The founders of the modern Indian state faced policymaking challenges of bewildering complexity. Among the most difficult was the need to finesse vast socioeconomic disparities. Much progress has been made since then—most of it in the post-liberalization era—in lifting people at the bottom of the ladder. But 71 years after independence, the problem of how to address the disparities remains. Spatial inequality is arguably the most vexing aspect of this problem. It is sand in the gears of the federal structure, creating diverging incentives across states. It disrupts the policy consensus needed for essential structural reforms—witness the interminable birth pangs of the goods and services tax. It complicates the push-and-pull of Centre-state relations at a time when recalibration is under way. And it reduces income and occupational mobility, generating chronic poverty.
This inequality has usually been viewed as a north-south divide. Two years ago, however, Prime Minister Narendra Modi located the problem along an east-west axis. There were political reasons for it, certainly. But it is an increasingly useful perspective. Tadit Kundu and Pramit Bhattacharya’s recent analysis in Mint of unit-level data from the National Family Health Survey’s (NFHS’) 2015-16 survey of more than 600,000 households shows how clear the divide is. Heatmaps of affluence and deprivation light up the north-west, west and south-west, and the east and north-east, respectively. Bihar, Jharkhand, Uttar Pradesh (UP) and Assam have the highest share of poor households among major states, while a majority of households in Punjab, Haryana, Delhi and Kerala are in the affluent category.
This is not just a snapshot in time. Conventional economic theory dictates that as aggregate prosperity grows, the states should converge economically. This is emphatically not the case in India. In their 2005 paper, Spatial Inequality in Rural India: Do Initial Conditions Matter?, Puja Vasudeva Dutta and Hari K. Nagarajan had found that almost the entire rise in aggregate inequality between 1981-82 and 1998-99 was due to spatial inequality. And in 2016, Vivek Dehejia and Praveen Chakravarty showed that the difference in per capita income between the leading large states and the laggards had increased sharply post-1991. Unsurprisingly, western coastal states made up the former group while eastern coastal groups—with the exception of Tamil Nadu—made up the latter.
Do starting conditions matter? In some states, yes; Bihar has consistently been at the bottom of the pile since independence. But West Bengal shows in perverse fashion that such conditions are not a defining factor. It has declined precipitously since its days as an economic hub. This cannot be blamed on the bifurcation of industry in Partition; as late as 1980, the state featured among the three leading large states. Nor is the east-west divide a matter of geography and natural endowments. Traditional powerhouses such as Maharashtra and Gujarat might have been natural conduits for the rich Arabian Sea trade routes in the early years, but for the past few decades, it’s the eastern states that have had coastal access to the most dynamic global economies.
Quality of governance and strength of institutions have had a greater effect. UP and Bihar have shown what happens when governance declines and institutions fall apart. Kerala is the flip side of the coin. This has multiple knock-on effects. Resource-rich states such as Jharkhand end up suffering from the resource curse, for one. Second, this results in an inability to build effective physical infrastructure, which prevents eastern states from using their demographic strength to create thick markets. And poor connectivity to urban areas means there is a lack of opportunities for economic diversification. Decrepit public services in health and education—the latter is strongly correlated with wealth in India—meanwhile perpetuate intergenerational poverty.
Caste plays a role too. Poverty and affluence in India are strongly distributed along caste vectors. By any measure, Scheduled Castes and Scheduled Tribes—a significant chunk of the population—are the most poorly served by the Indian state and uniquely vulnerable to chronic poverty. It shouldn’t come as a surprise that Gujarat and Maharashtra have low concentrations of the SC/ST population, while UP and the eastern coastal states all have high concentrations. SC/STs lagging in areas like education has second-order effects as well. The NFHS data shows that lack of education for women robs them of reproductive control. This results in younger pregnancies and higher childbearing rates, resulting in poorer performance on development indicators and greater strain on state infrastructure. And it reduces their economic participation.
Political economy conundrums in India rarely have easily identified roots and solutions. The growing east-west divide is no exception. But it cannot be ignored. Seven decades and change later, the centrifugal forces that worried the Indian state’s founders are no longer existential threats. But spatial inequality will loom large over the country’s growth and its federal structure if it is not addressed.
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