I. Introduction

Balanced regional development has always been an essential component of Indian development strategy since Independence. Since all parts of the country are not equally well endowed with the physical and human resources needed to take advantage of growth opportunities, and since historic inequalities have not been eliminated, planned intervention has been introduced to ensure that large regional imbalances do not occur. Despite the numerous attempts by the Central Government to reduce socioeconomic disparity between States, the level of economic development not only continues to vary widely between the States but also keeps expanding thereby causing concern regarding the sustainability of overall Indian growth.

As has been pointed out in the Eleventh Five Year Plan documents, "regional disparities have continued to grow and the gaps have accentuated as the benefits of economic growth have been largely confined to the better developed areas. Paradoxically, it is the natural resource-rich areas which continue to lag behind" (GOI, 2008). The States having a low level of economic development are mostly associated with low human development indicators, poor provisioning of social infrastructure such as primary health and education and a sub-optimal level of physical infrastructure. The latter is comprised of transport; communication; power (Kochar et al, 2006); property rights (defined primarily as land rights); access to credit; labor market flexibility; presence of media that hold governments accountable; and literacy and human capital (Besley et al, 2005). The deficient presence of these can have a dampening effect on productivity and the income of the States that can contribute significantly to inter-State disparities. A multiplicity of socio-economic indicators have been developed, and indices reiterate the fact that inter-State inequality in India is widening and that policy intervention in this regard needs to be revisited.

The low level of economic development not only affects the social wellbeing of the people adversely, since people have less command over the resources to satisfy their basic needs, but also affects their productive capacity. This potentially reinforces the low income and low growth status of such States. The role of the States becomes much more important in this case. The less developed States are required to provide the services that are constitutionally assigned under the Directive Principles of State Policy, which is more difficult for them than for the more prosperous States. While the need may be greater, the ability to provide ser vices is limited in the case of States with a low level of economic development.

Removal of regional disparity has always remained a major policy objective of the national development plan. Except for the first Five Year Plan, which laid much emphasis on creating a strong economic base for the country immediately after independence, all the successive Five Year Plans, since the Second Five Year Plan onwards, have taken cognizance of the existence of historical inequalities across the Indian States in terms of the initial condition of economic development, the need for appropriate policy interventions for breaking the structural bottlenecks. The Plans have suggested various corrective measures. The Plan strategies and program intervention since inception of planning have been formulated in line with these objectives. However, even after completion of six decades of development planning, the issue of balanced regional development remains simply policy rhetoric. With a shift in India's development strategy from a centrally planned development model to a market driven indicative planning, the economic disparity across the Indian States has widened. The States with a low level of socio economic development have become more vulnerable to the damaging effects of liberalization. These States not only fail to attract private investment, but also fail to enable their unskilled surplus labor to migrate to the better-off regions to participate in the growth process and take advantage of the growth benefits of liberalization. The Indian planning process in the post-liberalization regime needs to address this issue with greater focus.

The development strategies adopted through successive Five Year Plans are translated to programs, schemes and projects backed by a corresponding allocation of Plan outlay. Experience shows the mobilization of resources to finance the Plans has been falling short of the target, with wide inter-State variation that is embedded in the unequal resource base across the States. The provision of resource transfer from the Center to States under the fiscal federal set up in India has not been sufficient to bridge the gap.

The Indian economy operates under a fiscal federal set up. The Indian constitutions provide for two types of federal transfer of resources from the Center to the States: i.e., vertical transfer and horizontal transfer. Vertical transfer covers the mismatch between the revenue-raising authority and expenditure responsibility of the Center and the States, whereas horizontal transfer responds to the inter-States' inequality in the resource base. In addition, there are other avenues of resource transfer through the Planning Commission. These aim at bridging the resources gap of the sub-national level government. These federal transfers so far are not found to be adequate enough to help the economically backward States speed up their growth process.

This paper attempts to highlight the nature and intensity of economic inequality across the States in India and its implication for Plan finance. Four major dimensions of economic inequality --such as per capita income, levels of consumption expenditure, incidence of poverty, and human development indicators--are captured in the following section to indicate the huge imbalances that exist between the States in terms of the economic wellbeing of the people. These indicators are the major driving factors affecting the social wellbeing of the people. The third section outlines the policy focus of the national development Plans through various five year Plans, on the one hand, and the inter-State variation in Plan finance and issues relating to federal fiscal transfer from the Center to States, on the other. The concluding section here provides some policy suggestions that can help minimize these disparities.

The statistical tracking contained in this paper is confined to 14 large general category States (2) that account for about 92 percent of Indian population, 94.5 percent of all States' GSDP, more than 91 percent of all States' outstanding liabilities taken together, about 88.5 percent of all States' expenditure and revenue receipts. For most of our analysis the States are grouped under Low income States and Middle and High income States on the basis of their per capita income at current prices for the year 2011-12 compared to the all-India average per capita income as well as the all-States average per capita income. The data used for statistical analysis are drawn from various sources such as Central Statistical Organisation (CSO) for Gross State Domestic Product (GSDP), various reports of the National Sample Survey Organisation (NSSO) for Consumption expenditure data and the Planning Commission for poverty estimates. The Government finance data are obtained from the Reserve Bank of India (RBI) study on State finances.

II. Various Facets of Economic Inequality

(a) Per Capita Income and GSDP

Table 1 represents the comparative growth rates in gross State domestic product for selected low-income States. It suggests that the GDP growth trend has been reversed during the Eleventh Plan. Five States--namely, Bihar, Odisha, Uttar Pradesh (UP), Madhya Pradesh (MP) and Rajasthan--had the lowest PCI in the Eighth Plan. All of these gradually improved their growth rates, particularly in the Eleventh Plan. The average GDP growth rate of these States increased from 5.16 percent in the Eighth Plan to 6.38 percent in the Tenth Plan and 8.80 percent in the Eleventh Plan. Also, individually, several of them recorded excellent growth. Bihar, which was for quite some time a cause of worry for planners, has been able to record a growth rate of 9.9 percent in the Eleventh Plan. Similarly, MP, UP and Rajasthan have all recorded growth rates of 7 percent or more in the Eleventh Plan. This is an encouraging and positive trend.

But looking at the summary indicators of disparity in per capita income across States in India, it clearly reflects that Bihar always remains the lowest-income State. The ratio of minimum to maximum per capita GSDP has changed marginally from 21 percent in the year 2004-05 to 20 per cent in the year 2011-12. The variation in PCIs amongst various States has been worsening in the last two decades. The coefficient of variation had increased from 34 percent (1993-94) to 36 per cent (2004-05) and further to 42 per cent in 2011-12.

The widening disparities in PCIs across States show that a convergence in growth rates does not appear to have resulted in convergence in income levels across States (see Figure 1). If there were convergence in income levels, the relationship would be downward sloping. But, as Figure 1 indicates, the relationship is upward sloping. States with higher initial income (per capita, Net State Domestic Product [NSDP]) on average grew faster, suggesting that the inequality across States is actually increasing.

Thus, despite the strong growth performance of the hitherto laggard States (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh [BIMARU] States), we do not see the phenomenon of convergence across the Indian States, whereby the poorer States, by virtue of growing faster than the richer States, start catching up with the level of income of the latter. Of course, it is important to clarify that although we see no unconditional convergence (reducing dispersion of income), there still might be conditional convergence. Conditional convergence can be consistent with divergence in PCIs over a certain period of time (Planning Commission, 2013).

Further analysis of GSDP data over a longer span of time since the Ninth Plan (Table 3) indicates that the average GDP growth rate of States with the lowest PCI over the last three Plans is increasing continuously. The ratio of average growth rates of States with the lowest PCI, as against those of the five highest PCI States, increased from 49 per cent (Eighth Plan) to 76 percent (Eleventh Plan). The coefficient of variation indicating the extent of inequality in growth rates amongst different States also has shown increasing convergence of Gross State Domestic Product growth rates over successive Plan periods. The growth rate for the Twelfth Five Year Plan (2012-17) is projected to be constant for most of the States.

It is worth mentioning that the State of West Bengal, which experienced a per capita income higher than the national average, is continuously growing at a much lower rate than the all-India level of economic growth and is expected to join the groups of low-income States soon. Further, the State of Punjab, which has been the third highest per-capita income State, has not only come down in rank but also is growing much slower than other high-income group States. The first decade in the new millennium bring some hope for States like Bihar and Madhya Pradesh. Bihar has experienced a much faster GSDP growth rate at 9.9 per cent on average per year in the Eleventh Plan period. Although Bihar is performing well in terms of growth, it couldn't move from bottom to a higher place. Rajasthan is higher in rank within the low income groups.

(b) Consumption Expenditure and Standard of Living:

While per capita income of the States measures the economic outcome of that region, this does not reflect the standard of living and economic well-being of the population. Standard of living is conventionally measured by the level of per capita consumption expenditure of different groups of people. The National Sample Survey Organisation (NSSO) provides an expenditure group-wise Monthly Per-capita Consumption Expenditure (MPCE) report at the State level both for rural and urban areas separately. Average rural and urban MPCE for 14 major States in India at current prices for the year 1993-94, 2004-05 and 2011-12 are presented in Table 4. As can be observed, the poorer States are the ones spending less on average on consumption both in rural and urban areas. Rural Rajasthan is the only exception in this category. In the high-income category also, rural people in Gujarat and West Bengal are spending less on average vis-a-vis the national level of MPCE. People in the State of Odisha in rural and Urban Bihar spend the least with MPCE of Rs. 904 and Rs. 1396 in 2011-12. It is also found that urban MPCE is double the rural MPCE in Odisha, West Bengal and Maharashtra. Compared to 2011-12 over 2004-05, it is observed that the higher consumption level in some of the low consumption States is due to the impact of high GSDP growth and recently implemented income-generating program such as Mahatma Gandhi National Rural Employment Guarantee (MGNREG) Scheme.

Disparities in regional performance are a matter of concern not just in terms of income and consumption expenditure indicators, but also of Incidence of Poverty and human development indicators.

(c) Incidence of Poverty

The incidence of poverty is another important indicator to highlight the inter-State disparity. In figure-2, it is noticed that the States having higher than the national level of poverty ratio are the low per capita income States with exception of the States of Maharashtra (for 2004-05) and Rajasthan (for both the year i.e. 2004-05 and 2011-12). The State of Rajasthan, which is covered among the low income States, has a poverty ratio much lower than the all-India average, due to a relatively better intra-State distribution of consumption expenditure.

(d) Human Development Indicator

Statewise data on human development indicators display considerable variation in performance across States. The India Human Development Report 2011 (IHDR-2011), which estimates the Human Development Index (HDI) for States at the beginning of the decade and for the year 2007-08, allows us to compare HDI across States and over time.

From Table 5, it is noted that among the top five ranks in HDI, Kerala and Punjab occupied the first and fifth places, respectively. At the other end of the spectrum are States such as Odisha, Bihar, MP, UP and Rajasthan. These States have over time shown tremendous improvement in their HDI and its component indices over time, leading to a convergence in HDI across States. Furthermore, it finds that the absolute improvements in health and education indices for low PCI States such as Madhya Pradesh and Odisha have been better than for all-India, with their gaps with the all-India average narrowing over time. In the low HDI States--Bihar, Andhra Pradesh, MP, and Odisha--the improvement in HDI (in absolute terms) is considerably more than the national average. In fact, if we look at absolute changes in HDI over the decade, the conclusion that the poorer States are catching up with the national average is strengthened. Other relatively poor States that have seen an improvement in HDI greater than the all-India average are MP (0.090 points) and Odisha (0.087 points). However, among the relatively poor States, the increase in HDI in Bihar (0.075 points) and UP (0.064 points) was less than the national average. But the relative improvement (that is, percentage change) in HDI is greater in Bihar than the national average. As Table 5 shows, the percentage change in HDI is greater for the majority of low PCI States than the HDI improvement for India as a whole. In the backdrop of widening regional disparities in terms of per capita NSDP in the first decade of the 21st century, it is encouraging to observe convergence in HDI.

III. Strategy Adopted to Address Regional Inequality

In brief, it is observed from the above-mentioned measure of income inequality and poverty that the States having a lower level of economic development are the States that are most deprived in terms of social and human development indicators. Redressing regional income disparities is regarded as essential not only for maintaining the integrated social and economic fabric of the country but also to sustain the growth momentum that India is experiencing in the recent past.

Inter-State disparities are a seen as a major source of concern preventing more inclusive development at the national level. If some States are unable to access the fruits of development this acts as a drag on overall economic growth of the country. Therefore, several policy instruments have initiated within the government to address this problem by focusing the national development plan through various Five Year Plans and plan finance relating to federal fiscal transfer from the Center to States.

(a) Regional Imbalance and Role of Planning

The following notes address how India's Five Year Plans targeted the issue of regional disparities and attempted to reduce such imbalances during pre-reform and post-reform phases.

Pre-reform Phase (1951-90)

During the First Five Year Plan (1951-56), there was no explicit mention of the removal of regional disparity. The emphasis was rather laid on strengthening and expanding the economic base of the country. The need to correct regional imbalances was explicitly recognized for the first time in the Second Five Year Plan (1956-61), which observed that "in any comprehensive plan of development, it is axiomatic that special needs of the less developed areas should receive due attention. The pattern of investment must be so devised as to lead to balanced regional development." (Chapter-2, para-28). The Plan emphasized setting up decentralized industrial production; location of new enterprises, whether public or private; keeping in view the need for developing a balanced economy for different parts of the country; a wide diffusion of development nuclei; promotion of greater mobility of labor between different parts of the country; and organize schemes of migration and settlement from more to less densely populated areas etc.

The Third Five Year Plan (1961-66) was more explicit in addressing the issue of regional imbalance by devoting a whole chapter to this (chapter 9) and laid emphasis on the multi-activity approach to development of backward States and regions. The Plan reiterated the policy of using industrial location decisions as instruments for promoting balanced regional development. Some of the other important programs aimed at reducing inter-State disparity were those covered under agriculture and irrigation. Social services, water supply and sanitation, etc., fall within the ambit of the States' sector plans. Accordingly, the Third Five Year Plan calculated and allocated the size and pattern of Plan outlays for different States with a view to reduce disparities of development.

The Fourth Five Year Plan (1969-74) and Fifth Plan (1974-79) took a comprehensive view of the factors responsible for backward areas broadly into two categories: (a) areas with unfavorable physical -geographic conditions, such as terrain, regions that are droughtprone, tribal areas and hill areas; and (b) economically backward areas, marked by adverse demographic ratio, lack of infrastructure and inadequate development of resource potential. Programs like the Drought Prone Area Program (DPAP), the Tribal Area Development Program (TADP), the Hill Area Development Program (HADP), etc., were introduced during the Plans with provision for earmarked funding. During the Fourth Plan period, the "Gadgil" formula was introduced for inter-State allocation of Central assistance for States' plans. This formula provided in-built progressivity in resource transfer from the Center to the States.

During Sixth Five Year Plan (1980-85), the introduction of the Integrated Rural Development Program (IRDP) and submission of the report of a high level National Committee for Development of Backward Areas was the landmark intervention. The Seventh Five Year Plan (1985-90) put major emphasis on employment generation and poverty alleviation programs. It pointed out that an increase in agricultural productivity in rice, coarse cereals, pulses and oilseeds in the eastern region and in the dry-land and rain-fed areas throughout the country, along with area development for drought prone, desert, hill and tribal areas, would ultimately be helpful in reducing regional disparities. However, the Seventh Plan ended up with a major economic crisis, followed by economic reform that effected a policy shift towards a market-oriented development strategy.

Post-reform Phase (1992-2017)

Achievement of a high growth rate on a sustainable basis became an important goal of the Eighth Five Year Plan (1992-97). Employment generation and poverty alleviation objectives were ultimately related to growth. However, the growth objective was accompanied with a sharper regional focus of reduced disparity and more dispersed benefits. In a market-driven development strategy introduced with the commencement of the Eighth Plan, it was recognized that planning was more relevant, since 'the removal of large disparities in development between regions requires flow of resources across regions. The experience has shown that market forces have not achieved this in adequate measure. The planning process has to manage the flow of resources across regions for accelerated removal of regional disparities' (Chapter-1, para. 1.5.7, Vol-1).

With greater freedom and choice of location available to in dustry under the reform regime, it was more likely that some States would be able to attract more private investment than others. In such a situation it would be necessary to deliberately bias public investment in infrastructure in favor of the less well-off States. The Ninth Five Year Plan (1997-2002) took cognizance of this. This Plan also recognized that there will be a tendency among States to enter into a certain degree of competition in granting fiscal incentives in order to attract private investment. While certain competition is desirable, it may affect the fiscal viability of some States in the long run, having serious implication regarding future progress towards regional balance and accentuate regional disparities in the quality of life. Having this in view, the Ninth Plan encouraged the States to operate in a spirit of cooperative federalism and to arrive at a set of public policies and actions in which State-level initiatives at attracting private investment in a competitive manner will be acceptable, and those in which a common position would be taken by all States in their collective interest.

The Tenth Five Year Plan (2002-07) was most explicit on regional disparity by setting the State specific GSDP growth targets for the first time. The Plan panel became conscious of the fact that national targets do not necessarily translate into balanced regional development. The potentials and constraints that exist at the State-level vary significantly. Therefore, for the first time, the national growth target was disaggregated to the State-level growth targets in consultation with State governments. The Tenth Plan specifically reflected the role of the States in the development process. It was expected that this would enable the States to better focus their own development plans by more careful consideration of the sectoral pattern of growth and its regional dispersion within the State.

The Eleventh Five Year Plan (2007-12) adopted an Inclusive Growth Model in which removal of regional disparity is an integral part. Redressing regional disparities was not only adopted as a goal in itself but has been accepted as essential for maintaining the integrated social and economic fabric of the country without which the country may be faced with a situation of discontent, anarchy and breakdown of law and order (GOI, 2008, p.140). The Plan envisaged the breaking down of 13 out of 27 monitorable targets Statewise. These targets include, among others, a GSDP growth target, a growth target for agricultural GSDP, new work opportunities, Poverty ratio. These targets will help the States have some policy introspection of their own and focus attention on the extent to which progress can be achieved in the relatively backward States and districts. The EFP acknowledges the difficulties in removing regional disparity in a short time span as it admits 'the slower-growing States cannot catch up with the faster growing States within a short period of five years. What this Plan seeks to do is to target the slower growing States, and the backward areas within these States, for higher levels of public investment that will enable the backlog in physical and social infrastructure to be addressed. This would, in turn, provide a platform for much more rapid growth in the Twelfth Plan period' (GOI, 2008, p.139).

Therefore, the Twelfth Plan (2012-17) period seeks to fulfill the economy at a faster, sustainable and more inclusive growth. During this Plan, special attention has given to the laggard States to accelerate their economic growth. In order to achieve this, it requires strengthening of the States' own capacities to plan, implement and bring greater synergies within their own administration and with the Central Government. An important constraint on the growth of backward regions in the country is the poor State of infrastructure, especially road connectivity, schools and health facilities and the availability of electricity, all of which combine to hold back development. Therefore, the Twelfth Plan pays attention to the improvement in infrastructure which must be an important component of regionally inclusive development strategy.

(b) State Plan Expenditure

One of the single and statistically most significant determinants of economic development is the rate of investment measured by Gross Domestic Capital Formation (GDCF). India has historically been defined as a capital-constrained economy, espe cially in the pre-reform regime. While the country as a whole has moved away from this tag because of an investment rate peaked at 38 percent of GDP with a public investment rate at 9.75 percent of GDP, it is possible that the low income States still suffer from inadequate investment being generated within their respective geographical boundaries. Unfortunately Statewise data on capital formation are not available through the Indian statistical system. However, for an assessment of Statewise public investment--i.e., physical capital formation in the public sector this paper adopts Plan expenditure at the State level as a proxy. Plan expenditure is also an important indicator of a State's fiscal position vis-a-vis other States. Plan priorities of the States, to be executed through various developmental programs, can best be captured through the per capita Plan expenditure, which is a summary measure of financial planning at the sub-national level.

Plan expenditure is not identical to public investment, since under the accounting classification of government finance, Plan expenditure has both a capital component and a revenue component. The capital component is the one that reflects the asset creation by the public sector and hence measures public investment in the strict economic sense. However, the revenue components of Plan expenditure, though recurring in nature, are spent on developmental programs and schemes such as those on health and education contributing directly to the social infrastructure of the State. It would not be out of place, therefore, to have an inter-State comparison of per capita Plan expenditure to understand the constraint at the sub-national level to finance development plans.

Table 6 (see page 21) demonstrates the extent of variation in per capita plan expenditure across the 14 major States of India.

As can be seen, all the low income States have been spending much less per person on developmental plans and programs vis-a-vis the average per capita Plan expenditure of all States taken together. At the bottom lies Bihar, which incurs a per capita plan expenditure that is less than 40 percent of the all-States average and less than one fourth of that spent by the State of Karnataka, which earned the distinction of spending the highest amount per capita in the Tenth Five Year Plan. Rajasthan is the only low-income State that spends higher than the all-States average per capita Plan expenditure. All the high and middle income States are spending a higher amount for Plan purposes, with the only exception being West Bengal. The latter's Plan spending is comparable to that of Uttar Pradesh, which is the second lowest in terms of Plan spending. West Bengal is not only spending much less on Plan per capita than Bihar, but also mobilizing the least Plan resources of all States. The Plan expenditure as percentage of GSDP for West Bengal was about 2 percent in the Tenth Five Year Plan as against the all-States average of 4.5 percent.

The allocation of outlay for a State sector Plan is largely determined by the State's own resources, which constitute about 65 percent of the total Plan expenditure. About 35 percent of Plan spending of all States is funded by Central Assistance, comprising Normal Central Assistance (NCA) and assistance to States under the Centrally Sponsored Scheme (CSS). The NCA transfers are under the "Gadgil-Mukherjee" formula (4) as depicted in Table 7. The share in Central taxes that is recommended by the Finance Commission is largely progressive in nature. An important aspect of the devolution of Central tax revenues under the Finance Commission dispensation is that it has an in-built bias in favor of economically and fiscally weaker States. Population and per capita income of the States get high weight in the distribution formula. A State with a larger population and a lower per capita income gets a higher share in the Central tax revenue.

The Thirteenth Finance Commission award (covering the financial years 2010-2015) has been a step forward in this regard. There has been an increase in the extent of vertical transfer from 30.5 percent of the net Central tax proceeds during TFC to 32 percent during the Thirteenth Finance Commission. This enhances the total size of the tax kitty that can be distributed among the States. Each of the States would get a larger tax devolution from the Center as a percent of GSDP under the Thirteenth Finance Commission award vis-a-vis that under TFC. While each State stands to gain, the low-income States stand to gain much more than the richer States. As a percent of GSDP, Bihar would get a 5.8 percentage point higher transfer of Central tax compared to 0.04 percentage point gain by the State of Gujarat. Statewise enhancement of Central tax devolution for 14 major States as recommended by the Thirteenth Finance Commission is produced in Table 8. As can be seen, there is an obvious bias in favor of slow-growing low-income States.

Interventions to tackle regional disparities made by the Union Government into less developed States under CSS have been fairly large and have focused on selected areas of social and economic development. In the Eleventh Plan, the focus was on fourteen Flagship Schemes, which covered the areas of agriculture, education, health, employment, urban development, rural and urban infrastructure and energy. This has led to substantial transfers to the States, which have impacted both overall development and infrastructure levels. The Central Plan transfers under these Flagship Schemes are given in Table 9.

IV. Conclusion

One of the major contributory factors to the uneven growth pattern across the States of India has been the ancient disparity in economic conditions that existed long before the inception of development planning. While it is true that initial conditions do matter, the question that needs to be addressed is how to achieve convergence in the growth pattern. Examination of the relationship between the initial level of per capita income in each State and its rate of growth indicates continuing divergence in the growth pattern that has widened despite efforts to ameliorate the disparities.

Economic backwardness is one of the major criteria to determine intra-State distribution of resource transfer (horizontal transfer) from the central government to the States. The issue that needs to be addressed in this context is not just the magnitude of resources available to each State, but how effectively those resources are used. It is generally observed that the development outcomes, in terms of both economic growth and social development, do not commensurately match with the resources available within each State, be it financial or natural (e.g. quality of soil, availability of water and minerals, etc). Resource availability needs to be matched with efficient use of resources through good governance and an appropriate institutional set up. The allocation of funds from the Union government to the States needs to be related to the ability to effectively use resources rather than solely by the measures of socio-economic deprivation. From among the backward States, the State having better capacity to use resources effectively should be given preference, so that the preconditions for improvement can be achieved.

Traditionally, development strategy adopted for removal of regional imbalance has focused on industrialization. However, in many cases a reduction in regional disparities in terms of average standards of living may be better achieved through greater focus on agriculture and other rural activities. The low-income States are much more dependant on agriculture than the richer States and the low income States have not reached their agricultural potential as yet. Indeed, the benefits of the Green Revolution never reached the low income States due to their inadequate agricultural infrastructure. It is necessary to not only increase the productivity of agriculture in backward areas, but also to improve transport and communications between agricultural areas and the cities that represent untapped potential markets.

Technological innovation is crucial for improving agricultural production. However, in the absence of an integrated market and the prevalence of other market imperfections, it has been observed that a rapid increase in agricultural productivity induced by technical change may lead to distress sales and a more than proportionate decline in the market prices (e.g., wheat in Bihar and Bt cotton in A.P.). Therefore, what is required is a holistic package to promote and support productivity growth. The package needs to include improvement in the transfer of knowledge through extension services, provision of complementary inputs such as timely availability of power, water, seeds, pesticides, insecticides, agriculture credit and appropriate support for storage and marketing. The agricultural extension service is one of the most critical interventions in the entire process of agricultural development, especially when the technology represents a significant departure from past practices.

Dholakia (2005) argues that a free and barrier-less mobility of population and goods across the States can make the regional disparity less intense, an approach that was recognized by the Plan panel during the Second Five Year Plan as one of the remedies to regional imbalance. Educated and highly skilled workers find it easy to migrate from one region to another but people with low literacy and skills find it difficult, if not impossible, to move due to the vast linguistic and cultural diversity. Since such workers do constitute a very large part of the population in the economically backward States, the equalizing channel through population migration does not work effectively in India. What is essential in this situation is to enhance the education status in the States as a primary necessary condition.

The Twelfth Five Year Plan has rightly put Skill Development as an important program component in its inclusive growth agenda. It is important that low income States should seek a large share of Central Government assistance in this respect. Besides, there are other programmatic interventions by the Central government, such as the Backward Region Grant Fund (BRGF), which has a special component Orissa and Bihar. The flow of funds from the center to States under these programs is significant. However, the effectiveness of these funds will depend on the efficiency of the implementation processes. While there is no blueprint to bring the slow-growing and economically laggard States to the level of the more prosperous States, efforts need be made to improve the States' business environment in ways that would attract private investment. States have a larger role to play in terms of increased efficiency, increased transparency and simplification of procedures.

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Deepak Kumar Behera (1)

National Institute of Technology, Patna

(1) Assistant Professor, Department of Humanities and Social Sciences, National Institute of Technology Patna, (An Institute of National Importance under MHRD, Govt. of India), Ashok Rajpath, Patna, Bihar, India- 800 005, E-mail: [email protected]

(2) States are divided into general category States and special category States for the purpose of allocation of Central Plan Assistance under the Gadgil formula.

(3) An Expert Group under the chairmanship of Prof. Suresh D Tendulkar was constituted by the Planning Commission to review the methodology for estimation of poverty, which submitted its report in December 2009. The report indicates no change in the urban poverty estimates, but the rural poverty ratio has been recomputed to allow the rural poor to purchase the urban poverty line consumption basket. In other words, the Committee recommends a uniform consumption basket for rural and urban poor, unlike the existing Planning Commission estimate of poverty that is based on a different consumption basket for urban and rural poor. For detailed methodology please see the report of the Planning Commission (now it is NITI Aayog) website.

(4) The original Gadgil formula, adopted in 1969 with the inception of Fourth Five Year Plan, has been modified subsequently. See pp-318, Twelfth Five Year Plan, Vol-I for the criteria and weight under the present formula named the Gadgil Mukharjee formula.

Caption: Figure 1. Relationship between Growth rate and Income

Caption: Figure-2 Percentage of People Below Poverty Line (Rural and Urban combined): Tendulkar Methodology (3)

Table 1. Comparative Growth Rates in GSDP for Selected
Low-Income States

Eighth Plan           Ninth Plan         Tenth Plan
(1992-97)             (1997-02)          (2002-07)

Bihar (3.9)          Bihar (3.7)        Bihar (6.9)
Odisha (2.3)           UP (2.5)           UP (5.8)
UP (5.0)             Odisha (5.1)         MP (5.0)
MP (6.6)               MP (4.5)       Jharkhand (5.0)
Rajasthan (8.0)    Rajasthan (5.3)      Odisha (9.2)
Average (5.16) *   Average (4.22) *   Average (6.38) *

Eighth Plan         Eleventh Plan
(1992-97)             (2007-12)

Bihar (3.9)          Bihar (9.9)
Odisha (2.3)           UP (7.1)
UP (5.0)               MP (9.2)
MP (6.6)           Jharkhand (9.3)
Rajasthan (8.0)    Rajasthan (8.5)
Average (5.16) *   Average (8.80) *

Note: Average GDP growth rates of the five States with
the lowest PCI, amongst General Category States. Source:
Planning Commission.

Table 2. Disparity in PCI (per capita NSDP) at 2004-05
Prices

Year      State with Lowest   State with highest
           Per capita GSDP     per capita GSDP

1993-94         Bihar               Punjab
1999-00         Bihar            Maharashtra
2004-05         Bihar              Haryana
2008-09         Bihar            Maharashtra
2009-10         Bihar              Haryana
2010-11         Bihar            Maharashtra
2011-12         Bihar            Maharashtra

Year      Ratio of minimum   Coefficient
           to maximum per    of Variation
            capita GSDP

1993-94          30               34
1999-00          29               36
2004-05          21               36
2008-09          20               40
2009-10          20               41
2010-11          20               42
2011-12          20               42

Source: Directorate of Economics and Statistics of
respective State Governments

Table 3. Statewise per capita Income and Growth Rate of GSDP

State\UT                 Per-capita         Growth Rate
                        Income in Rs.         of GSDP
                         at Current         (in percent)
                           Price

                      2004-05   2011-12   1992-97   1997-02

High and Middle Income Groups

Haryana                37972    106320      5.2       6.1
Maharashtra            36077     93282      8.9       4.1
Tamil Nadu             30062     89050      7.0       4.7
Gujarat                32021     85979     12.9       2.8
Kerala                 32351     82753      6.5       5.2
Punjab                 33103     76895      4.8       4.0
Karnataka              26882     68053      6.2       5.8
Andhra Pradesh         25959     64773      5.4       5.5
West Bengal            22649     53383      6.3       6.5

Low Income Groups

Rajasthan              18565     54637      8.0       5.3
Odisha_                17650     43463      2.3       5.1
Madhya Pradesh         15442     37180      6.6       4.5
Uttar Pradesh          12950     30021      5.0       2.5
Bihar                  7914      22582      3.9       3.7
Convergence of
  GDP Growth
Ratio of Average        --        --       0.59      0.61
  Growth of bottom
  five sates to
  that of all India
Ratio of Average        --        --       0.49      0.56
  Growth of bottom
  five Sates to
  that sf top five
  States

State\UT                      Growth Rate
                               of GSDP
                             (in percent)

                      2002-07   2007-12   2012-17 *

High and Middle Income Groups

Haryana                 9.0       9.0        9.0
Maharashtra            10.1       8.6        8.6
Tamil Nadu              9.7       7.7        7.7
Gujarat                11.0       9.5        9.2
Kerala                  8.3       8.2        8.0
Punjab                  6.0       6.7        6.5
Karnataka               7.7       7.2        7.5
Andhra Pradesh          8.2       8.2        8.3
West Bengal             6.2       6.3        8.0

Low Income Groups

Rajasthan               7.1       8.5        7.7
Odisha_                 9.2       7.1        8.0
Madhya Pradesh          5.0       9.2        8.6
Uttar Pradesh           5.8       7.1        7.2
Bihar                   6.9       9.9       10.0
Convergence of
  GDP Growth
Ratio of Average       0.74      0.89        --
  Growth of bottom
  five sates to
  that of all India
Ratio of Average       0.57      0.76        --
  Growth of bottom
  five Sates to
  that sf top five
  States

Note: Per Capita Income are Per Capita Net State Domestic
Product * Expected Growth rate for 12th Five Year Plan
by Planning Commission. Source: 1. Compiled by CSO with
the data obtained from Directorate of Economics & Statistics
of respective State Governments, and for All-India Central
Statistica Organisation. 2. Planning Commission, 2013.

Table 4. Monthly Per Capita Expenditure (MPCE) of Major
States (in Rs. at current prices)

States                      Rural

                 1993-94   2004-05   2011-12

        High and Middle Income Groups

Haryana            385       863      1925
Maharashtra        273       568      1445
Tamil Nadu         294       602      1570
Gujarat            303       596      1430
Kerala             390      1013      2355
Punjab             433       84Z      2136
Karnataka          269       508      1395
Andhra Pradesh     289       586      1563
West Bengal        279       562      1170

             Lower Income Groups

Rajasthan          322       591      1445
Odisha             220       399       904
Madhya Pradesh     252       439      1024
Uttar Pradesh      274       533      1072
Bihar              218       417       970
ALL INDIA          281       559      1287

States                      Urban

                 1993-94   2004-05   2011-12

       High and Middle Income Groups

Haryana            474      1142      3346
Maharashtra        530      1148      2937
Tamil Nadu         438      1080      2534
Gujarat            454      1115      2472
Kerala             494      1291      3044
Punjab             511      1326      2743
Karnataka          423      1033      2898
Andhra Pradesh     409      1019      2559
West Bengal        474      1124      2489

             Lower Income Groups

Rajasthan          425       964      2206
Odisha             403       757      1830
Madhya Pradesh     408       904      1842
Uttar Pradesh      389       978      1942
Bihar              353       595      1396
ALL INDIA          458      1052      2477

Source: various NSS Report of Level and Pattern of
Consumer Expenditure

Table 5. Human Development Index and Its Components by States

State                                  1999-2000

                   Health Index   Income Index   Education    HDI
                                                   Index

                           High and Middle Income Groups
  Haryana             0.576          0.417         0.512     0.501
  Maharashtra         0.601          0.297         0.606     0.501
  Tamil Nadu          0.586          0.285         0.570     0.480
  Gujarat             0.562          0.323         0.512     0.466
  Kerala              0.782          0.458         0.789     0.677
  Punjab              0.632          0.455         0.542     0.543
  Karnataka           0.567          0.260         0.468     0.432
  Andhra Pradesh      0.521          0.197         0.385     0.368
  West Bengal         0.600          0.210         0.455     0.422
                                 Lower Income Groups
  Rajasthan           0.520          0.293         0.348     0.387
  Odisha              0.376          0.076         0.372     0.275
  Madhya Pradesh      0.363          0.127         0.365     0.285
  Uttar Pradesh       0.398          0.179         0.371     0.316
  Bihar               0.506          0.100         0.271     0.292
  ALL INDIA           0.497          0.223         0.442     0.387

State                                   2007-08

                   Health Index   Income Index   Education    HDI
                                                   Index

                           High and Middle Income Groups

  Haryana             0.627          0.408         0.622     0.552
  Maharashtra         0.650          0.351         0.715     0.572
  Tamil Nadu          0.637          0.355         0.719     0.570
  Gujarat             0.633          0.371         0.577     0.527
  Kerala              0.817          0.629         0.924     0.790
  Punjab              0.667          0.495         0.654     0.605
  Karnataka           0.627          0.326         0.605     0.519
  Andhra Pradesh      0.580          0.287         0.553     0.473
  West Bengal         0.650          0.252         0.575     0.492
                                 Lower Income Groups
  Rajasthan           0.587          0.253         0.462     0.434
  Odisha              0.450          0.139         0.499     0.362
  Madhya Pradesh      0.430          0.173         0.522     0.375
  Uttar Pradesh       0.473          0.175         0.492     0.380
  Bihar               0.563          0.127         0.409     0.367
  ALL INDIA           0.563          0.271         0.568     0.467

Source: India Human Development Report, 2011

Table 6. Statewise Per Capita Plan Expenditure

                            Average Rgtio (in Rs.)

States             8th Plan   9th Plan   10th Plan   11th Plan

HIGH AND MIDDLE INCOME
  Haryana             54        782        1,134       2,688
  Maharashtra        590        946        1,088       2,310
  Tamil Nadu         479        813        1,322       2,555
  Gujarat            519       1,006       1,698       3,694
  Kerala             460        924        1,189       2,453
  Punjab             626        824        1,131       2,076
  Karnataka          627       1,197       2,147       3,460
  Andhra Pradesh     380        753        1,559       3,512
  West Bengal        228        517         531        1,444
LOW INCOME GROUP
  Rajasthan          489        717        1,106       2,166
  Odisha             415        671         735        1,599
  Madhya Pradesh     441        569        1,046       1,993
  Uttar Pradesh      280        380         607        1,851
  Bihar              145        250         470        1,266
  ALL STATES         398        667        1,072       2,450

Note: figures are an average ratio of per capita Plan expenditures
at current prices; hence an inter-temporal comparison cannot be made.
Source: Swain and Behera (2011).

Table 7. Financial Transfers under Normal Central Assistance
(Plan) and Thirteenth Finance Commission (as percentage)

State                         Share in NCA      Share as per
                              During 11th
                                  Plan       13lh FC   12lh FC

High & Middle Income States      42.779      41.567    41.146
  Haryana                        1.848        1.303     1.171
  Maharashtra                    6.883        6.139     5.442
  Tamil Nadu                     5.885        5.586     5.777
  Gujarat                        3.918        3.601     3.887
  Kerala                         3.217        2.699     2.902
  Punjab                         2.238        1.719     1.415
  Karnataka                      4.386        4.979     4.856
  Andhra Pradesh                  6,26        7.642      801
  West Bengal                    8.144        7.899     7.685
  Low Income States              50.504      52.118    52.023
  Rajasthan                      5.936        6.55      6.108
  Odisha                         5.983        5.287     5.62
  Madhya Pradesh                 7.131        7.806     7.308
  Uttar Pradesh                  20.134      20.897    20.978
  Bihar                          11.32       11.578    12.009
Other States *                   6.717        6.315     6.831
Total                            100.00      100.00    100.00

Note: 1. FC = Finance Commission; NCA = Normal Central Assistance.
2. All those States are non-special category States. 3.* Chhattisgarh,
Goa, and Jharkhand are combined. Source: Planning Commission

Table 8. Average Devolution as percentage of GSDP

States           13th FC   12th FC   Gain in percentage
                                           point

HIGH AND MIDDLE INCOME STATES
Haryana            1.1      0.93            0.17
Maharashtra       1.36      1.04            0.32
Tamil Nadu        2.58      2.07            0.51
Gujarat           1.48      1.44            0.04
Kerala            2.13      1.94            0.19
Punjab            1.92      1.22            0.7
Karnataka         2.69      2.21            0.48
Andhra Pradesh    3.34       2.8            0.54
West Bengal       3.67      2.82            0.85
LOW INCOME STATES
Rajasthan         5.52      3.88            1.64
Orissa            6.73      5.69            1.04
Madhya Pradesh    8.61      5.61            3.01
Uttar Pradesh     10.09     6.79            3.3
Bihar             19.44     13.57           5.87

Source: Thirteenth Finance Commission report, Vol-I, pp-123

Table 9. Statewise Central Releases Under Important Flagship Schemes
(As percentage of Total)

State                 Population    SSA    NHRM    ICDS    PMGSY
                        (2011)

High & Middle           47.77      38.82   43.91   45.89   18.31
Income States
  Haryana                2.13      1.96    2.02    1.61    0.38
  Maharashtra            9.44       5.7     8.9    10.1    5.04
  Tamil Nadu             6.06      3.29    5.27    3.83    1.02
  Gujarat                5.07      4.25    4.22     5.7    0.42
  Kerala                 2.81      0.82    3.96    2.62    1.28
  Punjab                 2.33      2.32    2.29    1.85    1.05
  Karnataka              5.14      3.03    4.57    5.42      0
  Andhra Pradesh         7.11      8.87    6.35    6.56    3.87
  West Bengal            7.68      8.58    6.33     8.2    5.25
  Low Income States     40.89      42.54   36.38   37.01   46.62
  Rajasthan              5.77      7.18    7.11    4.18    4.26
  Odisha                 3.53      4.48    4.72    4.83    12.53
  Madhya Pradesh         6.1        9.2    6.53    6.56    7.26
  Uttar Pradesh         16.77      12.74   12.67   15.66    1.3
  Bihar                  8.72      8.94    5.35    5.78    21.27
Other States *           6.3       12.41   13.52   11.98   24.59
Total-in crore           119       29.17   20.70   9.80    15.69
  (in percent)          (100)      (100)   (100)   (100)   (100)

State                 NREGS    MDM     BRGF      Total

High & Middle         35.16   42.09    30.74     36.48
Income States
  Haryana             0.94    1.71     0.48       1.34
  Maharashtra         3.57    7.07     6.51       6.19
  Tamil Nadu          9.65    4.12     2.71       5.07
  Gujarat             1.11     3.6      2.8       2.92
  Kerala              3.26    1.46     0.88       2.27
  Punjab              0.39    1.79      0.4       1.43
  Karnataka           2.27    5.77     2.37       3.13
  Andhra Pradesh      5.07    8.69     9.36       6.48
  West Bengal          8.9    7.88     5.23       7.65
  Low Income States   38.08   36.35   50.171     40.09
  Rajasthan           5.55     5.4     7.31       5.76
  Odisha              3.35    3.79     8.32       5.5
  Madhya Pradesh      10.18   7.83     10.3       8.39
  Uttar Pradesh       14.54   10.98    13.81     11.82
  Bihar               4.46    8.35    10.431      8.62
Other States *        16.89   11.31    7.76       15.2
Total-in crore        14.70   3.92    14159.8   108133.0
  (in percent)        (100)   (100)    (100)     (100)

Note: 1. SSA=SarvaShikshaAbhiyan; NRHM=National Rural Health
Mission; ICDS=Integrated Child Development Services; NREGA
=National Rural Health Mission; NREGS=National Rural Employment
Guarantee Scheme; PMGSY=PradhanMantri-Gram SadakYojana; MDM=Mid
Day Meal Scheme; BRGF=Backward Regions Grant Fund.

2. Chhattisgarh, Goa and Jharkhand are under non-special
category States with all special category States.
Source: Planning Commission