Regional Inequality

India is a 1.3-billion-person anomaly. As a whole, the country is doing exceptionally well. It is the fastest growing major economy in the world, and is catching up with wealthier nations with impressive speed. Yet over the last several decades, defying economic theory, the Indian states with the strongest development are those that were already best off.

Recent Developments

India’s Widening Regional Divide

  • The living standard of a person in Gujarat has risen to the tune of over Rs 55,500 since 2011-12, the highest increase among all major states in India. In stark contrast, the improvement in the standard of living for an average person in Bihar over the same period was worth less than Rs 7,000.
  • In fact, just the incremental real income per person in five Southern states—Tamil Nadu, Andhra Pradesh, Kerala, Telangana and Karnataka and the states of Maharashtra, Haryana and Gujarat over this period was higher than the level of real income itself in Bihar in 2017-18.
  • There are some worries among India’s prosperous states as well. The economic decline of Tamil Nadu stands out—it had the second-highest per person income among the five Southern states in 2011-12 and now it has fallen to the fourth spot. While Maharashtra and Gujarat continue to do well, the within-state inequality of income in these states is well known.
  • If India is to prosper, Uttar Pradesh and Bihar are among the key states that need to raise their game. But no other parts of India seem to care. But we should, all of us should, if what we want is sustainable and inclusive growth for India.

(For Gujarat, Haryana, Kerala and Punjab the average of previous five years of growth rate has been used for 2017-18 due to the absence of data. (Source NAS data))

India in Bottom 15 of Oxfam Index on Efforts to Reduce Inequality

India fared poorly, ranking 147 out of 157 countries, in terms of its commitment to reducing inequality, while Denmark topped the list. The index ranks 157 countries on their policies on social spending, tax, and labour rights.

  • In terms of its ranking across specific pillars this year, India was placed 151st on the index for public spending for healthcare, education and social protection, 141st for labour rights and wages, and 50th on taxation policies.
  • According to the Commitment to Reducing Inequality Index developed by Oxfam and Development Finance International, Nigeria, Singapore, India and Argentina are among a group of governments that are fuelling inequality.
  • Regionally, India ranks sixth among the eight South Asian nations. On public spending and on labour rights it ranks sixth, but India is placed on the top in terms of progressiveness of tax policy.
  • Other countries in the top ten include Germany (2nd), Finland (3rd), Austria (4th), Norway (5th), Belgium (6th), Sweden (7th), France (8th), Iceland (9th) and Luxembourg (10th).
  • Among the emerging economies, China was ranked 81st on the list, Brazil 39th and Russia 50th.

Regional Inequality

  • The wealth held by Indian billionaires increased from 49 billion dollars in 2004 to 479 billion dollars held by richest 100 billionaires by 2017.
  • The wealth of Indian billionaires was less than 5% of the GDP until 2005 but increased sharply to 22% by 2008, declined after the financial crisis to 10% by 2012.
  • By the latest estimates, the total wealth of Indian billionaires is 15% of the GDP of the country.
  • Interestingly, almost 40% of Indian billionaires have inherited their wealth, with the inheritors accounting for almost two-thirds of the total wealth of billionaires.

Regional inequality is a disparity between the standards of living applying within a nation. It is difficult to quantify the prosperity or poverty of a region, but there are two basic indicators. The first is unemployment and the second indicator is per capita income. Other factors indicating disparity include the type of industry and its growth or decline, numbers of young people in further education, housing standards, and the quality of the environment. Some would assert that economic development brings about regional inequality.

Gadgil-Mukherjee Formula

The Gadgil-Mukharjee Formula, which was applied first in the Fourth Plan, has underwent many changes since its inception. The present version, known as National Development Council (NDC) revised Gadgil-Mukherjee Formula 1991, works in two stages:

  • Special Category States get 30% of total assistance from the Planning Commission; Plan size and past plan expenditure are some of the criteria which are followed to distribute money to these States
  • General Category States get the remaining 70% share; Gadgil-Mukharjee formula has devised a methodology under which population of General Category States get 60% weightage, per capita income 25% weightage and fiscal performance get 7.5% weghtage
  • Under this formula, 90% of Normal Central Assistance to Special Category States comes as grants, and only 10% of assistance has to be repaid
  • For General Category States, the ratio between grants and loans is 30:70

Special Category States

  • In 1969, the Planning Commission started giving special treatment to three States, namely Assam, Nagaland and Jammu & Kashmir. It was felt that requirements of these three States should first be met out of the total pool of central assistance.
  • Later on, special status was granted to eight more States which include Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and Uttarakhand. These states were accorded special status in the Fifth Plan. Presently, 11 States enjoy the Special Category Status.
  • The Special Category status that the previous UPA government had promised to Andhra Pradesh on the grounds of loss of revenue may not be coming easy, as the NDA Government told the LokSabha recently that neither Andhra Pradesh nor Telangana meet the criteria for that status.
  • The National Development Council is the final authority to grant special category status. The National Development Council consists of the Prime Minster, Union Ministers, Chief Ministers and members of the Planning Commission.
  • All the Special Category States either have a low resource base, or lack capacity to mobilize resources for development. Some of the features required for special status are:
    1. Hilly and difficult terrain
    2. Strategic location along borders with neighbouring countries
    3. low population density or sizeable share of tribal population
    4. Economic and infrastructural backwardness
    5. Non-viable nature of state finances

Government Intervention to Tackle Regional Disparities

Interventions to tackle regional disparities being taken up by the Union Government fall into two categories. The first is to direct investments into less developed States under Centrally Sponsored Scheme (CSS) through more favourable norms for distribution of assistance. For instance, under the Indira Awas Yojana, funds are allocated State-wise based upon the housing shortage and population below the poverty line. However, the second is, intervention of the Central Government for special area development programmes that have a clear focus on some aspect of development in identified backward areas. These programmes are:

Backward Region Grant Fund (BRGF)

  • Government is addressing regional economic imbalances in 272 districts through Backward Region Grant Fund (BRGF) and providing industrial incentive to special category states, including north-eastern region.
  • The Backward Region Grant Fund (2006) at the end of the Tenth Plan, was designed to redress regional imbalances in development. It aimed at catalysing development in backward areas by converging, through supplementary infrastructure and capacity building, the substantial existing development inflows into these districts as part of a well-conceived, participatory district plan.
  • Under the BRGF, for bridging identified critical gaps in infrastructure, participative plans are required to be prepared by each Panchayat and Regional Equality Municipality for its functional domain.

Hill Areas Development Programme/Western Ghats Development Programme (HADP/WGDP)

  • The HADP/WGDP has been in operation since the Fifth Five Year Plan in identified hill areas. Its main objective is to ensure ecologically sustainable socio-economic development of hill areas, keeping in view the basic needs of the people there.
  • The main objectives of both programmes are eco-preservation and eco-restoration with a focus on sustainable use of biodiversity. They also focus on the needs and aspirations of local communities, particularly their participation in the design and implementation of the strategies for conservation of bio-diversity and sustainable livelihoods.

Border Area Development Programme (BADP)

  • The BADP is a 100% Centrally Funded Programme initiated in the border areas of the western region during the Seventh Five Year Plan period for ensuring balanced development through development of infrastructure and promotion of sense of security among the border population.
  • Since then the BADP has been implemented by the GOI together with State Governments as part of a comprehensive approach to border management.
  • The programme now covers 358 border blocks of 94 border districts of 17 States located along the international land border (Arunachal Pradesh, Assam, Bihar, Himachal Pradesh, J&K, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan, Sikkim, Tripura, UP, Uttarakhand and West Bengal). Under the BADP, priorities are given to the areas closer to the border.

Educational Development in Special Category States

  • Girls’ Hostel Scheme in North East Region: This Scheme, being implemented from 2009-10, envisages construction of a hostel with the capacity of 100 girls in each of about 3479 Educationally Backward Blocks (EBBs) in the country.
  • Right of Children to Free and Compulsory Education (RTE) Act, 2009 – Sarva Shiksha Abhiyan (SSA) in North Eastern Region: RTE-SSA is being implemented in the States of the North Eastern Region on a ‘Central : State’ funding pattern of ‘90:10’ to give impetus to development of elementary education in North Eastern States.
  • Rashtriya Madhyamik Shiksha Abhiyan (RMSA): The RMSA is being implemented in North Eastern region on the basis of 90:10 sharing pattern Model Schools Scheme: Except Sikkim, all the North-Eastern States are eligible for model schools under State Sector component of Model School Scheme, which is operational since 2009-10, till 31.3.2014.
  • Jawahar Navodaya Vidyalays: Of the 86 districts of NER, JNVs have been sanctioned in all the districts with one additional JNV in one district each (having large concentration of SC/ST population) of Assam and Meghalaya.
  • Saakshar Bharat Programme: This program was launched on the International Literacy Day, 8th September, 2009. It aims to further promote and strengthen Adult Education, especially of women, by extending educational options to those adults who having lost the opportunity of access to formal education.
  • Jan Sikshan Sansthans (JSS): JSSs provide skill development facility for those who are non-literate or have rudimentary level of literacy.

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