Growth, Inequality and Regional Divergence in Consumption Expenditure in India

This paper examines regional divergence in per capita income (PCI) and consumption expenditure in 15 major states of India during 1973/1974–2009/2010. It investigates how the states have performed in terms of consumption expenditure in comparison with their performance in terms of income and human development. The growth rate of PCI and consumption expenditure has accelerated with widening regional disparity during the post-reform period vis-a-vis the pre-reform one. The results indicate that, while in terms of PCI, the initially poorer states have failed to catch up the richer ones and thus remained laggards throughout the period, in terms of per capita consumption, the initially poorer states were able to raise their consumption expenditure faster than the initially richer ones during the pre-reform period, but they have fallen back again and become laggards during the post-reform period in both rural and urban areas. The states with better physical infrastructure facilities and livelihood opportunities were able to attain higher levels of consumption, suggesting that the poorly performing states could achieve higher level of consumption by investing in physical infrastructures and improving livelihood opportunities. The findings of per capita consumption expenditure's positive association with literacy rate (LR) and expectation of life at birth but inverse relation with infant mortality rate suggest that the states with higher levels of per capita consumption expenditure were able to attain higher levels of human well-being by raising LR and life expectancy and reducing infant mortality. This finding confirms the importance of consumption expenditure in human development.