Estimating urban – rural income differential in major states of India

In this paper, we have attempted to estimate the urban – rural income differential (URID) for 15 major states based on readily available data on GSDP by sectors, population and employment by sectors and urban – rural residence. There are three components of the URID, viz., worker population ratios (WPR), employment structure and labor productivity by sectors in urban and rural areas. We are unable to estimate the labor productivity differentials at the state level, but the other two factors are considered and the floor estimate for the URID is obtained for the 15 states in the four base years. Moreover, it is also shown with the help of the estimates available at the All India level that out of the three factors, employment structure is the most dominant one to determine URID and that the component of productivity differential is not very high. Assuming the same extent of the component of productivity differential for each state as for the country, estimates of the URID in the major states for the three base years are derived. We have also attempted an estimate of the URID for the country and the states in the likely base year of 2011–12 with corresponding urban and rural per capita incomes.