A state may be underdeveloped because it has few natural resources, or because its environment is not conducive to economic activity. However, there are plenty of natural-resource-poor countries that have become developed and natural-resource-rich countries that have not.
Turning to the local environment, the National Committee for the Development of Backward Areas set up by the erstwhile Planning Commission in 1978 identified six different characteristics of an area’s geography and history that would be an impediment to development:
While areas that are heavily populated by tribals may be greatly underdeveloped, that is likely the consequence of complex historical, cultural, and political forces rather than a reflection of insurmountable impediments to development.
Absence of Institutions
Some regions may be underdeveloped because they have never been able to develop the administrative and taxation institutions to raise resources, or when they do obtain resources, they do not have the governance capacity to use them well.
Historical Legacy
The literature is divided on whether the strength of a region’s institutions is largely an immutable historical legacy, or whether it can be modified by a committed administration. For example, the underdevelopment of certain states is often attributed to institutional legacies from the British rule e.g. the existence of a Zamindari system, whereby tax revenues were delinked with agricultural output, which concentrated wealth and distorted incentives.
Infrastructure
Apart from natural resources and institutions that could be seen to be “meta” drivers of development, there are lower level drivers of development such as the availability of infrastructure. A well-developed infrastructure tends to raise the productivity of investment and lowers the cost of production.
Social Infrastructure
In addition to physical infrastructure, social infrastructure also has an important role to play in the formation of human capital and consequently in the determination of the rate of growth of a region. Higher investment in education and health infrastructure can lead to higher levels of citizens’ well-being as well as a better educated and healthier workforce, resulting in higher work efficiency and productivity.
Structural Composition of Income of States
The structural composition of income of a state may also have a significant bearing on its level of income and rate of growth. States with a large agricultural sector are generally expected to have a lower rate of growth as compared to states with a higher share of income accruing from manufacturing or service sector. However, the share of each sector is not a given, and itself is a reflection of different levels of development.
