), West Bengal (3.98 percent), Gujarat (3.90 percent), Haryana (3.28 percent) and Rajasthan (3.56 percent) while PCNSDP (per capita net domestic product) of Bihar (0.09 percent) and Assam (1.05 percent) was very low during the same period. The state of Bihar registered a lower growth rate in the post reform period in comparison to pre- reform as the growth decreased from 2.53 percent to percent. On the other hand Orissa recorded 1.88 per cent growth in its Per capita NSDP. Uttar Pradesh (2.02 per cent), Madhya Pradesh (2.72 per cent) and Punjab (2.73 percent) were the states where the growth was below the national average. It is observed that, Andhra Pradesh, Gujarat, Kerala, Madhya Pradesh, Rajasthan and West Bengal improved their growth rate in PCNSDP (per capita net state domestic product) during the post-reform period. In the first decade ( ) Gujarat, Haryana, Karnataka, Maharashtra, Orissa Punjab, Rajasthan and Tamil Nadu recorded growth rate higher than average growth in per capita NSDP. These results are further confirmed in the chart 2. Simultaneously, in the second decade ( ) Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Rajasthan, Tamil-Nadu, West-Bengal recorded growth rate higher than average growth in per capita NSDP. On the other hand states such as Bihar, Punjab, Assam, Haryana, Orissa, Uttar Pradesh, and Madhya Pradesh have recorded below average growth rates in PCNSDP (per capita net state domestic product). In the third decade ( ) along with Punjab (2.24 percent) and Tamil Nadu (2.23 percent) Karnataka (3.68 percent) also experienced below average growth rates (4.26 percent) in per capita NSDP while most of the states

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20 94 experienced increased average growth rates in per capita NSDP such as Orissa and Madhya-Pradesh which experienced a higher than average growth rate because in these backward states resources are unutilized. So there are more chances for achieving a higher growth rate than the already developed states. Maharashtra (1.01 percent) on the other hand experienced acceleration in NSDP but its population growth was very high and hence NSDP growth was not sufficient to overcome the population growth and hence its per capita NSDP was below average and experienced drastic reduction in the growth rate of per capita NSDP during On the other hand, Bihar, Assam and Uttar-Pradesh have recorded below average growth rates. (Refer Charts 3, 4 and 5). Though the average growth rate of the fifteen states increased, there was a marked deceleration in growth rates immediately after the reforms in six of the fifteen states taken up in the present study. In the next decade, however, the states picked up and the positive effects of the reforms came to be reflected in higher growth rates during the period Thus it can be concluded that Gujarat, Karnataka, Rajasthan, Kerala, Tamil-Nadu have risen ahead in terms of income growth, while the position of Andhra-Pradesh, West-Bengal, Kerala improved. Punjab and Haryana lagged a little behind. A large reduction was observed in the growth rate of Maharashtra and Tamil-Nadu especially in the third decade. Growth rate of Maharashtra increased in the early post-reform period but later on it detoriated. Coefficient of variation of growth rates increased from 34.9 percent in to 53.9 percent in and further to 65.0 percent in indicating a rising disparity in the growth rate of per capita NSDP (net state domestic product) among states which indicates that it does not follow Kuznet s curve.

21 Per Capita NSDP at Prices Per capita estimates for a more recent period are available at constant prices, base year Table 4.5 shows per capita NSDP for the states at base years chosen for study. Table 4.6 State-wise Per capita NSDP at Factor Cost (at constant prices) (In Rupees) States Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal India Average Standard Deviation Coefficient of Variation Source: CSO website as on In this table Kuznet s hypothesis is not met as the CV increased between to

22 96 On examining the table inter-state disparities become apparent as is evident from the wide range in per capita NSDP from Rs , the highest in Punjab to Rs. 5786, the lowest in Bihar in the year In per capita NSDP ranges from Rs in Haryana to Rs in Bihar revealing four times disparity between the highest and lowest per capita NSDP for the year. Table 4.5 shows per capita NSDP for the states at base years chosen for study. But results are almost the same as analyzed in per capita NSDP at prices. Per capita estimates for a more recent period are available at constant prices, base year It is also observed from the table 4.5 that for the three years under review Punjab had highest per capita income while for the next four years Haryana s per capita NSDP was the highest followed by Maharashtra, Kerala, Gujarat and Tamil-Nadu. Bihar and Uttar-Pradesh remained at the bottom throughout the period. Out of the remaining states Karnataka emerged to be better state and consistently recorded greater than average per capita NSDP for the whole period followed by Andhra-Pradesh and West-Bengal which also recorded more than the average per capita NSDP from the year and can be included in the category of intermediate states. The average per capita NSDP of the selected states has increased from Rs in to Rs in States such as Assam, Orissa, Bihar, Madhya-Pradesh, Rajasthan and Uttar-Pradesh can be said to form the poorer category of states. Thus, the level of per capita NSDP depicts the inter-state disparity as shown by the increasing coefficient of variation which increases from 34.3 percent in to 38.1 percent in Convergence and Divergence Tests The tests adopted to examine the process of convergence and divergences are sigma convergence and alpha convergence. The sigma convergence hypothesis

23 97 tests whether the inequalities have decreased or not in terms of the standard deviation of income. If the estimated beta coefficient is negative convergence is said to be taking place. On the other hand if the coefficient is positive, divergence occurs across the selected states. Similar to the sigma convergence, alpha convergence take place. If the estimated beta coefficient is negative convergence is said to be taking place. On the other hand if the beta coefficient is positive divergence takes place across the selected states. i) Sigma Convergence: The results show significant divergence in the levels of PCNSDP among the states. ( to ) Log SD (PCNSDP) = t R 2 = ( ) ( ) ( ) F = ( to ) Log SD (PCNSDP) = t R 2 = ( ) ( ) ( ) F = ( to ) Log SD (PCNSDP) = t R 2 = ( ) ( ) ( ) F = ( to ) Log SD (PCNSDP) = t R 2 = ( ) ( ) ( ) F = The estimated beta coefficients are positive and significant in all the period. The beta coefficient has increased in value in the post reform period and R 2 value is high suggesting economic reforms have resulted in increased disparities. These estimates also reveal that the rate of divergence has increased after the introduction of economic reforms as the value of coefficient has increased from in the pre-reform period ( to ) to in the post reform period ( to ).

24 98 ii) Alpha Convergence: The alpha convergence values too showed an increasing tendency in the disparities. ( to ) CV of PCNSDP = t R 2 = (0.810) (0.0545) F = ( to ) CV of PCNSDP = t R 2 = (0.5436) ( ) F = ( to ) CV of PCNSDP = t R 2 = ( ) ( ) F = ( to ) CV of PCNSDP = t R 2 = (-0.62) ( ) F = The coefficient of variation of PCNSDP (per capita net state domestic product) significantly increased in the pre reform and post reform decade. Hence, the beta coefficients are positive in all the periods but not significant at five percent level of significance. The coefficient increases in value in the post reform period, as it increased from during pre-reform period ( to ) to in the second period of the post reform ( to ). Thus, we may conclude that there is no convergence but weak divergence. Thus, it may be concluded that regional disparity is common process in most of the developing countries and per capita income is the best single indicator for assessing the level of economic development or for measuring the level of disparity. NSDP does not reveal the correct disparity level among the states as it is high in the states which are larger in terms of area, or may have more resources such as Maharashtra, Uttar-Pradesh and West-Bengal than the states such as

25 99 Karnataka, Punjab and Gujarat which otherwise fare better in terms of growth and development. In terms of Per Capita NSDP Punjab, Maharashtra, Haryana and Gujarat followed by Tamil-Nadu have been the leading states throughout the period and Bihar, Orissa, Madhya-Pradesh and Uttar-Pradesh and Assam have been the bottom states. This disparity is shown by the increasing coefficient of variation especially after the initiation of economic reforms in the country. Similarly, these results are further confirmed in the ranking of states. By and large growth rate increased in almost all the states but immediately after the reforms there was a marked deceleration in growth rates in six of the fifteen states taken up in the study. But in next decade the states picked up and the positive effect of economic reforms came to be reflected in high growth rates during the period