Regional disparities in India's industrial development: discriminant function approach.

AuthorSharma, Manoj K.


Disparities among different regions or world nations have become a concern to policy makers in most of the countries. As far as India is concerned, regional disparities are inheritance from the colonial past. During the pre-independence period, economic policies of the government were designed to protect the interests of the British economy rather than for advancing the welfare of Indians. It is widely acknowledged that lop-sided government policies led to the decline and decay of India's traditional industries. In the pre-Independence period, due to vested interests of the policy measures big provinces developed around the port towns of Bombay, Madras and Calcutta which eventually turned out to be the most industrially advanced states of contemporary India. On the other hand, many states that possess rich stocks of mineral resources like Bihar, Madhya Pardesh and Orissa experienced stumpy or inconsistent economic growth. The trickling down effects of development of some regions of the union to hinterlands had also not been effective as had been the case in developed countries. Also, the centralized planning that started in 1951 could not yield any significant dispersal of economic activities from the developed to the less or underdeveloped regions of the country. The first two five year plans that laid much stress on increased production or equitable distribution of resources virtually ended up in an effort to break the stagnation in the country. Accordingly, in the process of completing the projects for which the groundwork was already done in the pre planning period or the projects that could be completed in the short span of time, allocation of outlays were made towards those states which had a capacity to spend and achieve the targets. Thus, it practically led to higher inequalities in the development of different regions (Lipton, 1977). In the Third Five Year Plan (196166) the concept of balanced development of different parts of the country was taken up and a push was given to spread industries more widely. Several industrialization inducing measures like the establishment of public sector projects in industrially less developed states, prohibiting heavy industries from locating in already industrially developed areas, introduction of special packages for development of industrial infrastructure in poorer states and special financial benefits for industrial development in backward areas along with setting up industrial parks in areas with potential were introduced. It resulted in the spread of industries to many other cities beyond original leaders in the pre-reforms period. However, during the post reforms period inequalities in terms of industrialization tend to widen (Bhattachaharya & Sakthivel, 2004). Awasthi (1991), Chakravorty and Lall (2007) etc. pointed out that interstate disparities amplified during the post-reforms period. Arora and Singh (2012) exploring the fact further found that during the post-reforms period industrial variables followed by infrastructural variables turned out to be the important ones explaining the interstate variations in India. Increasing inequalities in terms of industries also got a mileage from the viewpoint of the advocates of convergence theorem (Barro & Salai-i-Martin, 1992; 1995). They postulated that industrial development followed by general economic development facilitates some regions with better resources to grow faster than the others initially. Subsequently, when the law of diminishing marginal returns sets in, in the industrialized regions due to differential marginal productivity of capital, it trims down the gap in the levels of income across regions. Same seems to be replicated in the context of post economic reforms India. Removal of controls from investment resulted in the attraction of investment by the regions having better infrastructure (Bhattachaharya & Sakthivel, 2004), thus, resulting into greater regional inequalities in the recent past as backward regions that used to get resources from the Central Government through gifts and grants are almost denied the same owing to financial constriction. Accordingly, states like Uttar Pardesh, Bihar and Rajasthan failed to foster in terms of industrialization.

Industrial development overtime has perpetuated regional inequalities in the industrial scenario of the country. The present study empirically attempts to identify the developed and underdeveloped states of the economy overtime. Also, it aims to examine the factors that are highly responsible for creating these inequalities.

Database & Methodology

In order to fulfill the above mentioned objectives secondary data related to number of factories, workers, employees, fixed capital, invested capital, wages, emoluments, total output, profits, net value added, gross value added, population, and area has been obtained from the Annual Survey of Industries, Handbook of Statistics of Indian Economy, National Account Statistics and Report of Centre for Monitoring Indian Economy for the years 1980-81, 190-91, 2001-02 (data for the year 200001 could not be obtained despite best efforts) and 2009-10. Fifteen structural and technical ratios have been analyzed to facilitate comparison. Primarily, the ratios have been formed keeping in view the physical, productivity, profitability and efficiency parameters.

  1. Factories per (X1) Physical ratio thousand of population 2. Factories per (X2) Physical ratio thousand square km of area 3. Invested capital (X3) Physical ratio per thousand of population 4. Invested capital (X4) Physical ratio per thousand square km of area 5. Wages per thousand (X5) Physical ratio of population 6. Total emoluments (X6) Physical ratio per thousand population 7. Employment per (X7) Productivity ratio thousand population 8. Gross value added (X8) Productivity ratio per thousand population 9. Net value added (X9) Productivity ratio per thousand population 10. Gross value added (X10) Productivity ratio per thousand of...

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