| PYQ Relevance: Q) Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017. How has COVID-19 impacted the GST compensation fund and created new federal tensions? (UPSC CSE 2020) Q) How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position? (UPSC CSE 2021) Q) “Investment in infrastructure is essential for more rapid and inclusive economic growth.” Discuss in the light of India’s experience. (UPSC CSE 2021) |
Mentor’s Comment:
“We cannot build a modern India without addressing the issue of poverty and inequality.”
– Dr. Manmohan Singh
In a nation where the top 10% hold 77% of the wealth, true progress can only be measured by the upliftment of the bottom half. Addressing regional disparities is essential for a harmonious India; without it, growth becomes a privilege of the few rather than a right for all.
Today’s editorial discusses the widening economic disparities among Indian states and the implications of this divide.
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Let’s learn!
Why in the News?
Household savings and private investments are increasingly concentrated in wealthier states, leading to a widening gap between rich and poor regions. These increasing economic disparities among Indian states have huge implications for Indian federalism.
| Current State of Economic Divide in India: • Per Capita Income Disparities: Wealthier states, primarily in the south and west, have significantly higher per capita incomes compared to poorer states in the north and east. As of 2019-20, per capita State Domestic Product (SDP) in wealthier states was approximately 2.5 times higher than in poorer states, up from a 1.7 times difference in 1990-91. • Sectoral Growth Gaps: The disparity is particularly pronounced in the manufacturing and services sectors. Wealthier states exhibit a much higher per capita SDP in manufacturing (3.6 times) and services (2.9 times) compared to their poorer counterparts. |
Primary factors contributing to the growing economic divide among Indian states
- Sectoral Growth Disparities: Wealthier states have significantly higher outputs in manufacturing and services, leading to greater economic growth compared to poorer states.
- As income rises, people spend less on food and more on manufactured goods and services. Secondly, India’s services sector has grown, but employment has been more modest.
- Investment Patterns: A shift from public to private investment has favored wealthier states, resulting in concentrated resources and opportunities.
- Infrastructure Gaps: Poorer states often lack adequate power supply and infrastructure, hindering their ability to attract industries and grow economically.
- Educational Disparities: Access to quality education is uneven, with most higher education institutions in wealthier states, limiting skill development in poorer regions.
How does the economic divide affect federalism and governance in India?
- Erosion of Federal Principles: Disparities challenge equitable resource distribution, leading to dissatisfaction among wealthier states that feel under-compensated.
- Political Centralization: Increased control by the central government limits state autonomy, reducing their ability to address regional economic challenges.
- Investment Disparities: Wealthier states attract more private investment, while poorer states struggle due to inadequate infrastructure, perpetuating inequality.
- Governance Challenges: Poorer states face corruption and weak institutions, hindering effective policy implementation and further entrenching poverty.
| Initiatives taken by the Government: • Aspirational Districts Programme (ADP): Launched in 2018, this program aims to transform the performance of 112 districts lagging in key social indicators by promoting holistic development through targeted interventions in health, education, and infrastructure. This initiative focuses on blocks within districts that need special attention, aiming to improve governance and service delivery at the grassroots level. • Special Economic Zones (SEZs): The government has established SEZs to attract investment and promote industrial growth in underdeveloped regions, encouraging economic activities and job creation. • Pradhan Mantri Gram Sadak Yojana: It focuses on improving rural road connectivity, which is crucial for economic development in remote areas. • FC Recommendations: The 15th Finance Commission has recommended increasing the share of tax revenues allocated to states, particularly those with greater needs, to help address regional disparities. |
What strategies can bridge the Economic Divide and promote Inclusive Growth?
- Boost Entrepreneurship and Skill Development: Encourage entrepreneurship in poorer states through targeted support and training programs. Enhance skill development initiatives to equip the workforce with the necessary skills for emerging industries.
- Upgrade Infrastructure: Invest in improving power supply and overall infrastructure in economically lagging regions, particularly in the Gangetic and eastern areas, to facilitate industrial growth and attract investment.
- Expand Access to Education: Increase access to technical and vocational education in poorer states to improve employability and attract high-tech industries. Focus on creating educational opportunities that cater to local economic needs.
- Form Interconnected National Value Chains: Develop value chains that link resources from wealthier states with the potential of poorer ones, fostering balanced economic growth across regions.
