‘North-south binary is too simplistic for mapping economic performance of states’

There is significant variation across India in terms of wealth distribution, says Shamika Ravi, a member of the Prime Minister's Economic Advisory Council, and director of research at Brookings India. In an interview to Fortune India, she says Uttar Pradesh, Bihar, and West Bengal have the largest number of poor households. Edited excepts:

Recently, there has been a vociferous argument that there is an intense economic divide between the north and the south of India, and the southern states are, in a sense, getting a raw deal. Is that correct?

India has a federal system of government with 29 states and 6 Union Territories. Historically, states have grown at different rates. More recently, while the average growth of the country has been impressive, there is variation across performances of the states. The 'breakout states' are, in fact, Uttarakhand, Sikkim, and Gujarat—which have beaten the all-India average significantly. The north-south binary is too simplistic for mapping economic performance of states. In fact, there is a clear rural-urban difference in terms of wealth distribution in India. Even among states that are performing well, it is really a few cities that are the true engines of growth in modern India.

Your research seems to show that economic disparity is complex and no simplistic regional divide can be suggested from that data. How do you, then, look at regional economic disparity in India?

As is shown in the dot-density plot of wealth distribution, there is significant variation across India. The concentration of relatively richer households in India is across the western length of the country, cutting across states from north to south of India. The largest number of poor households reside in Uttar Pradesh (UP), Bihar, and West Bengal. While UP and Bihar have historically been part of the low-income belt in India, West Bengal has fallen behind. It has 91 million people, of which 1/5th are poor, and it is growing at an even slower pace than the other low-income states. The north-eastern part of the country has now become a priority for the central government but has languished for decades. It has the weakest connectivity in terms of telecom and banks. These are also good proxies for future growth. That is why there is such an enormous effort towards improving the basic connectivity and infrastructure across the country, and particularly remote areas. Given the uneven nature of economic growth, the government has to be mindful of regional disparities and make efforts to narrow the gap in terms of basic quality of life of citizens across rural/urban and regional divides, even within states.

Do you believe that some states in India are picking up the tab so to speak of other states that refuse to reform? If yes, what can be done to fix this? If no, what is a better way, according to you, to understand this?

That is an extremely myopic and dangerous way of thinking in a federal structure such as India. If you extend that logic, the urban population will hold it against “slow-growing” rural areas and bigger metropolitan cities will hold this against other areas within their own states. This thinking also reflects a poor understanding of the complexity of national economies. For instance, though agriculture is a relatively low-growth sector when compared to let’s say information technology (IT) services, the food security concerns of the country dictate that we cross-subsidise agriculture. Over time, state-level policies will have to nurture local engines of growth—which could be in any sector of the economy. This fragmented thinking also reflects an acute lack of understanding of historical policy decisions that past governments have made.

Regional disparities seem to exist in every country; for instance, the coastal regions of America are far more prosperous than the heartlands. Is that a justified reason to suggest greater divisions of countries? If not, what is the reason that richer and poorer states should continue to exist within the boundaries of the same country?

There is evidence that smaller states are better governed ones. So from that perspective, we should think of smaller states. In any country, it is impossible to have spatially completely even growth—but that is a fundamental responsibility of the government—to design policies that can bridge large unsustainable gaps in quality of life of citizens across regions. For an electoral democracy like ours—where government policy must reflect the will of the people—we must also think of what is happening to our degree of political representation. Many developed states with smaller populations are far better represented (in terms of absolute number of citizens per MP/MLA) than poorer states with larger populations.