Analysis of Regional Convergence Across Indian States: A Comprehensive Approach

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Affiliation

Introduction
Regional disparities represent an important development challenge in most countries
especially those with large demographic & geographic considerations. The literature on regional
growth & disparities has emerged soon after the Second World War with the fall of classical market
economic pattern (Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and J. S. Mill)
that believes the factors of market forces would bring equilibrium automatically in the economy if
there are disparities. But the development experience of various countries in the past was contrary
to that of what was expected. Since then there has been an extensive development both on
theoretical and empirical aspects. Specifically some literature depicts that disparities behave like
bell shaped over the growth process (Kuznets, 1955; Williamson, 1965) and others believe that
disparities are inevitable concomitant of growth itself (Myrdal, 1957; Hirschman, 1958; Hughes,
1961; Booth, 1964; Friedman, 1966; Krugman, 1991). Recent literature examined the
convergence/divergence of regions viz., Barro and Sala-i-Martin (1992, 1995), Quah (1993, 1996a,
1996b, 1997), Carlno and Mills (1993: 1996), Crown and wheat (1995), Bernard and Jones (1996),
Vohra (1996), Bianchi (1997) and Desdoigts (2002), to name a few, have made controversial
claims by analyzing cross-country income dynamics based on neoclassical hypothesis of
convergence.
Regional inequalities across the Indian states have been well documented and studied by
many researchers. Mathur (1983) found bell shaped behavior of the regional income disparities
over the time. Das and Barua (1996), Ahlluwalia (2002), Jha (2004), Parthypratim Pal & Jayati
Ghosh (2007), Utsav Kumar & Arvind Subramanian (2012) used advanced statistical tools and
found contradictory results about the behavior of the disparities over growth process. Cashin &
Sahay (1996), Bajpai and Sachs (1996), Marjit & Mitra (1996), Nagaraj et al. (2000), Rao, Shand
& Kalirajan (1999) and Aiyar (2001) uses standard beta convergence approach to analyze the issue,
however there is no clear consensus from all these studies. Most of them are unable to explain the
sectoral behavior & causes of the regional disparities across Indian states and did not provide any
holistic approach that includes broader socio economic perspective of the economy. Furthermore,
examination of spillovers of growth process is at infancy.
India started its development process on the basis of socialistic pattern of society mainly
to eradicate the inequality and poverty and promote balanced regional development across the
states. Because of its inherent wide diversification in terms of resource base, endowments, culture,
religion, etc., and failure of planning process especially implementation over decades, India is yet
to find a clear solution to resolve the issue of regional disparities. Even though opening up of the
economy in 1990s did not favor any significant results of decreasing regional disparities instead it
has contributed more towards increasing the gap (Kalirajan et al., 1999). There are some specific
questions which need to be answered when we are trying to examine the behavior of Indian
economy.
1) What are the factors responsible for the intra and interstate disparities in India?
2) Whether the state itself is responsible for this difference or there is any external force
pushing this phenomenon.
3) What is the immediate role of public and private organization to help out the states in
reducing differences?

Scope of the study

This study aims to examine the regional economic growth & disparities across the 22
Indian states from a sectoral view for 1980-81 to 2010-11. The main contribution of the study is
of two fold. First, we will try to determine the state specific variables which are purely responsible
for differences between the states that will help us to approach the heterogeneous states differently.
Second, the study examines the patterns of growth and its subsequent interactions across
boundaries using spatial analysis (Anselin: 1988, 1990, 1995; Anselin and Bera: 1997 and Kelejian
& Prucha: 1998) by taking geographic, demographic and other socio-economic consideration as
the measure of neighborliness. That will be useful to identify the clusters and to provide necessary
suggestions to balance the economy by improving the patches of low growth areas. Further we
will try to examine the convergence behavior of the states over time by using both spatial standard
convergence approach (Ray and Montouri: 1998 and Ray: 2001) and a constructed weighted index
to highlight the methodological issues which were previously neglected and provide a new insight
of dynamics of regional growth patterns by taking spatial aspects into consideration. Thus, if we
identify the disparities on a more precise regional scale, policymakers can more accurately target
and resolve the economic concerns facing by the states today.

Objectives
The objectives of this study are as follows:
1. To analyze the regional disparities across Indian states.
2. To construct a weighted development index for the states with socio-economic variables
to understand the disparities better.
3. To identify the state specific variables responsible for the growth and differences across
the states.
4. To examine the dynamics of convergence and its subsequent spillovers across the Indian
states.

Data & Coverage

The study will use secondary data sources for the analysis and the data will be collected
from various data sources such as Indiastat, RBI, & MOSPI, Planning Commission, Finance
Commission and Respective State Ministries. So far various statistical as well as regression based
approaches have been used to examine the trends and pattern of regional disparities across Indian
states. The common thing among them is that they have used aggregate variables and limited their
analysis around some specific area & objectives subject to their constraints.
The study will cover 22 Indian states and will be conducted for a quite longer period
especially before and after liberalization. It will disaggregate the analysis down to sector wise and
try to find out state specific variables primarily responsible for the growth and differences among
the states over the time. In order to provide a broader view over the issue present study will try to
construct a common index with socio-economic considerations and analyze each state with respect
to that index. This will help us to spot out the lacking states and their respective bottlenecks that
will in turn help us to find out a better systematic way for their enhancement.

Methodology
To achieve the targets the study will use standard convergence approach to see the speed
of convergence among the states. Advanced Spatial correlation and Regression Analysis will be
used to examine the spatial interactions among the states. Weighted development index will help
us to find state specific variables which differentiate the states with each other. The analysis will
be done in R-CRAN software and other relevant softwares.

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