Structural Dynamics, Growth and Regional Inequality: Post-Reform Experience in India

This paper re-examines regional inequality by analysing growth, structural dynamics with Indian data for the past four decades. The induced growth of labour productivity achieved by means of industrial growth leads to the polarisation of economic growth in some regions with higher proportional shares of manufacturing output in India. Growth performance in India improved during the post-reform period mainly because of the high growth in the services sector, but the data for regional shares of national income indicate that economic growth across Indian states has been highly uneven. Economic growth rate varies from 3.4 per cent in Assam to 7.2 per cent in Gujarat during the post-reform period. The fast-growing states grew more than double as fast as the slow-growing state. The output growth in agriculture declined in most of the agriculture led states during the post-reform period and it varied from less than 1 per cent in Kerala to just above 4 per cent in Maharashtra in that period. In manufacturing also, the growth rate had fallen in some fast growing states, whereas in other states, it improved very slowly. The services sector grew at a faster rate than manufacturing during the same periodand it varied from around 4 per cent in Tamil Nadu to 10 per cent in Haryana. The study observes that the contribution of services sector's income inequality was the highest to overall income inequality in India. The regional variation in manufacturing output plays a significant role in regional growth differential in states ’total income.