Regional Disparities in India:

An Empirical Analysis of Convergence Hypothesis

Working Draft
Anindita Nandy
*
Ph.D. Student
Jawaharlal Nehru University
New Delhi, India
Email nandy!anindita"#$yahoo.%om
Abstract
&naly'ing the regional dis(arities in India, the (a(er revealed that there is
divergent trend of (er %a(ita in%ome among the ma)or Indian states and there is no sign of
either %onditional %onvergen%e or un%onditional %onvergen%e of (er %a(ita state in%ome
during last two de%ades. &((lying the *asi% e+uation of un%onditional %onvergen%e in
Indian %onte,t it has *een found that the s(eed of divergen%e in (er %a(ita state in%ome of
ma)or Indian states is -.." (er%ent over the last two de%ades. /he growth analysis has
revealed out the same trend of in%reasing dis(arity a%ross the states. /he rigidity of the
states in holding their ranks in terms of (er %a(ita net state domesti% (rodu%t is also
de%i(hered the finding from the growth analysis. /hus, the *asi% assum(tion of neo-
classical growth theory, i.e., diminishing returns to %a(ital is thus *e%oming dou*ta*le in
%ountries like India where divergen%e of growth is %at%hing u(. /he (oli%y im(li%ations
of our analysis on intra and inter regional dis(arity suggests that between-effects of
s(atial dis(arities is signifi%antly different from within-effects and therefore se(arate
(oli%ies are re+uired for states of se(arate in%ome grou(s to redu%e regional dis(arity.
0
/his (a(er is a (art of my 1 Phil /hesis su*mitted to JNU. I sin%erely a%knowledge the %omments from
my 1 Phil Su(ervisor, Professor &tul Sood.
Regional Disparities in India:
An Empirical Analysis of Convergence Hypothesis


Per%a(ita %onvergen%e or divergen%e within and between regions is a new
%ontroversy in develo(ment e%onomi%s. /heoreti%ally, new endogenous growth theories
suggest %umulative advantage and in%reasing regional dis(arities over time, while
neo%lassi%al theories suggest that diminishing returns tend to (rodu%e %onvergen%e. /he
+uestion of whether there is regional %onvergen%e or divergen%e is sim(le in the
theoreti%al a*stra%ts, *ut +uite %om(le, in em(iri%al a((li%ation. /he neo2%lassi%al
hy(othesis of %onvergen%e was first em(iri%ally tested *y 3arro and Sala2i21artin
-
. 3arro
and Sala2I21artin 4-5567, fo%using on (er2%a(ita in%omes for 5" EU regions during the
(eriod -56"2-55" and using %ross2se%tion regressions analysis, %on%lude that there are
signs of conditional convergence a%ross the EU regions, that is, regions %onverge towards
different levels of (er2%a(ita in%ome *ut regions that are further from their steady2state
(er2%a(ita in%ome level will grow faster. & (lethora of em(iri%al studies on %onvergen%e
hy(othesis s(urred thereafter using 3arro and Sala2i21artin methodology, however
mostly %onfining to the develo(ed %ountries. &((lying neo2%lassi%al framework of
%onvergen%e *e%ause of its theoreti%al sim(li%ity and wide a((li%a*ility, this (a(er
attem(ts an em(iri%al investigation of %onvergen%e hy(othesis to e,amine the regional
dis(arity within India, %onsidering State as the unit of analysis.
/he (a(er is organi'ed into si, se%tions. &(art from Introdu%tion, se%tion 8 deals
with the theoreti%al and em(iri%al review of literature on %onvergen%e hy(othesis. Se%tion
9 dis%usses the data and methodologi%al issues. Se%tion # inter(rets the results and
se%tion 6 summari'es and draws %on%lusions.
-
3arro, :o*ert and ;avier Sala2i21artin 4-5567
8
2 Revie of !iterat"re
/his se%tion has four su* se%tions. /he first se%tion dis%usses on the e,isting
studies on %onvergen%e from the theoreti%al ground. Its following se%tion looks on the
numeri%al testing of %onvergen%e issue on different e%onomies e,%e(ting India. /he third
su* se%tion noti%es on the e,isting studies on the test of %onvergen%e on Indian e%onomy.
/he last su* se%tion gives a +ui%k overview on the (oli%ies after Inde(enden%e to %om*at
regional dis(arity, or in other words, to manifest the e,isten%e of %onvergen%e on this
e%onomy.
8.- :eview of /heoreti%al <iterature
/here are different theories dis%ussing the heterogeneous effe%ts of
e%onomi% growth and develo(ment on different e%onomies and on a (arti%ular e%onomy
during different time (eriods. Some of the studies %onsider the issue of regional dis(arity
as a natural %onse+uen%e of develo(ment and des%ri*es the way of its evolution= while
other studies dis%uss a few suggestive ways to get rid of the (ro*lem of regional dis(arity.

/heories of regional divergen%e>%onvergen%e are long run theories.
Different s%hools in growth e%onomi%s have dis%ussed to find an e+uili*rium growth rate
for all the e%onomies. /he long run growth has *een dis%ussed in ?lassi%al s%hool, Neo2
%lassi%al s%hool, ?am*ridge s%hool et%. e,%e(ting @eynesian s%hool
8
. &%%ording to
?lassi%al theory, growth (ro%ess of out(ut is e,(lained in terms of (o(ulation growth and
te%hnologi%al (rogress. /hese e%onomists 4&dam Smith, :i%ardo, 1althus7 thought that a
growing %a(italist e%onomy would rea%h stationary state where a diminishing returns to
%a(ital results no fresh %a(ital a%%umulation. In other words, further %a(ital a%%umulation
leads no %ontri*ution to the te%hnologi%al (rogress in this state. An the other hand,
@eynesian e%onomi%s (urely dis%usses on the short run growth (ro%ess. It hardly
(rovides any highlight on the long run growth and therefore, the ?at%h2u( hy(othesis.
8
@eynesian e%onomi%s is %on%entrated towards the short run e+uili*rium (ro*lem. It showed virtually no
interest in the (ro*lem of long run growth and the role of %a(ital a%%umulation in the growth (ro%ess.
9
/he e%onomists who first *ridged the ga( *etween @eynesB short2run stati% theory of
em(loyment and the dynami%s of ?lassi%al long2term growth were :.C.Darrod
9
and
E,D,Domar
#
. /heir theory indi%ates a Eknife-edgeB of e+uili*rium growth where the
e%onomi% system %an *e *alan%ed *est in the long run. &ll of the theories from different
s%hools of develo(ment e%onomi%s indi%ate a supreme state of growth F a (ossi*ility
where an e%onomy %an *e e+uili*rated. 3ut, what is the a%tual way of ad)ustment that is
not %lear in any of the theories. It is the neo2%lassi%al theory, whi%h firstly tries to find out
the answer of this +uestion. :.1. Solow, J.E.1eade et al. are the ma)or %ontri*utors of
this s%hool of thought. /he a((li%ation area of this theory is mu%h wider than any other
theory dealt a*ove *e%ause of its %onsideration of full su*stituta*ility *etween la*or and
%a(ital and long run growth. /he assum(tions of neo2%lassi%al growth model are 4I7
Single %ommodity market, 4ii7 two fa%tors of (rodu%tion, 4iii7 full em(loyment of la*or
and %a(ital, 4iv7 ?ontinuous su*stituta*ility *etween la*or and %a(ital and 4v7 Cree
mo*ility of fa%tors a%ross the e%onomies. Dere the model has only one (arameter, i.e., the
%a(ital2out(ut ratio. /he two main limitations of the model are that it %onsiders
te%hnology as the e,ogenous fa%tor and %ontri*ution of %a(ital seems as homogeneous in
all kinds of e%onomies.
?onvergen%e of in%ome growth, *asi%ally, derived from neo2%lassi%al
s%hool of thought in growth e%onomi%s, is mainly *ased on the Ecatch up hy(othesis. /he
most (o(ular version of the %onvergen%e hy(othesis states that (oor %ountries will have a
natural tenden%y to steadily a((roa%h the in%ome levels of the develo(ed %ountries whi%h
im(lies a higher growth rate. It, in turn, im(lies the differential e,isten%e of fa%tor (ri%es
a%ross the regions as the main driving for%e *ehind the %onvergen%e of in%ome a%ross
e%onomies
6
.
9
Darrod, :.C., G&n Essay in Dynami% /heoryHB 4-5957
#
Domar, Evsay D., G/heory of E%onomi% IrowthH 4 -56J7
6
In this res(e%t, it is worth to mention that the %ause *ehind the %onsistent trend of %onvergen%e a%ross U.S.
states is mainly *e%ause of fa%tor (ri%e e+uali'ation among different industries s(read homogeneously
a%ross states, whi%h, in turn, makes free mo*ility of la*or for%e to *e o(erative unhesitantly. 3ut, in India,
sin%e the industrial stru%ture is very heterogeneous and %on%entrated to s(e%ifi% regions and the different
industries offer different fa%tor (ri%es, the e,am(le of U.S. is hardly to e,ist. Cor further details, see 1ar)it
and 1itra 4-55K7
#
&t the heart of the Solow model the (redi%tion of %onvergen%e %omes in
several flavors. <et us (ostulate that %ountries, in the long run, have no tenden%y to
dis(lay differen%es in the rate of te%hni%al (rogress, savings, (o(ulation growth, and
%a(ital de(re%iation. In su%h a %ase, Solow model (redi%ts that all %ountries, %a(ital (er
effi%ien%y unit of la*or %onverges to the %ommon value %orres(onding to the %ommon
steady state of growth irres(e%tive of the initial state of ea%h e%onomy, as measured *y
their starting levels of (er %a(ita in%ome 4or initial (er %a(ita %a(ital sto%k7. ?onvergen%e,
thus, is indi%ated *y a strong negative relationshi( *etween growth rates of (er %a(ita
in%ome and the initial value of the (er %a(ita in%ome. /his is known as the
EunconditionalB %onvergen%e.
In reality, the %ountries are rather heterogeneous in terms of many
features. /his erodes the assum(tion of un%onditional %onvergen%e. &lthough this has no
effe%t on the Solow (redi%tion that %ountries must %onverge to their steady states, *ut, the
steady states %an now *e different from %ountry to %ountry, so that there is no need for the
two %ountries to %onverge ea%h other. /his hy(othesis leads to the notion of EconditionalB
%onvergen%e. Irowth rate %onvergen%e im(lies that a %ountry whi%h is *elow its own
steady state grows faster than its steady2state growth rate, *ut to test this we have to use
the data to identify where steady states are. So, in this %ase, the hy(othesis of growth rate
%onvergen%e is *eing %onditioned on the (osition of the steady states. Su%h a %on%e(t is
%alled Econditional %onvergen%e.
In general, the %onditional %onvergen%e or -convergence 4(oor %ountries
grow faster than the ri%h ones su*)e%t to the varia*ility of the initial %onditions7 tends to
generate un%onditional %onvergen%e or - convergence 4redu%ed dis(ersion of (er %a(ita
in%ome7, *ut the %onverse is not true. Curthermore the EunconditionalB %onvergen%e
(ro%ess may *e distur*ed *y new sho%ks resulting a higher dis(ersion of in%ome.
2.2 Review of Empirical Literature
6
Studies have referred that the story of divergen%e or %ontrast of
%onvergen%e has *een e,(erien%ed in Euro(ean Union. 3utton and Eri% J. Pente%ost
4-5567
K
e,amine %hanges in the e%onomi% (erforman%e of Western Euro(ean regional
e%onomies, in (arti%ular the degree of %onvergen%e introdu%ing stru%tural varia*les,
%ountry dummies sin%e the mid -5J"s when the larger Euro(ean Union was esta*lished.
Interestingly, the set of %ountry dummies refle%t (otential differen%es in domesti%
regional (oli%y and variations in national te%hnologies and (referen%es.

3etween the -5
th
and 8"
th
%enturies, the regions of the United States went
from a set of relatively isolated regional e%onomies to an integrated national e%onomy.
E%onomi% integration as well as long2run se%ular %hanges in the e%onomi% stru%ture is
asso%iated with aggravated (a%e of e%onomi% growth (laying an im(ortant role in
determining U.S. regional industrial stru%tures. S(e%ifi%ally, it is the industrial stru%ture
in U.S. whi%h is (laying a su*stantial role *ehind this trend of %onvergen%e of regional
in%omes. /his has *een (ossi*le *e%ause of fa%tor (ri%e e+uali'ation of different
industries that in turn has *een (ossi*le *y free mo*ility of la*or for%e. 3ut, the
fle,i*ility of fa%tor movement is not the suffi%ient %ondition *ehind %onvergen%e. Cor
e,am(le, Ja(an. /he gradually in%reasing %onvergen%e in Ja(an is not *eing followed *y
the fle,i*ility of the fa%tors of (rodu%tion. /he law of fle,i*ility of fa%tors of (rodu%tion
is, in fa%t, very restri%ted in this e%onomy. 3ut, *alan%ed dis*ursement of the natural
resour%es is one of the distin%t %auses (laying vital role *ehind the %onvergen%e of
EJa(anB e%onomy
J
.
/hough U.S. e%onomy is (ro%eeding %onsistently towards un%onditional
%onvergen%e *ut the %onvergen%e of in%ome does not mean a*sen%e of regional
dis(arities in in%ome rather de%lining in the dis(arities of regional in%ome as we have
seen earlier. In order to e,(lain the deviation of state in%omes from the national average
in U.S. e%onomy over -.."2-5." 1i%hener and 1%<ean
#
introdu%ed in their analysis the
fa%tors like state (ri%e level, la*or in(ut (er %a(ita, la*or (rodu%tivity. &ll of these fa%tors
K
3utton , @enneth J and Eri% J. Pente%ost 4-5567
J
@oo, Jaewoon and Seug)un <ee 48"""7
.
1it%hener, @ris Jmaes and 1%<ean, Ian W 4-5557
K
have a very limited %ontri*ution in e,(laining the regional dis(arities in state in%omes.
/his study mentions also if any differen%es, at all, e,ists in the la*or (rodu%tivity= that
will *e offset *y demogra(hi% (attern of la*or for%e. So, the neo2%lassi%al E%onditionalB
%onvergen%e theory has a *it limited (ower in e,(laining the (attern of %onvergen%e in
U.S.

/he trends of divergen%e among the <atin &meri%an have *een
e,(erien%ed in many studies. Cor e.g., a study of Ste(hen Do*son and ?arlyn :amlogane
5
have found that there is no eviden%e of narrowing in the %ross2%ountry dis(ersion of
in%ome 4 or a*solute %onvergen%e7 during -5K"25"= there is eviden%e of %onvergen%e to
different steady state in%ome levels. /heir study reveals that even the s(eed of the
%onditional %onvergen%e is almost %ommon to all %ountries.

While several studies of high2in%ome market e%onomies undertaken
during the -55"s, for the U.S., Ja(an, and regions within Western Euro(e, found eviden%e
for strong %onvergen%e among regions.
-"
& very little eviden%e of %onvergen%e has *een
found out in %ase of ?hina whi%h en)oys su(er e%onomi% (ower among the kingdom of
develo(ed %ountries. <ike India and unlike U.S., ?hina, where after -55-, market for%es
and international trade have (layed a larger role with insertion into the glo*al e%onomy
more dramati%ally, has en)oyed an over2all trend of divergen%e in the regional in%omes. In
the %ase of ?hina, Demurger et. al. 48""-7 found that the underlying drivers of e%onomi%
growth, and hen%e the tenden%ies towards %onvergen%e or divergen%e, differed markedly
a%ross su*2(eriods, es(e%ially as a result of ma)or shifts in the e%onomi% (oli%y regime.
--
It seems interesting to study inter2%ountry relative %onvergen%e hy(othesis
test. 3ut, this kind of study fa%es (ro*lem in introdu%tion of different %onditional
varia*les in su%h %ross2se%tional analysis. I'raeli argues that %ross2se%tional estimates
a%ross %ountries %an *e (ro*lemati% *e%ause it is likely that not all of the relevant
5
Do*son, Ste(hen and ?arlyn :amlogan 48""87
-"
3arro, :o*ert and ;avier Sala2i21artin 4-5567
--
Demurger, S., Sa%hs, J., Wing, /.W., 3ao, S., ?hang, I., and 1ellinger, &. 48""-7
J
%onditioning varia*les will *e in%luded in a %ross se%tional regression.
-8
&s he suggested,
(ooling data and analy'ing the (anel data estimates %an over%ome this (ro*lem.

Pra*ir)it Sarkar 4-5557
-9
has found that a worldwide %onvergen%e trend is
followed *etween less ri%h North and ri%her North while divergen%e is going to assail
(oorer South and less (oor South.
Collowing the studies, it %an *e inferred that to e,(erien%e the test of %onvergen%e in an
e%onomy, the in%ome level of a %ountry and her res(onsiveness to (ri%e ad)ustment2 these
two fa%tors are to *e viewed. Crom the analysis of the international s%enario on
%onvergen%e, an im(ortant (oint has %ome out. /he most of the develo(ed e%onomies are
e,(erien%ing a trend of %onvergen%e, mostly un%onditional %onvergen%e, in their
res(e%tive regional in%omes. & lot of studies have revealed that among the different
fa%tors *ehind this %onvergen%e of the develo(ed %ountries, it is the %onvergen%e in the
industrial stru%ture, 4definitely favored *y favora*le (oli%y im(lementations7 is one of the
su*stantially res(onsi*le for%es. An the other hand, for the develo(ing %ountries, the
homogeneous feature is that most of them are following the (ath of divergen%e in
regional in%omes. Now2a2days, the ra(id e,(ansion of servi%e se%tor unevenly a%ross the
regions is (laying as an aggravating fa%tor to regional dis(arity. In s(ite of this, if we look
in a magnifi%ent way, then it is revealed out that there are little eviden%es of %onditional
%onvergen%e.
2$% Revie of Convergence !iterat"re in Indian Conte&t
During the last two de%ades, there has *een a (roliferation of studies on
inter2state dis(arity a%ross the Indian states using so(histi%ated analyti%al tools and *etter
data giving em(hasis on the +uestion whether E%onditionalB or Eun%onditionalB
%onvergen%e has taken (la%e in India. &mong them, the list of the studies those have
indi%ated the trend of divergen%e in Indian states during re%ent two de%ades is a +uite
-8
I'raeli, Aded 4-55J7
-9
Sarkar, Pra*ir)it 4-5557
.
large. 3ut there are a few studies that reveal an on2going %onvergen%e trend in India. <et
us dis%uss the findings of a few ma)or studies.
Dholakia 4-55#7
-#
has (ointed out a *it different result. Dis study
analy'ed 8" Indian states over the (eriod -5K"25" finds nota*le tenden%ies of
%onvergen%e of long2term State Domesti% Produ%t 4SDP7 growth rates. /his, (erha(s,
a((ears due to the in%lusion of the five s(e%ial %ategory Indian states and Delhi along
with the -# ma)or Indian states. /hese s(e%ial %ategory states 4 as %lassified *y the
Planning ?ommission 7 are &ssam, Dima%hal Pradesh, Jammu L @ashmir, 1ani(ur and
/ri(ura. Interestingly, Dholakia identifies -5." as the year from when several of the
lagging states started growing and the leading states *eginning to stagnate. ?ashin and
Sahay 4-55K7
-6
also rea%h similar %on%lusions as Dholakia, finding a*solute %onvergen%e
in a study of 8" states over the (eriod -5K-25-. 3ut, DholakiaBs study showed %learly that
in India the *asi% determinant for the e,isting regionaldis(arity in the level of in%ome
among states turns out into the dis(arity in the %a(ital intensity or fa%tor (ro(ortions.
&%%ording to him, this dire%ts the demand for dire%t governmental inventions in
allo%ation of resour%es and (oli%ies to attra%t foreign investment su*)e%t to the lagging
regions.
/here have *een some studies also through whi%h no definite %on%lusion
regarding the trend of %onvergen%e or divergen%e %ome out. Cor e.g., the study of Singh
and Srinivasan 48""87
-K
2 looking at the (eriod -55"25- to -55.255, however, this study
found that the eviden%e does not (ermit one to rea%h very definite %on%lusions on
%onvergen%e or divergen%e a%ross the 4-# ma)or7 states.
& lot of studies have found a divergent tenden%y a%ross the Indian states
during the last two de%ades. &mong them, a short view is taken over the few studies.
:ao, Shand, and @alira)an 4-5557
-J
suggest that (er %a(ita SDP in the Indian states have
tended to diverge rather than %onverge in %ontrast to neo2%lassi%al growth model. Per
-#
Dholakia, : 4-55#7
-6
?ashin, Paul, and :atna Sahay 4-55K7
-K
Singh, Nirvikar and /N Srinivasan48""87
-J
:ao, 1 Iovinda, :i% Shand and @ P @alira)an 4-5557
5
%a(ita SDP growth is (ositively related to their initial levels. States with *etter
infrastru%ture and human resour%es have had an edge over the others in attra%ting
investment in the (ost2reform era. Dasgu(ta et. al. 48"""7
-.
also re(ort a distin%t tenden%y
for the Indian states to have diverged during the (eriod -5K"256 as far as (er %a(ita SDP
is %on%erned. In terms of the shares of the different se%tors within ea%h stateBs SDP, they
find a tenden%y for in%reasing similarity a%ross states in se%toral %om(osition. @urian
48"""7
-5
finds widening regionaldis(arities among the Indian states and a %lear di%hotomy
*etween what he %alls the forward and *a%kward states. /he former having higher levels
of (er %a(ita in%ome, *etter infrastru%ture, higher (er %a(ita resour%e flows and (rivate
investment and *etter so%ial and demogra(hi% indi%ators. De finds that it is the level of
(rivate investment whi%h is aggravating the differentiation *etween forward and
*a%kward states. In other words, the e,isting o((ortunities in forward states %ondu%ive to
attra%t the (rivate investment, is the (o%ket of generation of aggravating regional
in%omes. &hluwalia 48"""7
8"
analy'ing the e%onomi% (erforman%e of the Indian states
during the (ost2reform (eriod suggests that not all the ri%hest states got ri%her relative to
(oorer states. De %ites Pun)a* and Daryana as two key e,am(les. While these were the
two ri%hest states in -55"25-, their growth rates of (er %a(ita SDP in the -55"s were not
only lower than in the -5."s, *ut also in *oth %ases a%tually fell *elow the national
average. De also (oints out that not all the (oorer states lagged *ehind. While suggesting
that two (oor states, :a)asthan and 1adhya Pradesh had (erformed well, some states
with otherwise (ositive s%ores on various develo(ment indi%ators lagged *ehind.
Dowever, &lhuwalia does not offer an e,(lanation for their *etter (erforman%e. /hough
in another study, &hluwalia 48""87
8-
did not e,amine divergen%e through regression
analysis, *ut his %al%ulations of (o(ulation weighted gini %oeffi%ients for the -# ma)or
states showed a su*stantial in%rease, from ".-J6 in -55-258 to ".899 in -55.255. <ike
@urian, in this study &hluwalia similarly found (rivate investment flows to *e a
signifi%ant fa%tor in e,(laining %ross2se%tional variation in statesB growth rates. Dowever,
in any %ase, studies analy'ing the Eeffe%t of glo*ali'ationB on inter2state ine+ualities and
Ethe standard of livingB a%ross the states in regionaldis(arity are s%ar%e.
-.
Dasgu(ta, Di(ankar, Pradi( 1aiti, :o*in 1ukhar)ee, Su*rata Sarkar and Su*hendu ?hakra*arti 48"""7
-5
@urian, N J48"""7
8"
&hluwalia, 1ontak S 48"""7
8-
&hluwalia, 1ontak S 48""87
-"
<ike many other studies the study of 1ar)it and 1itra
88
has also o*served
that the states have *een EdivergingB rather than %onverging in terms of their (er %a(ita
in%ome. In %om(arison with the U.S. e%onomy, this study has (ointed out that the %ause
*ehind their %onvergen%e su*stantially a%%rues to the strong homogeneous elements of
industrial stru%ture a%ross the regions of U.S. /he free fa%tor mo*ility, es(e%ially la*or,
%oe,istent with a fle,i*le universal 4federal7 rule of administration is the added advantage
*ehind the sustained %onvergen%e. /heir study indi%ates that differential wage rates as a
refle%tion of deviation for SamuelsonBs Ca%tor Pri%e E+uali'ation theorem to *e hold, is
one of the im(ortant *irth(la%e of the divergen%e.
?on%lusively, it %an *e said that the dominant finding on Indian e%onomy
from various studies is strongly su((orting the gradual in%reasing divergen%e among the
ma)or states of India. /his finding %asts dou*ts on the validity of the %riti%al assum(tion
of diminishing returns to re(rodu%i*le %a(ital as assumed in neo2%lassi%al model and at
the same time, su((orts @u'netBs inverted U relationshi( *etween ine+uality and
e%onomi% growth in develo(ing %ountries.
Within the strong (urview of divergen%e of in%ome as the ma)or e,isting
studies suggest, the e,isten%e of %onvergen%e is seen in some other arenas. /hey are
*asi%ally the non2in%ome fa%tors. Cor e.g., /ushar @anti Das 48""87
89
has done a study on
the test of ?onvergen%e of wage rate a%ross Indian states through a model of %ross se%tion
and (anel estimations for a last four de%adal study of the (re2li*erali'ation (eriod. Dis
formulated model has deflated the wage rate of ea%h state *y the all2India average wage
rate. /he finding is also indi%ating a trend of %onvergen%e. /he study of Dasgu(ta and et.
all
8#
. It reveals out that the in%ome originating from agri%ultural se%tor among different
states of India are tending to *e %onverged rather diverged.
88
1ar)it and 1itra 4-55K7
89
Das, /usher @anti 48""87
8#
Dasgu(ta, Di(ankar, Pradi( 1aiti, :o*in 1ukhar)ee, Su*rata Sarkar and Su*hendu ?hakra*arti 48"""7
--
4-7 In a nut2shell, from the %onsensus of most findings, though the overall
state in%omes are showing a divergent trend, *ut, from the as(e%ts of wage rate and
the share of agri%ultural se%tor in%omes Indian states are following a trend of mild
%onditional %onvergen%e.
2$' Revie on the (olicy Conte&t for Convergence Hypothesis in India
/he issues of %onvergen%e 4or divergen%e7 is im(ortant from (oli%y (ers(e%tive as
a (ro%ess of cumulative advantage suggests the need to *olster lagging regions for
reasons of regional integration as well as e+uity. &fter inde(enden%e, when the new era of
(lanning was introdu%ed in India, then from the very *eginning of the first (lan, the
(lanners im(osed em(hasis unanimously on the s(e%ial o*)e%tive of *alan%ed regional
develo(ment along with the o*)e%tives of high growth rate, redu%tion of (overty,
e,(ansion of em(loyment et%. :egional im*alan%es have got im(ortan%e in ea%h (lan
though the degree of em(hasis has *een varied over different (lans. /hough the first two
five year (lans of the Iovernment of India made referen%e to (ro*lems of regional
develo(ment in a *alan%ed way, in was in the /hird Cive Mear Plan 4-5K-2KK7 that a
se(arate %ha(ter was develo(ed to 3alan%ed :egional Develo(ment 4%ha(ter 57
suggesting that E Cor assessing levels of develo(ment in different regions, indi%ators of
(rodu%tion, investment, unem(loyment, ele%tri%ity %onsum(tion, irrigated area, value of
out(ut *y %ommodity (rodu%ing se%tors, level of %onsum(tion e,(enditure, road mileage,
(rimary and se%ondary edu%ation and o%%u(ational distri*ution of (o(ulation are usefulB
4Planning ?ommission, -5K8, (ara 897. &s time (re%edes, the Iovernment of India has
*een assigned a multitude of o*)e%tives 2 to (romote ra(id e%onomi% growth and
industriali'ation, redistri*ution of in%ome and wealth, im(ort su*stitution, generation of
resour%es through returns to investment, %reation of em(loyment o((ortunities and
develo(ment of small s%ale and an%illary industries with e+ual em(hasis on *alan%ed
regional develo(ment. In fa%t, numerous measures have also *een im(lemented in
different 62year Plans to a%hieve *alan%ed regional develo(ment of the %ountry. Crom
/hird Plan to Eighth Plan, allo%ation of more %entral assistan%e to different states, were
-8
thought to *e the only measure to %om*at the (ro*lem of regional dis(arity. Crom the last
few (lans, the %entral assistan%e to states has in%reased su*stantially over the last three
de%ades.
Crom Ninth Plan, efforts and measures in narrowing down the regional
dis(arities has *een %onsidered s(e%ially. Ane im(ortant e,(erien%e in the Ninth Plan is
that funds are not the only *ottlene%k in the develo(ment (ro%ess. It is mainly *e%ause of
the ineffe%tiveness of the tri%kle down effe%t while the working of the lo%al e%onomy
whi%h (er(etrate the (ro*lem of a%%ess of servi%es and )ust (ayment for the works done
*y the (oor. Under /enth Plan
86
that is %onsidered as :eform Plan, rather a resour%e
(lan, all states are eligi*le for getting funds *ut the ultimate distri*ution of the funds will
*e assessed *y the statesB (erforman%es in terms of verifia*le indi%ators and the well2
defined time frames. /his %onsideration is seemed as a %hallenge in this (lan. /enth Plan
has made a design of fo%used develo(ment *y identifying the *a%kward (o%kets wit the
aim of having e+uita*le and *alan%ed growth. /he reforms undertaken are of a nature that
is e,(e%ted to have a multi(lier effe%t on the e%onomi%s of the %on%erned regions.
Now, to understand the nature of inter2state dis(arity in terms of
%onvergen%e %on%e(t, from the ne,t se%tion, this study will (arti%ularly fo%us on the
*ehaviour of the fifteen ma)or states of India over the last two de%ades.
% Data and )ethodology
/erritorial unit of analysis is an im(ortant %onsideration in the em(iri%al
treatment of %onvergen%e hy(othesis. In India, regions %an *e differentiated from
different angles. 3ut, from analyti%al (oint of view, EstateB, Edistri%tB, E*lo%kB are generally
used s(e%ifi%ation of regions in regional analysis *e%ause these regional e%onomies
aggregates the national e%onomy. &mong them, EstateB is %onsidered as the vastly used as
most (o(ular way of regionali'ation.
86
/enth (lan48""82"J72 ?ha(ter2K E?on%ern and StrategiesB
-9
/o address the +uestion of regional (erforman%e, we have fo%used on -6
ma)or states e,%luding the Dimalayan states, the Northeastern states, and the union
territories. /hese -6 states )ointly e,(lain more that 5"N 45-.9#N in 8""- %ensus7 of the
total (o(ulation of India and 8.J million s+ kms, a%%ounting for .6N of IndiaBs total land
area. /hey are &ndhra Pradesh, &ssam, 3ihar, Iu)arat, Daryana, @arnataka, @erala,
1adhya Pradesh, 1aharashtra, Arissa, Pun)a*, :a)asthan, /amil Nadu, Uttar Pradesh and
West 3engal.
&s a %om(rehensive indi%ator of e%onomi% (rogress, estimates of state
in%ome are of %onsidera*le interest in studies of develo(ment in different states. /he
state in%ome may *e %onsidered either as the in%ome originating within the *oundaries of
a state or as in%ome a%%ruing to its residents. Cor a %om(arative study of the level of
industrial and e%onomi% develo(ment among states or regions, the more valid estimate is
in%ome a%%ruing to a state *e%ause it serves a *road measure of the e%onomi% welfare of
the resident of the state as a whole. Sin%e the statesB *oundaries are o(en, diffi%ulty arises
in gathering the relevant data regarding inter2state transfers of goods and servi%es and
flow of funds. Dowever, due to non2availa*ility of data on flow of fa%tor in%omes, state
domesti% (rodu%t
8K
estimates have *een (re(ared *y in%ome2originating a((roa%h
8J
. In the
following analysis, estimates of SDP 4in%ome originating within the state7 (rovided *y
Central Statistical Organization have *een used. S(e%ifi%ally, (er %a(ita net
8.
state
domesti% in%ome at %onstant
85
(ri%es, therefore, is treated as the varia*le of our
forth%oming analysis. 3ut, (o(ulation is an e,tremely im(ortant %riterion in regional
analysis. Even in %ase of hori'ontal distri*ution and devolution of finan%es among the
8K
Domesti% Produ%t is the (rodu%tion of in%ome>out(ut done within the geogra(hi%al *oundaries of a
%ountry. /his is estimated *y adding to the Domesti% Produ%t in in%ome of the fa%tors 4mainly %a(ital and
la*or7 owned *y nationals *ut em(loyed a*road and dedu%ting in%ome of fa%tors owned *y foreigners *ut
em(loyed in a domesti% e%onomy. Cor further referen%es, see %ha(ter 9 and %ha(ter # of GState Domesti%
Produ%ts of India -5K"2K- to 8"""2"-H *y EPW :esear%h Coundation.
8J
&fter going through a lot of (ro%esses, a good degree of uniformity in SDP %on%e(ts and methodology
has *een a%hieved in the estimates *eing (re(ared *y the State Statisti%al 3ureaus 4SS3s7 whi%h are the
organi'ations of every state that take the res(onsi*ility of %al%ulating state domesti% (rodu%t following a
homogeneous rule.
8.
In the (ro%ess of (rodu%tion, a %ertain +uantum of (hysi%al %a(ital, (lant, e+ui(ment, ma%hinery et%. is
used and it de(re%iates in use for whi%h some allowan%e has to *e made. If from the Iross National
4Domesti%7 Produ%t, we dedu%t su%h de(re%iation to get Net National 4Domesti%7 Produ%t.
85
Sin%e the market (ri%es are affe%ted *y indire%t ta,es whi%h government levies on various (rodu%ts and
*y su*sidies whi%h government (ays to %ertain (rodu%ts.
-#
states *y Cinan%e ?ommission, net state domesti% (rodu%t and the (o(ulation of the state
are the two %riteria %onsidered as e,tremely relevant.

So, in our analysis, to dis%uss a*out the dis(arity of in%ome a%ross the
states we %onsider (er %a(ita net state domesti% (rodu%t 4hen%eforth used as P?NSDP7
instead of net state domesti% (rodu%t where domesti% state (rodu%t re(resents in%ome
generated within state *oundary. /he methodology ado(ted in our (a(er is dis%ussed as
follows.
*$ +ro"ping Criteria
/he grou(ing has *een on the *asis of %onventional statisti%al %riterion
4average value of the varia*le a%ross the time (eriod (lus standard deviation of that
varia*le over the same time (eriod7.
Irou(ing ?riteria O 4&verage of P?NSDP over 88 years for ea%h state P Standard
Deviation of P?NSDP over 88 years for ea%h state7.
/he grou(ing has *een done like
If 4&verage P Standard Deviation7 QO .""" then the state is to *e %onsidered as <ow
In%ome States
If 4&verage P Standard Deviation7 R .""" *ut Q -"""" then the state is to *e %onsidered
as 1iddle In%ome States
If 4&verage P Standard Deviation7 RO -"""" then the state is to *e %onsidered as Digh
In%ome States.
2$,tability of groth rates
/he methodology of %om(utations is *eing (resented in ne,t few ste(s
-7 Mear2to2year growth rates of the states have *een %al%ulated. /hen res(e%tive average
of these growth rates for ea%h state has found out. /hese are the average annual growth
rates.
-6
87 /he annual growth rates of ea%h state for the %on%erned (eriod have *een e,(ressed
in the form of an inde, *y %onsidering the average of year to year statewise growth rate
9"
Sserving as a *ase e+ual to -"".
97 In this ste(, a growth sta*ility inde, was (re(ared for ea%h state *y using
&verage of Statewise ?oeffi%ient of Tariations
9-
4 222222222222222222222222222222222222222222222222222222222222222222220-"" 7
State wise ?oeffi%ient of Tariations of Irowth :ates
#7 3y averaging these two indi%es, a %om(osite inde, of growth (erforman%e is
o*served. /his inde, measures the growth as well as sta*ility.
67 1ulti(lying this %om(osite inde, *y the average of state wise growth rates and then
dividing *y -"", Evaria*ility ad)usted growth ratesB are o*tained for ea%h state for whole
(eriod -5."2.- to 8""-2"8 and two su*2(eriods.
%$ -he .endall -est of Concordance
%2
It is a sim(le measure for assessing the inter2tem(oral mo*ility of the
states in terms of ranking of the states *y in%ome levels. In (erforming the %on%ordan%e
test at signifi%an%e level, say U, it %an *e said that a (attern indi%ating the tenden%y for
(eo(le to agree Ge,hi*its a signifi%ant level of agreementH. /he hy(othesis of the test will
*e stated as
D" the sets of ranks do not indi%ate a signifi%ant level of agreement
D- the sets of ranks e,hi*it a signifi%ant level of agreement.
Ste( - Mear wise ranks of individual state have *een summed u(.
Ste( 8 &ll of the summations whi%h are e+ual to num*er of states have *een averaged,
whi%h is :
2
, in the a*ove formula.
9"
/he average of state wise growth rate for ."s, 5"s and for the entire (eriod of -5."2.- to 8""-2"8 are
8.K#56, 9.-5KK and 8..55K res(e%tively.
9-
/he average of state wise %oeffi%ient of variations for ."s, 5"s and for the entire (eriod of -5."2.- to
8""-28""8 are 8#6.5J, -K8.56 and -5K."5 res(e%tively.
98
Cor details, see 3rown, Earl @. and 1artin @. Starr 4-5.87
-K
Ste(9 /he :
2
found in ste( 8 has *een su*tra%ted from the year wise summed ranks of
the individual states found in ste( -.
Ste( # /he deviations have *een s+uared whi%h VW 4: 2 :
2
7
8
X is used in the a*ove
formula.
'$ Relative Income Inde&

/his measure hel(s us to understand the relative in%ome (osition of the
states in an easier way. Cirst, average of the E&ll2-6B states has *een %om(uted and the
value has *een assigned to -"" as the *ase. An the *asis of this inde,ation, P?NSDP of
all -6 states have *een res%aled. /hese are %alled the B:elative In%ome Inde,B.
/he inde, is formed as des%ri*ed in the following ste(s
4-7 &verage of all the statesB P?NSDP
99
has *een taken at ea%h time (oint
9#
during
-5." to 8""-, i.e., for 88 years. Say them Mt. where t O -,8,9,YY.-6.
487 Now, average of Mt has *een taken. Su((ose the average of Mt is MZ . &ssigning
MZ O -"", the -6 statesB individual Mt have *een ad)usted. /hese ad)usted values of
(er %a(ita in%ome are the Erelative in%ome inde,B.
/$ Convergence E0"ation
/o test the nature of steady states of statewise in%ome growth, the *asi%
%onvergen%e e+uation for testing un%onditional %onvergen%e has *een a((lied. /his
e+uation was used in the %onvergen%e analysis *y 3arro and Salai2I21artin.
<og 4 Mt > Mt2-7 O F 4 -2 e
2 t
7 <og Mt2- PUt
Where Mt is (er %a(ita out(ut of a %ountry in (eriod t.
Ut is the random distur*an%e term and
is the s(eed of %onvergen%e.
99
Data on NSDP at %onstant 5925# (ri%es have taken from GDomesti% Produ%ts of States of India -5K"2K-
to 8"""2"-H (u*lished *y EPW :esear%h Coundation 48""97. 1id year (o(ulation has *een a%%ounted *y
(ro)e%tion on the *asis of %ensus (o(ulation. See &((endi,-.- in %ha(ter -.
9#
In order to avoid the year2to2year flu%tuation of state domesti% (rodu%t, we have %onsidered in%ome of 6
time (oints only %onsisting *eginning time (oint of last two and %urrent de%ades and mid2de%adal time
(oints. /hey are -5.-2.8, -5.62.K, -55-258, -55625K and 8""-2"8.
-J
Dere, it has *een assumed that the random distur*an%e term has 'ero mean and %onstant
varian%e and is distri*uted inde(endently of <og M/2- and the lagged distur*an%e terms.
'$ Interpreting Res"lts
/he last two de%ades of Indian e%onomy have multifarious e,(erien%es.
We have %rossed more than 6" years of (lanning (eriod and more than -" years from the
initiation of glo*ali'ation. In the new era of glo*ali'ation, sometimes %alled new
generation reforms *eing started from mid 5"s em(hasi'es on Edevelo(ment with human
fa%eB. Now it would *e interesting to look on the issue whether regional dis(arities in
India have in%reased or not in the (eriod of glo*ali'ation, i.e. 5"s vis2[2vis (re
glo*ali'ation de%ade i.e., ."s.

An the *asis of P?NSDP deflated at %onstant -55925# (ri%es
96
, the (i%ture
is revealed that P?NSDP varies from the (oorest state, 3ihar, at 9#8J ru(ees (er year to
the ri%hest, Pun)a*, at .##8 ru(ees (er year in -5."2.-. /he ga( is gradually in%reasing.
In -55"25- it was :s. J9"8 4O--JJK2##J#7 and in 8""-2"8 it has *een aggravated at
:s.--K6K in 8""-2"8. Irowth (erforman%e has *een e+ually varied, with the slowest
growth in state (er %a(ita in%ome in 3ihar, at F9.#5 (er%ent (er year during -55-25K,
%om(ared with the growth of ri%hest state2Pun)a*, at 8.-9 (er%ent (er year. During -55"2
8""-, the highest yearly growth rate
9K
was in Iu)arat and it was 6."5N while lowest of
that was in 3ihar 4O-.96N7. We will now dis%uss the nature of in%ome dis(arity through
some statisti%al measures.
'$*$ Ran1 Analysis
96
Data Sour%e GDomesti% Produ%ts of States of India -5K"2K- to 8"""2"-H *y ?entral Statisti%al
Argani'ation (u*lished from the EPW :esear%h Coundation.
9K
Irowth rate means %om(ound growth rate where the *asi% e+uation is 4 yt O 4 -P r 7
t
. y" 7 where
y" O in%ome of the *ase (eriod ", yt O in%ome of the terminal (eriod t. E rB is the %om(ound growth rate.
-.
We will start our analysis dis%ussing the ranking of the states over the
years 4&((endi, &-7. In a sim(le way, %onvergen%e or divergen%e would *e refle%ted
firstly through the nature of arrangement of the rankings among the states.
:anks have *een assigned to the states a%%ording to the as%ending order
9J
,
i.e., the highest rank one has *een assigned against the ri%hest state 4having highest value
of the varia*le %onsidered7 and similarly, the lowest rank 4-67 against the (oorest state
4having lowest value of the varia*le %onsidered7. /hough it %an *e argued that measuring
%hange in the regional (attern of develo(ment on the *asis of shifts in the rank orderings
of (er %a(ita in%ome of states is too mu%h stringent method of evaluating the e,tent of
%hange in relative levels of regional develo(ment sin%e it assumes unitary distan%e
*etween any states rather than %onsidering the original relative distan%es among the
in%ome of the states *ut, it is most sim(le way to understand the overall %ondition. In
India, the last two de%adal tenden%ies are not suffi%ient enough to *ring a*out any ma)or
%hange in the ranking of different states given in &((endi, &-.
Now we will look on the rank %orrelation %oeffi%ient. S(earmanBs :ank
%orrelation %oeffi%ient 4with res(e%t to the P?NSDP at %onstant (ri%es7 *etween
-5.- and -5.6 O .598
-5.- and -55- O .56#
-5.- and -556 O .56"
-5.- and 8""- O .56#
00 all %orrelation %oeffi%ients are signifi%ant at -N level.
&s the rank %oeffi%ient suggests that the degree of agreement among the
ranks of states a%%ording to the %onstant P?NSDP is almost one over the (eriod of
%onsideration. Whatever mild %hange has taken (la%e that is for &ndhra Pradesh,
@arnataka, @erala and 1adhya Pradesh. /hat means states those had a low rank in -5."2
.- %ontinued to have low ranks throughout the (eriod. /his is the %ase of Arissa, 3ihar,
Uttar Pradesh, &ssam et%. /he o((osite is the %ase with 1aharashtra, Pun)a*, Iu)arat and
Daryana. 1ore over, the states whi%h had a medium ranking, su%h as West 3engal,
@arnataka maintained, *y and large, the same relative (ositions. /he averages of the
ranks of the states in these 88 years are given in the following ta*le.
9J
Den%eforth, wherever any ranking e,er%ise will *e im(lemented in this analysis, the as%ending order of
ranking will *e followed.
-5
-able *: Averages of the ran1s of the states
States Average Rank
&ndhra Pradesh ..8J9
&ssam --."K.
3ihar -#.566
Iu)arat 9.J8J
Daryana 8.K.8
@arnataka K..K#
@erala K.5JJ
1adhya Pradesh -".8J9
1aharashtra 8.6#6
Arissa -9..-.
Pun)a* -.-9K
:a)asthan -".-.8
/amil Nadu 6
Uttar Pradesh -9.-.8
West 3engal 5.9-.
Sour%e %om(uted using the data of NSDP (u*lished from EPW :esear%h Coundation
&s our analysis %ontains data on -6 states for 88 years, this gives us -6
%ross se%tions of ranks ea%h %ontaining 88 ranks. /o look the intensive nature of growth
among the states, a %ategori'ation of the states would *e made. /he grou(ing makes easy
to analy'e *ehavior of a grou( having +uite similar range of (er %a(ita in%ome rather than
analy'ing a state individually. &(art from that, to im(lement any (oli%y for the
distri*ution of resour%es *y %entral investment, dire%ted towards redu%ing regional
ine+ualities, would *e tilted towards the weaker, less develo(ed states. So, it would *e
%onvenient for our analysis to grou( the %on%erned states in some homogeni'ed way.
9.
/he grou(ing has *een on the *asis of %onventional statisti%al %riterion 4average value of
the varia*le a%ross the time (eriod (lus standard deviation of that varia*le over the same
time (eriod7. /he results are in the &((endi, &8. /o have a %lear %on%e(t, we have
divided the whole (eriod of analysis 4-5."2.- to 8""-2"87 into 8 su* (eriods, from -5."2
.- to -55"25- and -55-258 to 8""-2"8.
9.
/hough re%ently, there are some re%ent resear%hes suggesting a less dire%tive governmental %ontrol over
the (u*li% finan%e and (referring some in%lination towards the market oriented a((roa%h in a%+uiring the
(u*li% finan%e *y different states. 3ut, following the *asi% %onventional thought, it is e,(e%ted that
distri*ution of greater %entral investment in less develo(ed states and vi%e versa *e%ause India is still
regarded as a develo(ing %ountry.
8"
3ut we %an look on the entire matter *y (eering at first on the ratio of
highest to lowest in%ome to have a +ui%k idea on the e,tent of in%ome dis(arity. It was
a((ro,imately 8.6 in -5."2.- and has *een aggravated to #.8 in 8""-2"8. /he added
trend line in this res(e%t is also showing a stee( gradual in%rease emerging a stronger
need to look into this issue of dis(arity.
2ig"re *
?onsidering the P?NSDP at -55925# (ri%es, the ratios of highest to lowest
in%ome have *een %al%ulated. It started from 8.#K in -5."2.- to #.8. in 8""-2"8 4through
8.6K in -5.62.K, 8.58 in -55-258, and #..6 in -55625K7. So, in a*solute terms, the ga(
*etween the highest and the lowest in%ome states 4out of our -6 ma)or states7 are
in%reasing.
In the time series rank (rofiles we analy'e %hanges in averaged ranks for
the three grou(s 4low in%ome, middle in%ome and high in%ome7 of states over time. An
the other hand, in the %ross se%tional rank (rofile, we are interested in analy'ing the
8-
%hanges in relative (ositions of the individual states over the two su* (eriods and the
whole (eriod.
2ig"re 2
/he a*ove figure shows time series rank (rofiles for (er %a(ita in%ome. /he gra(h shows
that there are no signifi%ant %hanges in the average ranks of the three grou(s of states
over time. &lthough there are slight %hanges in the averaged ranks of low and middle
in%ome grou(s of states, *ut this %hanges are not su*stantial 4&((endi, &#, for details7.
/his means that the eviden%e on %onvergen%e is not strong enough to
su*stantiate>%onform the so2%alled neo2%lassi%al %onvergen%e or %at%h2u( hy(othesis.
Now, we will look on the %ross se%tional rank (rofile 4referen%e /a*le &67.
88
2ig"re %
Dere we o*serve the %hanges in average ranks of ea%h state in the two su*
(eriods and the entire (eriod. States are arranged des%ending order with res(e%t to the
ranks of P?NSDP in -5.-2.8. /his hel(s us in studying se(arately the %hanges in the
rank of individual state. /he striking feature is that the ranks have *een more or less same
for all the states. & slight (rogress has *een in the averaged ranks of &ssam, 1adhya
Pradesh and Daryana *ut that do not %hange their relative (ositions enough to %hange
themselves to a new grou( from their e,isting grou(s. Similarly, in 5"s the averaged
ranks of @arnataka and 1aharashtra have *een degraded a *it kee(ing no effe%t in their
grou(ing.
/he eviden%es of either %ross2se%tion rank (rofile or time2series rank
(rofile do not su((ort the %at%hing2u( hy(othesis for these -6 states of India. /here are
mild %hanges in the arrangement of rankings= these %hanges are not effe%tive enough to
reshuffle the grou(ings of the states. It, in turn, im(lies that low level of P?NSDP alone
89
is not the suffi%ient %ondition for %at%hing2u( in India, there must *e some non2in%ome
fa%tors whi%h are (laying hindran%es for %at%hing u(.
In (arti%ular, rank measures the develo(ment distan%e among %onse%utive
states in terms of a uniform unitary level irres(e%tive of the a%tual develo(ment distan%e
*etween them. /his is one of the (ro*lems of ar*itrariness in the ranking analysis. It %an
not give the a%tual sour%e of %hange. So, now, leaving the rank analysis, we are moving to
%on%entrate on a more intense measure of relative in%ome analysis.
&((lying the test of endall Concordance on the ranking of the states on
the *asis of (er %a(ita net state domesti% (rodu%t at %onstant 5925# (ri%es, we have the
results as
Cor -5."2.- to 8""-2"8=
W4:2:\
8
7 O -8.-5#.5=
&nd W O 9-".JJ6K=
W is signifi%ant at -N level of signifi%an%e.
So, there is strong nearly2%om(lete agreement in the ranks of the states. /o say
s(e%ifi%ally, there have *een %hanges in the ranks of the states in terms of P?NSDP *ut
that is legitimate.
?oeffi%ients of ?on%ordan%e have *een found out se(arately for ."s and 5"s.
Cor -5."2.- to -55"25-, it is -#8.5.K# where W4:2:\
87 O
9-#6J
Cor -55-258 to 8""-2"8, it is -6-.J#66 where W4:2:\
87 O
999.#
In *oth %ases, the null hy(othesis is *eing re)e%ted at -N level of signifi%an%e *e%ause the
ta*ulated value of the %hi2s+uare at -" degree of freedom is 85.-#-.
Sin%e W4:2:\
87
is greater for 5"s than ."s, the agreement of ranks of the states is greater
in 5"s than in ."s. /he (ositions of the states in terms of P?NSDP have %hanged more in
."s. 3ut, in 5"s the (ositions of the states in terms of ranking of their res(e%tive
P?NSDP is more stu**orn.
&s the (revious analysis indi%ates that the order of arrangement of ranks
of the states in terms of (er %a(ita net state domesti% (rodu%t 4at %onstant (ri%es7 is very
rigid over the last two years. /here have *een many %hanges in different se%tors of the
8#
e%onomy, *ut, these are not suffi%ient enough to reorder the arrangements of rankings of
the states in terms of their (er %a(ita in%ome. Whatever mild %hanges have o%%urred, that
have *een s(e%ially within the middle and low in%ome states. /o have a dee( insight on
the inter2state dis(arity vis2[2vis the relative in%ome (ositions of the states, a relative
in%ome inde, have *een %onstru%ted for several s(e%ified time (eriods.

-able 2: Relative Income Inde& of ,tates 3at some sele%tive time (oints4
states
-5."2
.-
-5.-2
.8
-5.62
.K
-55"2
5-
-55-2
58
-5562
5K
8"""2
8""-
8""-2
8""8
&ndhra
Pradesh .6.K5 5#.-" .K.65 5#.J- 5..6# 5K.K5 -"9.68 -"#..5
&ssam .K.85 5".55 .5.5# JK..- J..K5 K5."- K".9# K"."-
3ihar K9.J5 K9.K- KK.89 K-.K6 6J.-K 98.K. 95.95 96.8"
Iu)arat -8".-6 -8#.K# -8"."8 -8-."5 -"5.K6 -95.6K -8..5# -96.6#
Daryana -95..K -9K.J8 -6-.9# -69.9" -69.68 -9..98 -#-.-K -#-.-6
@arnataka 58."" 58.6# ...88 5-.9J -"-..8 -"".86 -8"..9 --#."K
@erala -"6.5# 55.KJ 59..6 5#.#" 56.9. -"#..- -"K.J8 -"K."J
1adhya
Pradesh 5#.K9 5-.69 .J."# .J.6" J5.K5 .-.96 J8.6- JK.8K
1aharashtra -98.-5 -8J.5. -9".-. -95.55 -9J.8" -6..95 -#6..J -#J.6"
Arissa JK."9 J8.". J9.5J 65.86 K6..9 K8.96 6K.#. 6..J-
Pun)a* -6J.-9 -K9.-# -K5.8# -K8.8J -KJ.-- -66..# -69.J. -6".K6
:a)asthan J5.-. .".#" JK..# 59.-6 .#.66 .K.#6 .8.85 .#.5"
/amil Nadu 5.."8 -"9.K9 -"#.9" -"..9K --".## -8-.6J -98.-J -86.5K
Uttar Pradesh JK.59 J#.-J J9.9K J9.K- J8..- K8.5J 6K.6K 6K.99
West 3engal 58.-J .#.J5 ..... .8.66 .J.K8 .5.JK 55.#J -"8.JK
Sour%e 43asi% Data7, EPW :esear%h foundation, 8""9
/here are some states whi%h reveal an almost %ontinuous movement in one
dire%tion. &mong these, the states whi%h moved in the u(ward dire%tion are West 3engal,
/amil Nadu and 1aharashtra. /he states whi%h followed a downward trend in their
relative ranks are 3ihar, &ssam, Arissa and Uttar Pradesh. States like Daryana, :a)asthan
and Pun)a* have shown an im(rovement in their relative ranks in ."s *ut a fall in 5"s.
3ut, the nature of fall is not same for all of them, for eg., Daryana had a di( fall during
first half of 5"s *ut a re%overy nature from the de%reased relative rank in the later half of
5"s. Cor :a)asthan the %ase is o((osite. /he fall was severe, *ut a little im(rovement has
o*served till 8""-. Collowing a high rising trend in the relative rank in later half of ."s,
its in%ome inde, has *een de%reased in 5"s. /here are some states for whi%h the relative
86
ranks in ."s followed a de%lining tenden%y *ut in 5"s their (ositions in terms of relative
ranks have shown %ontinuous rising trends. /hey are Iu)arat, @erala and 1adhya
Pradesh. /he relative rank of @arnataka refle%ts a %ontinuous in%rease till mid 5"s and
then de%lined. 3ut, from the (i%ture of relative in%ome inde, we %an not get any idea
a*out the year2 to2year (erforman%es of the states. /o have a sight on this area, we %an
%on%entrate on the growth rates of in%omes a%ross the states.
/o highlight on trend and flu%tuation in the year2to2year growth rates of
(er %a(ita in%ome, we (resent in the following ta*le the arithmeti% averages of the growth
rates for ea%h state along with their standard deviation, median, ma,imum and minimum
growth rates over the entire (eriod. /he standard deviation and the ma,imum, minimum
growth rates reveal on%e again the large flu%tuations for Iu)arat, 3ihar, :a)asthan and
Arissa revealing the non2uniform nature of growth rates. 3ut, West 3engal, &ssam,
Pun)a* is the states that dis(lay relatively uniform year2toFyear growth rate. Aver the 8"
years of )ourney of growth rate of (er %a(ita in%ome, Pun)a* has the lowest standard
deviation of growth rate and highest for Iu)arat. /rend e,(onential growth for 8""-2"8 is
ma,imum for West 3engal
95
.
-able %: 5ario"s Averages of the year6to6year (ercentage +roth Rates in (CN,D( *7#86#*
to 288*682









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&ndhra Pradesh 9.5J 6.#J 9.58 #.K# -9.K9 26.8-
&ssam -.8J 8.J. -.J- #.99 ..J5 2#.56
3ihar ".-J -".#" -.-. 2".#- 8".-. 288.##
Iu)arat 9.6. --.8J ".#9 9.6- 98.". 2-9.K9
Daryana 9."6 6.6- 8.9" 8.55 -5.95 2#.-.
@arnataka #."9 #.-- #.96 6.-" --.9K 2K.8#
@erala 9."- 9.KK 8..6 6.86 ..69 26.#K
1adhya Pradesh -.5. K.6- 9.8J 8.K8 -".JK 2-#.#-
1aharashtra 9.69 #.K" 9.#6 9.K9 -8.59 26.66
95
/o have a +ui%k glan%e on the sim(le growth rates of the states along with their %oeffi%ient of variations
over the entire last two de%ades, /a*le &K %an *e %onsulted.
8K
Arissa -.JJ ...6 8.96 8.KJ -J.9- 28".6J
Pun)a* 8.." 8."# 8.K8 -.59 J.8# 2."J
:a)asthan 9.9# -".K- 8.66 8.KJ 98.#8 2-".K8
/amil Nadu #.8" #.8. #.95 #.6- -".66 2J.-9
Uttar Pradesh -.68 9.9# -.6" "..- -"."- 29.96
West 3engal 9.68 8..6 #.-8 6.5K 5.-- 2#..K
Sour%e 43asi% Data7, EPW :esear%h foundation, 8""9
Note the growth rates are %al%ulated on the *asis of (er %a(ita net state domesti% (rodu%t at
%onstant 5925# (ri%es.

& %om(utation of average annual growth rates 4/a*le #7 de(i%ts the
de%adal nature of the growth rates. No state either in ."s or in5"s e,(erien%ed negative
growth rate e,%e(t 3ihar in 5"s. An the *asis of the in%ome grou(s we %an not find any
distin%t feature of growth of a (arti%ular grou( of state for ."s. during 5"s, e,%e(ting
Pun)a*, Daryana, &ndhra Pradesh, the high and the middle in%ome states have %ontinued
with a higher (a%e of growth. /he de%adal growths in 5"s for few low in%ome grou(
states, like &ssam, 3ihar, Uttar Pradesh are not only low in %om(arison with the high and
the middle in%ome states. In a*solute term also, they have *een fallen in 5"s as %om(ared
to their res(e%tive de%adal growth rates in ."s.
-able ': Average Ann"al +roth Rate
States ."s 5"s -5."to8""-
&ndhra Pradesh 9.5K9 9.K"5 9.J.K
&ssam -..6K ".6J. -.8-J
3ihar -.K5K 2-.9K6 ".-K6
Iu)arat -..K9 #.5K. 9.#-6
Daryana 9.6#- 8.8JJ 8.5"5
@arnataka 9.K-6 #."J# 9..##
@erala -.J95 #.""J 8..J9
1adhya Pradesh -.-98 8.K#- -...K
1aharashtra 9."98 9.K55 9.9KK
Arissa -.9.6 -.555 -.K58
Pun)a* 9.86# 8."5. 8.KJK
:a)asthan 9.85 9."J. 9.-.#
/amil Nadu 9.JJ5 #.89K #."".
Uttar Pradesh 8.-5# ".J". -.#6-
West 3engal 8.899 #.#5 9.9K8
Sour%e authorBs %al%ulations
8J
43asi% Data7, EPW :esear%h foundation, 8""9
/he a*ove analysis does not indi%ate anything a*out the sta*ility of
growth rates. Su((ose a state has a high average rate of growth *ut also shows a degree
of varia*ility in its annual rate of growth. /hen, the stateBs growth (erforman%e is
somewhat degraded %om(ared to that revealed *y the average annual growth rate. An the
other hand, a state having lower average annual growth rate may reveal +uite sta*ility
year to year. /his kind of growth (erforman%e %ould *e viewed as *etter. In order to
assess the degree of varia*ility of annual growth rates, average growth rates of different
states have *een ad)usted *y in%or(orating %oeffi%ients of variation
#"
of annual growth
rates of res(e%tive states. /wo %om(uted growth rates are
3*4 Irowth Sta*ility Inde,, and
324 487 Sta*ility &d)usted Irowth :ate
#-
. /a*le 6 %arries the related results.
-able /: 5ariability Ad9"sted +roth Rates
00 4# 7 O ]487 P 497^> 8
N.3. growth rates are %om(uted on P?NSDP at %onstant 5925# (ri%es, not on NSDP.
#"
?oeffi%ient of variation O V4Standard Deviation > &verage7 0 -""X
#-
1athur, &shok 4-5.97, G:egional Develo(ment and In%ome Dis(arities in India & Se%toral &nalysisH,
E%onomi% Develo(ment and ?ultural ?hange, Tol.9-, No.9, ((2KJ2-8J.
states 4-7
Irowth :ate Inde, 487
Irowth Sta*ility Inde,
497
&verage Irowth
Performan%e 4#700
Sta*ility &d)usted
Irowth :ate467
*7#86
288*
*7#86
*778
*77*6
288*
*7#86
288*
*7#86
*778
*77*6
288*
*7#86
288*
*7#86
*778
*77*6
288*
*7#86
288*
*7#86
*778
*77*6
288*
&ndhra
Pradesh -85.#8 -#..88 --9.9# -#-.9K -K#."8 -99."J -96.95 -6K.-8 -89.8" #.#" #.#K #.69
&ssam #".J8 KJ.K5 -J.K# .5.#J -9#.J6 K..8# K6.-" -"-.88 #8.5# 8.-- 8..5 -.6.
3ihar --#..9 KK.-9 -6K.6" J5.9J JJ.K6 .".9. 5J.-" J-..5 --..## 9.-6 8."6 #.96
Iu)arat -99.8K 59..9 -KJ."" KK.J8 #...J ...". 55.55 J-.96 -8J.6# 9.86 8."# #.K5
Daryana -"".8J -96.-. J".#" -"6.-K -8K.9# -8#."9 -"8.J8 -9".JK 5J.8- 9.99 9.J# 9.6J
@arnataka -85.8. -98."K -8K..5 -.5.#. 8-#."9 -JJ.-6 -65.9. -J9."6 -68."8 6.-J #.56 6.65
@erala 5K.88 K#.#K -89.#" -65.5K -"J.95 8...59 -8.."5 .6.59 8"K.-J #.-K 8.#K J.6J
1adhya
Pradesh K.."" #J.#K .6.6J K6.#. 6".#8 J5.#. KK.J# #..5# .8.68 8.-J -.#" 9."9
1aharashtra --9.5# ---.-" --K.9K -#J.9K -J9.-J -9-.8- -9".K6 -#8.-# -89.J. #.8# #."K #.66
Arissa KJ.8K K5.5. K#.59 #K..9 ##.K- K#.8. 6J."# 6J.85 K#.K" -..6 -.K# 8.9J
Pun)a* ...8# --K.J# K9..# 865.K8 99#."" 8#6.9K -J9.59 886.9J -6#.K" 6.K6 K.## 6.K.
:a)asthan -88.5K -#J..9 -"-.KJ KK.8. J9.J9 J#..9 5#.K8 --".J. ...86 9."J 9.-J 9.8#
/amil Nadu -9#.5. -95.-" -9-.#K -5"..5 -56."" 8-8.-" -K8.59 -KJ."6 -J-.J. 6.85 #.JJ K.9-
Uttar Pradesh #..5# J5.98 88.5# ...89 -J#.-# 9K.JJ K..6. -8K.J9 85..6 8.89 9.K8 -.-"
West 3engal ---.K5 ."... -9.."K 89.."# -J8.J" 6J".95 -J#..J -8K.J5 96#.89 6.K. 9.K8 -9."-
8.
Sour%e 43asi% Data7, EPW :esear%h foundation, 8""9
Ane o*servation is that a state whose sta*ility inde, is more than the
growth rate inde,, the Evaria*ility ad)usted growth rateB would *e%ome more than its
a%tual average growth rate. /he highest Evaria*ility ad)usted growth rateB is seen in West
3engal 4O6.K. while for Pun)a*O6.K67. A*serving growth rates during the last two
de%ades it reveals that although in terms of growth rate inde, it is /amil Nadu whi%h to(s
the list while in terms of high growth (erforman%e, Pun)a* almost to(s the list. /his is
*e%ause the %oeffi%ient of variation of growth rate for Pun)a* %omes out very low, in fa%t
lowest 4see /a*le &K7. &s its %onse+uen%e, in terms of Evaria*ility ad)usted growth rateB,
Pun)a* almost to(s the list. /he other two following states are /amil Nadu and @arnataka.
/heir sta*ility of growth rates are higher than the res(e%tive a%tual growth rate inde,.
Similarly, @erala though having the varia*ility ad)usted growth rate #.-KN is very low in
terms of a%tual rate of growth. /he very high value of the %oeffi%ient of variation has
restri%ted the varia*ility ad)usted growth rate of Arissa at -..6N. /wo low in%ome states,
:a)asthan and 3ihar, have more or less same sim(le rate of growth 49.-8N and 9.55N
res(e%tively7. 3ut, the growth sta*ility for *oth of them is so (oor, that these two statesB
varia*ility ad)usted growth rates have stru%k at 9.-6N and 9."JN.
Cor most of the states, the sta*ility ad)usted growth rate for 5"s have
in%reased in %om(ared with that of ."s. /he highest in%rease has *een o*served in West
3engal. Crom a middle (a%e of growth it has rea%hed to the highest sta*ility ad)usted
growth rate. Ather noti%ea*ly )um( in the (a%e of sta*ility ad)usted growth rate is seen in
@erala from 8.#KN to J.6JN. 1oderate im(rovement in this growth rate is seen for
3ihar, Iu)arat, @arnataka and /amil Nadu. /hough Arissa in terms of sta*ility ad)usted
growth rate im(roved mu%h, *ut its sim(le rate of growth is very de(ressing in ."s. &
drasti% fall in sim(le rate of growth is seen in Uttar Pradesh. &s a result, its sta*ility
ad)usted growth rate has stru%k at a very low level. De%line in the sta*ility ad)usted
growth rate has seen in states like &ssam, 1aharashtra, Pun)a*, and :a)asthan. In
:a)asthan, the sim(le rate of growth is 9.J#N during 5"s. 3ut, *e%ause of its signifi%antly
low level of sta*ility in sim(le growth rate, the sta*ility ad)usted growth rate has fallen to
85
9.-JN. It has *een o*served that during the last two de%ades the state whi%h ranks at the
to( in terms of their Evaria*ility ad)usted growth ratesB are the high and mostly middle
in%ome states like Pun)a*, West 3engal, /amil Nadu, @arnataka, 1aharashtra and @erala.
&t the other end, the states are like &ssam, Arissa, 1adhya Pradesh, Uttar Pradesh2 low
level of (er %a(ita state in%omes2 have not (erformed well in terms of varia*ility ad)usted
growth rates. E,%e(tionally, among the high2in%ome states, Iu)arat, Daryana during
-5."28""-, have (erformed (oor *y o%%u(ying ninth and eighth ranks res(e%tively. So,
the %ru, of our growth study reveals that tenden%y of divergen%e is *e%oming %lear
*etween Ehigh L middleB in%ome grou(s with the low2in%ome grou( of states. /he
revealed (i%ture does not follow the way of %onvergen%e ushered *y the neo2%lassi%al
s%hool of thought. Daving the findings from the (revious analysis, now we will test
%onvergen%e a%ross the fifteen ma)or states of India following the *asi% test e+uation
(rofound *y 3arro and Sala2I21artin.
We have dis%ussed earlier a*out the two notions of %onvergen%e
%onditional or %onvergen%e and un%onditional or %onvergen%e. /he se%ond ty(e of
%onvergen%e %on%entrates only on initial level as well as growth of in%ome. It is
irres(e%tive of the su*)e%tivity of %ontrolled varia*les as the initial fa%tors. An the other
hand, %al%ulation of %onditional %onvergen%e de(ends on different fa%tors like initial
%a(ital sto%k, la*or (rodu%tivity et%. /hese %onditioning fa%tors de(end on the nature of
the e%onomy also. So, measure of this kind of %onvergen%e is not very straight forward.
In our analysis, we have estimated the *asi% e+uation to test un%onditional
or 2 %onvergen%e. /he e+uation is like
<og 4P?NSDP8""-2"8 > P?NSDP-5."2.- 7 O a P *. <og 4 P?NSDP-5."2.-7
In our finding, for the ma)or -6 statesB P?NSDP at %onstant 5925# (ri%es, the e+uation
takes the form like
<og 4P?NSDP8""-2"8 > P?NSDP-5."2.- 7 O a P 4.#.67. <og 4 P?NSDP-5."2.-7= :
28
O.-JK>CO#
tO8."#9
If %onvergen%e ha((ens then the sign of the E*B must *e negative. 3ut, in
our %ase, it is (ositive whi%h im(lies negative of %onvergen%e or Edivergen%eB. Sin%e *O 2
9"
4-2 e
2

t
7 solving for , given *O.#.6, we have, 22222the s(eed of divergen%e, O 42
"."-J5J or -.."N7.
/o look through *y some other way, F %onvergen%e over time means the standard
deviation of in%ome in de%reasing. 2 %onvergen%e %an *e written as ,
S/DET/ O a P * 0 S/DET/2- where * Q o, S/DET stands for standard deviation of (er
%a(ita state (rodu%ts. So in our %onte,t, it will im(ly 2
S/DET of P?NSDP at 8""- Q S/DET of P?NSDP at -5.-
or S/DET of P?NSDP at -55- Q S/DET of P?NSDP at -5.-.
/he %al%ulated S/DET of P?NSDP at -5.-O -#-K.69-
S/DET of P?NSDP at -55-O 8..9.6#-
S/DET of P?NSDP at 8""-O 9J--.6"J
/he %al%ulated S/DET of log4 P?NSDP7 at -5.- O .--
S/DET of log4 P?NSDP7 at -55- O .-9
S/DET of log4 P?NSDP7 at 8""- O .-5 .
So it is %learly evident that the standard deviations of (er %a(ita state
(rodu%ts are not %onverging at all, rather they are +uite diverging. /his reem(hasi'es our
(revious findings of growing ga( among states, in other words, the divergent nature
a%ross state in%omes.
&s the neo2%lasi%al model tells that every e%onomy follows its own steady
state. So, the nature of %onvergen%e 4or divergen%e7 and steady state for individual state is
e,(e%ted to *e not e+ual. /o (ut on the light on this issue, here a model has *een
%onstru%ted. <et P?NSDPit *e the ratio of 4 (%nsd(it > (%nsd(0 7 where (%nsd(it is the i2th
state (er %a(ita state domesti% in%ome in (eriod EtB and (%nsd(0 is aggregate 4 average7
(er %a(ita in%ome of -6 ma)or states of India in (eriod t. &llowing for different steady
states and different %onvergen%e rates a%ross the -6 ma)or states gives the following
e,(ression for E P?NSDPiB.
9-
/he model here is
<n4 P?NSDPit7O _. P?NSDPi," P `i . <n4 P?NSDPi,t2-7
In the a*ove e+uation,
i O -,8,9,YYY..N where NO -6
tO -,8,9,YYYYY../ where /O 88=
/he model allows us for initial (er %a(ita in%omes to influen%e the future growth through
the (arameter E_B.
/he %orres(onding statisti%al model %an *e written as
<n 4 P?NSDPi7 O Ui P `i . <n 4 P?NSDPi,t2-7 P ait
where ait re(resents inde(endently drawings from a normal distri*ution with mean 'ero
and varian%e 4b
8
. a7.
/he model allows the initial %ondition to influen%e future growth through Ui. /he relative
4steady7 state value of P?NSDPit is 4Ui>4 -2 `i7. /hus, statewise %onvergen%e estimation
has *een done. /he analysis has *een done *y %om(uting the year to year growth rate for
ea%h state.
-able :: -est of Convergence of (CN,D( for each state
,tates ; < R
2
!evel of
,ignificance
,peed of
Convergen
ce
,teady
,tate
&ndhra Pradesh 2"."-.9 ".K-5 ".9-8 ".""6 #.9.K 2"."#.
&ssam 2"."-K- -.""# ".598 ".""" -6.89. #."86
3ihar 2"."6JJ ".56J "..J. ".""" -#.9"9 2-.9#8
Iu)arat ".-6. ".#"6 ".-K. "."K6 8.9K" ".8KK
Daryana ".-.. ".#K5 ".888 "."9- 8..JJ ".96#
@arnataka "."".#9K "..6 ".K68 ".""" ..K89 "."6K
@erala 2".""9J- ".."J ".K#5 ".""" J.#J. 2"."-5
1adhya Pradesh 2"."56# ".6"6 ".8J6 "."-6 9.-5K 2".-59
1aharashtra ".656 "..# ".J-# ".""" ..99" 9.J-5
Arissa 2".-6# ".KK# ".#KK ".""- #.56J 2".#6.
Pun)a* ".--8 ".JK8 ".688 ".""" K.686 ".#J-
:a)asthan 2".-98 ".-K "."8J ".#JK ".J59 2".-6J
/amil Nadu 2"."8-K6 ".5"8 "..-9 ".""" -".66. 2".88-
Uttar Pradesh 2".""JK# -."-5 ".59- ".""" -6.89. ".#"8
West 3engal 2".""5-J "..JK ".J#- ".""" 5.#.5 2"."J#
Sour%e ?om(uted , 43asi% Data EPW :esear%h Coundation, 8""97
98
/he steady state values are widely s(read. 1ostly middle in%ome and low
in%ome states have negative steady states. &mong the low in%ome states, in &ssam, the
(ositive steady state value is seen whi%h is higher than that in 1aharashtra. S(eed of
%onvergen%e is high in states like &ssam, 3ihar, /amil Nadu, Uttar Pradesh, @erala and
@arnataka those are mostly middle and low2in%ome states. /his im(lies that the
res(e%tive in%omes of these states are %on%entrated, or not very varied, over the last two
de%ades.
So, all the findings a((lying different ways in our analysis, %ome to the
%ommon (oint that ma)or states of Indian e%onomy are e,(erien%ing divergen%e. In other
words, in terms of state in%omes, regional dis(arity is *eing loomed large. Crom the
(oli%y im(li%ation framework, it now seems interesting to o*serve whether the dis(arity
in terms of (er %a(ita in%ome among the s(e%ifi% grou(s of states is higher than the
dis(arity within a (arti%ular grou( of state.
/o test whether the E*etween2grou(sB varia*ility in (er %a(ita in%ome is
signifi%antly greater then the Ewithin grou(B varia*ility, the C ratio
#8
has *een used as
given *elow.

C O 3etween Irou( Taria*ility > Within Irou( Taria*ility
Ar, CO V W
9
iO- W
-6
)O- 4 y)i 2 yi
\8
7 > degree of freedomX
= VW
9
iO- 4 yi
\
2 y
Z
7
8
> degree of freedomX


Where yi
\
is the average of in%ome of the (arti%ular grou( i .
L y
Z
is the grand average of in%ome over grou(sB in%ome averages.
Dere iO 9, high in%ome, middle in%ome and low in%ome grou(s of states.
So, the degree of freedom for the *etween grou( varia*ility is 492-7 O 8 and that for the
within grou( varia*ility O 46 F -7 P 4#2-7 P 4K F -7 O -8.
6, # and K are the num*er of states in high in%ome, middle in%ome and low in%ome
grou(s res(e%tively. /he %al%ulated value of C O -.-JJ, where ta*ulated C48,-8,."67 O
9..5, so, Do is a%%e(ted , whi%h im(lies that in terms of P?NSDP, the inter grou(4 state 7
dis(arity is signifi%antly different from within2 state dis(arity.
#8
1ahmood, &slam and 1oonis :a)a 4-5JJ7
99
So, se(arate (oli%ies %ould *e suggested for a (arti%ular grou( of in%ome states instead of
homogeneous (oli%ies for all the states.
/$ Concl"sion
<ike the ma)or findings, this study also indi%ates the divergent trend of (er
%a(ita in%ome a%ross the ma)or Indian states. /o say s(e%ifi%ally, there is un%onditional
%onvergen%e of (er %a(ita state in%ome during last two de%ades. /he s(eed of divergen%e
in (er %a(ita state in%omes over the last two de%ades is -.."N.
In %om(arison with the s%enario of the other %ountries like <atin &meri%an
and South2 &sian develo(ing %ountries, the share of servi%e se%tor in%ome to total state
domesti% (rodu%t is relatively low in India 4/a*le &97. 3ut, the aggregate (er%entage
%ontri*ution of servi%e se%tor in%ome is highest in the ma)or states of India out of the
three se%tors namely2 agri%ulture, industry and servi%e. &t the same time, servi%e se%tor
has a lot of forward linkages with other two se%tors. Coreign dire%t investment also has a
natural in%lination to flow towards the regions having more %ondu%ive *ases for the
growth of the servi%e se%tor. /his results in aggravating regional dis(arities es(e%ially in
terms of growth of regional in%omes. In this res(e%t, the *asi% assum(tion of neo2
%lassi%al growth theory, i.e., diminishing returns to %a(ital is *e%oming dou*ta*le in
%ountries like India where divergen%e of growth is %at%hing u(. /he e,isting studies
suggest that e,isten%e of uneven natural resour%es a%ross e%onomy is one of the im(ortant
%auses to e,(lain the dis(arity a%ross its regions. 3ut, the in%reasing trend of in%ome
dis(arity su*stantially demands for suita*le (oli%y im(li%ations. In this %ase, our analysis
on intra and inter regional dis(arity suggests se(arate (oli%ies for different in%ome grou(s
of states.
During last two de%ades, the sim(le average growth rate has in%reased for
the low in%ome states. 3ut, their varia*ility of the growth rate is +uite high. &s a result,
the overall varia*ility ad)usted growth rate is revealed to *e low in low in%ome states.
/he varia*ility ad)usted growth rate is high in middle in%ome states *e%ause of the
*alan%ed and sta*le in%rease of growth rate of (er %a(ita in%ome. Cor e,am(le, the
9#
varia*ility ad)usted growth rate of West 3engal for the de%ade of 5"s is ma,imum. /he
heterogeneity in the stru%ture of growth rate of (er %a(ita in%ome a%ross the states
indi%ates the im(ortan%e of mi%ro vision to e,(loit indigenous resour%es of ea%h state for
strengthening develo(ment. Averall, the high and the middle in%ome states have
maintained relatively high rate of growth in 5"s. 3ut, in ."s the situation was more
harmonious. /he varia*ility ad)usted growth rates %learly im(ly the divergent nature
*etween the high L middle2in%ome grou(s of states and low in%ome states though all of
the states are having (ositive growth rates. /hese findings are *eing reem(hasi'ed *y the
rank analysis also. /he rankings of the states in terms of their (er %a(ita NSDP during last
two de%ades are +uite rigid.
A((ENDI>
Table A1: Ranking of the States on the basis of er !apita "et State #omestic ro$uct
%at !onstant &'(&) prices* from 1&+,(+1 to 1&&,(&1
States
!"#
$-#!
!"#
!-#%
!"#
%-#&
!"#
&-#'
!"#
'-#(
!"#
(-#)
!"#
)-#*
!"#
*-##
!"#
#-#"
!"#
"-"$
!""$
-"!
&ndhra Pradesh -- J J . -" -- -" 5 J K K
&ssam -" -" 5 -" 5 J 5 -- -8 -8 -8
3ihar -6 -6 -6 -6 -6 -6 -6 -6 -6 -6 -#
Iu)arat # # # 9 9 # # # 9 # #
Daryana 8 8 8 8 8 8 8 8 8 8 8
@arnataka 5 . -" K K 5 K K K J 5
@erala 6 K 6 -" J K J . 5 . J
1adhya Pradesh J 5 . J -- -" -8 -" -- -- -"
1aharashtra 9 9 9 # # 9 9 9 # 9 9
Arissa -# -# -# -# -# -9 -# -# -# -9 -6
Pun)a* - - - - - - - - - - -
:a)asthan -8 -8 -8 5 -8 -8 -- -9 . 5 .
/amil Nadu K 6 K 6 6 6 6 6 6 6 6
Uttar Pradesh -9 -9 -9 -9 -9 -# -9 -8 -9 -# -9
West 3engal . -- -- -8 . . . J -" -" --
States
!""
!-"%
!""
%-"&
!""
&-"'
!""
'-"(
!""
(-")
!""
)-"*
!""
*-"#
!""
#-""
!""
"-$$
%$$
$-$!
%$$!
-$%
&ndhra Pradesh J 5 . . . . -" . . . .
&ssam -8 -8 -8 -8 -8 -8 -8 -8 -8 -8 -8
3ihar -6 -6 -6 -6 -6 -6 -6 -6 -6 -6 -6
Iu)arat 6 # # # 9 9 9 9 9 6 #
Daryana 8 9 9 9 # # # # # 9 9
@arnataka K K J J J K K K K K K
@erala . J K K K J J J J J J
96
1adhya Pradesh -- -- -" -- -- -- -- -- -- -- --
1aharashtra 9 8 8 8 - 8 - 8 - 8 8
Arissa -# -# -# -# -# -# -# -9 -9 -# -9
Pun)a* - - - - 8 - 8 - 8 - -
:a)asthan -" . -- 5 -" -" . -" -" -" -"
/amil Nadu # 6 6 6 6 6 6 6 6 # 6
Uttar Pradesh -9 -9 -9 -9 -9 -9 -9 -# -# -9 -#
West 3engal 5 -" 5 -" 5 5 5 5 5 5 5
Table A2: -se$ .etho$ of /rouping of States
States &verage Stdev 4&veragePStdev7 :ank Irou(
&ndhra Pradesh J"-K."5 -J5#.5. ..--."J . m
&ssam 66"..#6 99K.J# 6.#6.-5 -8 l
3ihar 9KJ"."" #KK..# #-9K..# -6 l
Iu)arat 5J6J.6" 8K#-.5. -8955.#. # h
Daryana -"6J5.98 8-8..6- -8J"J..8 9 h
@arnataka J686.9K 8-56.K" 5J8".5K K m
@erala J9J..9K -.6K.8K 589#.K8 J m
1adhya Pradesh K-."."6 -"-".8" J-5".8# -- l
1aharashtra -"K89.9K 85-6.J6 -9695.-- 8 h
Arissa #J58.9K K-8.JK 6#"6.-8 -# l
Pun)a* --.56."5 8"56.8" -955".85 - h
:a)asthan K9J5.89 -6K8."J J5#-.85 -" l
/amil Nadu .##J.-# 86K9.5. --"--.-8 6 h
Uttar Pradesh 6"-".89 69-.-# 66#-.9J -9 l
West 3engal KJ-J."5 -J"8.JJ .#-5..K 5 m
N.3. where m O middle in%ome states, l O low in%ome states, h O high in%ome states=
Stdev O Standard Deviation L &vg O &verage c &rithmeti% 1ean.
Table A': Shares of Services to /# for #ifferent !ountries

?ountries
Share of Servi%es in
IDP 4 (er %ent 7
-5." -555
,o"th Asia
India 9K #K
Pakistan #K #5
3angladesh 9# 6"
Sri <anka #9 68
East &sia
Dong @ong #5 .6
Singa(ore K- K#
@orea #6 6-
?hina 8- 99
<atin &meri%a
&rgentina 68 KJ
3ra'il #6 K-
1e,i%o 65 KJ
9K
&fri%a
South &fri%a #9 K#
dim*a*we 6" 66
Digh in%ome
US& K# J#
Ja(an 6# K8
Cran%e K8 J#
World 66 K9
Sour%e World Develo(ment Indi%ators, -55., 8""-
Table A): Time Series Rank rofile
0ear 1igh .i$$le Low
-5.-2.8 9 . -9
-5.82.9 9.8 J.. -9
-5.92.# 9 ..# -8.K
-5.#2.6 9 ..K -8.#
-5.62.K 9 ..K -8.#
-5.K2.J 9 ... -8.8
-5.J2.. 9 ... -8.8
-5..2.5 9 5 -8
-5.525" 9 ... -8.8
-55"25- 9 ... -8.8
-55-258 9 ... -8.8
-558259 9 5 -8
-55925# 9 ..K -8.#
-55#256 9 ... -8.8
-55625K 9 ... -8.8
-55K25J 9 ... -8.8
-55J25. 9 5.8 --..
-55.255 9 ... -8.8
-55528""" 9 ... -8.8
8"""28""- 9 ... -8.8
8""-28""8 9 ... -8.8
Table A2: !ross Sectional Rank rofile
States 1&+1(1&&, 1&&1(2,,1 1&+1(2,,1
3ihar -#.5" -6."" -#.56
Arissa -9.5" -9.J9 -9..-
Uttar Pradesh -9.-" -9.8J -9.-5
:a)asthan -".K" 5.K# -".-"
&ssam -".-6 -8."" --.-8
1adhya Pradesh 5.5" -".5- -".#9
West 3engal 5.K" 5.-. 5.9.
&ndhra Pradesh ..-" ..-. ..-#
@erala J.96 K..8 J."J
@arnataka J.9" K.8J K.JK
/amil Nadu 6.-" #..8 #.56
9J
Iu)arat 9.J" 9.J9 9.J-
1aharashtra 9.9" -..8 8.68
Daryana 8."" 9.9K 8.J-
Pun)a* -."" -.8J -.-#
N.3. States are organi'ed a%%ording to the in%reasing order of ranks.
Table A3: /rowth Rate an$ !oefficient of 4ariation of per capita "S#
States
Simple /rowth Rate !oefficient of 4ariation
+,s &,s all +,s &,s all
&ndhra Pradesh 9.J- 9.K. 9..K -.K# -.88 -.95
&ssam -.K5 ".6. -.88 8."9 8.95 8.-5
3ihar 8.#6 #.J- 9.8 8."- 8."9 8.#J
Iu)arat 8..# 6."5 9.#J 9.K9 -..6 8.5#
Daryana 9.K9 8.9 8.56 -.58 -.9- -..K
@arnataka 8.J- #.-K 9.58 -.9# ".58 -."9
@erala -.J #."5 8.5- 8.9J ".6K -.89
1adhya Pradesh 8."# 8.K. -.5 8.K 8."6 8.55
1aharashtra 9.9- 9.JJ 9.#8 -.89 -.8# -.99
Arissa ".#J 8."8 -.J- -".#- 8.69 #.-5
Pun)a* 9."J 8.-8 8.J- ".J5 ".KK ".JK
:a)asthan #.9 9.-9 9.8# 8.K# 8.-. 8.5K
/amil Nadu 9.J- #.99 #."5 -.9 ".JJ -."9
Uttar Pradesh 8.9K ".J- -.#K -.8# #.#9 8.88
West 3engal -.J6 #.65 9.#8 -.J6 ".85 "..8

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