[REGIONAL IMBALANCE]MBA 3rd Semester

Sujeet Kumar

Roll No. 25

Content

Topic Page No.

Concept of Regional Imbalance ……………………………………………………. (2)

Indicators of Regional Imbalance …………………………………………………… (3)

Causes of Regional Imbalance……………………………………………………... (11)

Measures to Remove Regional Imbalance………………………………………… (13)

Tenth and Eleventh Five year Plan and Regional Imbalance……………………. (16)

Bibliography

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Concept of Regional Imbalance

Regional disparities are the result of our unfinished task of nation building. These reflect essentially the inadequacies of the development strategy followed since independence and its failure to correct the distortions brought about by colonial rule. Of late, these tensions have acquired alarming proportions and are threatening to strike at the very roots of the nation state. This has brought to sharp focus the need of better understanding of the pattern of regionalization, the nature of regional imbalances and their changing structure over time.

Hence, balanced regional development is necessary for the harmonious growth of federal state like India, however, presents a picture of wide regional variations, in terms of per capita income, proportion of population living below the poverty line, working population in agriculture, the percentage of urban population over total population, etc.

“The co-existence of relatively developed and economically depressed states and even regions within each state is known as Regional Imbalance.”

Regional imbalance may be;

Natural due to unequal natural endowments, or Man made in the sense of neglect of some regions and preference of others

for investment and development effort. Inter-state or intra-sate, Total or sectorial,

“Economic Backwardness” of a region indicated by symptoms like high population pressure on land, excessive dependence on agriculture, absence of large-scale urbanization, low productivity in agriculture and cottage industries, etc.

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Indicators of Regional Imbalance

To study the regional imbalance, the 15 major states of India have been classified into two major groups:

Forward States (48% of Total Population)

Population as per 2001 census

Backward States (42% of Total Population)

Population as per 2001 census

Punjab 2,43,58,999 Madhya Pradesh 6,03,85,118Maharashtra 9,67,52,247 Assam 2,66,55,528Haryana 2,11,44,564 Uttar Pradesh 16,60,52,859Gujarat 5,06,71,017 Rajasthan 5,64,73,122West Bengal 8,01,76,197 Orissa 3,68,04,660Karnataka 5,28,50,562 Bihar 8,29,98,509Kerala 3,18,41,374Tamil Nadu 6,24,05,679Andhra Pradesh 7,62,10,007

(Source: Manorama yearbook 2009)

These 15 states taken together accounted for 90% of the total population in 2001.

(Source: http://www.mapsofindia.com/census2001/population/population-india.htm#)3

Disparities in Per Capita:

Forward States Per Capita Income at current prices (2005-2006) in Rs.

Rank

Punjab 36759 3Maharashtra 37081 2Haryana 38832 1Gujarat 34157 4West Bengal 25223 9Karnataka 27291 7Kerala 30668 5Tamil Nadu 29958 6Andhra Pradesh 26211 8

Average 31798 Backward States

Madhya Pradesh 15647 3Assam 18598 6Uttar Pradesh 13262 2Rajasthan 17863 5Orissa (2004-2005) 16306 4Bihar 7875 1

Average 14925 (Source: Manorama yearbook 2009)

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Since, per capita income shows the average annual earnings of a single person in a particular region. It can be treated as an indicator for regional development. As the past record shows that:

o Punjab topped the list as it had the highest per capita income in 1990-91 and

Orissa was at bottom.o In 2002-03, Maharashtra was at top and Bihar was at bottom on the basis of

per capita income.o However, this list was again changed in 2005-06, Haryana was at top and

Bihar was at bottom on the basis of per capita income.

This implies that the backward states with very large population share – U.P., Bihar and Madhya Pradesh – acted as a drag on the growth process of the Indian Economy.

Differential Growth Rate (Net State Domestic Product):

Forward States Annual Average Growth Rate

1990-91 to 2004-05 Rank

Punjab 4.37% 11Maharastra 6.06% 4

Haryana 5.37% 8Gujarat 6.79% 3

West Bengal 6.88% 2Karnataka 6.91% 1

Kerala 5.86% 5Tamil Nadu 5.26% 9

Andhra Pradesh 5.65% 6Backward States Madhya Pradesh 1.78% 14

Assam 3.18% 12Uttar Pradesh 2.79% 13

Rajasthan 5.11% 10Orissa (2004-2005) 5.52% 7

Bihar -0.99% 15(Source: Dutta & Sundram, Indian Economy 60th Edition, Page No. 475)

In the above table, shows that the average growth rate of Net State Domestic Product of Forward States was 6.03%, while that of the backward states was only 2.69% per annum. These differentials aggravated regional disparities during the post-reform period. While forward states like west Bengal, Karnataka and Gujarat indicated very high growth rates of NSDP (over 6%), the backward states like Uttar Pradesh, Madhya Pradesh, and Bihar (with very large population) indicated very low

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growth rates during the 14-years period (1990-91 and 2004-2005). The most distressing fact was that Bihar indicated a negative growth rate of NSDP at (-) 0.99%, while U.P. with a population of 166 million (16.2% of total population) indicated a very low growth rate of 2.79%.

This implies that the backward states with very large population share- U.P., Bihar and Madhya Pradesh – acted as a drag on the growth process of the Indian economy.

Disparities in Infrastructure :

Forward States Infrastructure Development Index 1999

Rank

Punjab 187.6 1Maharashtra 112.8 6Haryana 137.5 4Gujarat 124.3 5West Bengal 111.3 7Karnataka 104.9 8Kerala 178.7 2Tamil Nadu 149.1 3Andhra Pradesh 103.3 9Backward States

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Madhya Pradesh 76.8 14Assam 77.7 13Uttar Pradesh 101.2 10Rajasthan 75.9 15Orissa 81 12Bihar 81.3 11

All India 100 (Source: Dutta & Sundram, Indian Economy 60th Edition, Page No. 478)

Infrastructure development can be demand driven when it is followed by investment in directly productivity activities and it is supply-driven when it is preceded by investment in directly productive activities. The above mentioned index is developed by CMIE where the items within the weights are as follows:

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Transport facilities 26%Energy Consumption 24%Irrigation facilities 20%Banking facilities 12%Communication 6%Educational facilities 6%Health facilities 6%

Punjab has the highest value of IDI as 187.6, followed by Kerala and Tamil Nadu as 178.7 and 149.1 respectively. Lowered value of IDI was for Rajasthan (75.9), followed by Madhya Pradesh (76.8) and Assam (77.7).The above result may be analyzed as since Punjab is having the highest irrigated area(95%) as a proportion of gross cropped area, it has the highest productivity per hectare, but in Uttar Pradesh though this proportion was quite high (63%), yet its productivity per hectare was relatively low. This only highlights the fact that whereas Punjab and Haryana were able to harness this infrastructure facility for agricultural development, Uttar Pradesh did not succeed adequately in this regard.

Disparities in Physical Qualities of life:

Forward States Infant Mortality Rate (per thousand) in 2005

Rank

Literacy Rate (2001)

Total Rank Male Rank Female Rank

Punjab 44 4 69.9 5 75.6 10 63.6 4Maharashtra 36 2 77.3 2 86.3 2 67.5 2

Haryana 60 9 68.6 7 79.3 5 56.3 8Gujarat 54 6 70 4 80.5 4 58.6 6

West Bengal 55 7 69.2 6 77.6 6 60.2 5Karnataka 50 5 67 8 76.3 9 57.5 7

Kerala 14 1 90.9 1 94.2 1 87.9 1Tamil Nadu 37 3 73.5 3 82.3 3 64.6 3

Andhra Pradesh 57 8 61.1 12 70.8 13 51.2 10Backward States Madhya Pradesh 76 15 64.1 10 76.8 7 50.3 12

Assam 68 11 64.3 9 71.9 12 56 9Uttar Pradesh 73 13 57.4 14 70.2 14 43 14

Rajasthan 68 11 61 13 76.5 8 44.3 13Orissa 75 14 63.6 11 75.4 11 51 11Bihar 61 10 47.5 15 60.3 15 33.6 15

All India 58 65.4 76 54.3 (Source: Dutta & Sundram, Indian Economy 60th Edition, Page No. 479)

Infant mortality rate and literacy rate are two very good indices of physical quality of life. Infant mortality rate shows a tendency to decline with economic and social development. From this point of view, Kerala is far ahead of other states. In 2005 infant mortality rate in Kerala were 14 per 1000 live births as against the national infant mortality rate of 58 per 1000 live birth. Punjab, Maharashtra, west Bengal and Tamil Nadu had infant mortality rates in range of 36 to 55. The states registering high infant mortality rates in 2005 were

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Madhya Pradesh (76), Orissa (75), Uttar Pradesh (73), Assam (68), Rajasthan (68) and Bihar (61).

Literacy Rate in general and female literacy rate in particular are regarded as good indicators of development. On these criteria Kerala (the first ranked state) has done extremely well vis-à-vis other states. According to 2001 census, the overall literacy rate in Kerala was 90.9%, as against the national average of 65.4%. Even the female literacy rate in Kerala was as high as 87.9%. In states of Bihar, Rajasthan and Uttar Pradesh the literacy rates ranged between 47.5 and 61.0. In these states the female literacy rate ranged from 33.8 to 44.3 %. Interestingly in Haryana, the first ranked state in terms of per capita income both overall literacy rate and the female literacy rate were more or less the same as all-India rates. This perhaps is due to the low priority given to education in primarily agrarian societies.

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(Source: http://www.mapsofindia.com/census2001/literacyrate.htm)

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Causes of Regional Imbalances

There are certain deterrent factors which come in the way of rapid development of a region; most important of them are:

Geographical Isolation,

Inadequacy of economic overheads like transport, labour, technology, etc.

Pre-independence Period:

Historically, the existence of backward regions started from the British rule in India. The British helped the development of only those regions which possessed facilities for prosperous manufacturing and trading activities. Maharashtra and west Bengal were the states preferred by the British industrialists. The three metropolitan cities – Calcutta, Bombay and madras – attracted all industries and rest of the country remained backward.

Further, under the land system of British, the rural areas were continuously pauperized and the farmers remained the most oppressed class; the zamindars and the money lenders were of course the most prosperous person on the rural sense. The uneven investment in irrigation during the British period helped some areas become prosperous under the British rule.

Geographical Factors:

In developing countries, the developed regions are generally confined to urban centers and urban areas. This is mainly because physical geography controls economics growth in a greater degree in developing countries than in developed countries.

For example, Japan and Switzerland have overcome the handicaps of mountain terrain but our Himalayan states and the hills district of U.P., Bihar and NEFA, have remained backwards and underdeveloped mainly due to inaccessibility.

Locational preferences:

Some regions are preferred because of certain locational advantages. The location of iron and steel factories or oil refineries will have to be only in those technically defined areas; which are optimal from all the viewpoints. They also attract labour, capital, trade and the external economies offered by the developing regions.

New investment in the private sector has a tendency to concentrate in an already well developed area, thus reaping the benefit of external economics. Since well-developed area offers private investors certain basic advantages, i.e. labour, infrastructural facilities, transport and the market.

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Post-independence Period:

PlansTotal assistance in

all states (Rs. Crore)

Total assistance to Backward States

(Rs. Crore)

Percentage of Assistance of

Backward StatesSixth Plan(1980-85) 16560 7590 46%Seventh Plan (1985-

90)31420 13200 42%

Eighth Plan(1992-97) 93830 35160 37%Ninth Plan (1997-

2002)185260 69990 38%

Tenth Plan (2002-07) 254100 91080 36%(Source: Dutta & Sundram, Indian Economy 60th Edition, Page No. 482)

The planning mechanism has itself accentuated the disparity between the states by having a strong bias in favour of developed states and neglecting less-developed states. Data shows that by and large, the more developed states were clearly favored and the less developed states were neglected in planned outlay. Punjab and Haryana have always received the highest per capita plan outlays form the first plan to Eighth plans. At the same time, the poorest states like Bihar, Orissa, Uttar Pradesh and Rajasthan have continued to receive the smallest allocation per capita in all the plans. Accordingly, the disparities between the states in India has been widening, this is despite a clear objective of planning to achieve regional balance in development.

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Measures to remove

Regional Imbalance

As recognized earlier the major three policies can short out the major disparities among the states in greater degree of deals. They are:

The recognition of backwardness as a factor to be taken into account in the transfer of financial resources from the Centre to the states.

Special area development programs directing at development of backward areas

Measures to promote private investment in backward areas.

Backwardness and Resource Transfer:

The Finance Commission in India has used backwardness of a state as one of the criteria for the transfer of funds from the central pool to the states. The resource transfer relate to central assistance for state plans, transfer effected under the recommendations of finance commission, ad hoc transfer from the Centre to the states, the distribution of assistance for centrally sponsored schemes, the distribution of assistance of long-term and short-term credit from financial institutions etc. the share of backward states in plan outlay and in central assistance steadily rose from 48% in the First Plan to 57% in the Third Plan. Since, then, the share of the backward states in central plan assistance has been gradually declining to 50% in the Fifth Plan, 46% in the Sixth Plan and 37% in the Eighth Plan (as shown below)

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There are certain difficulties in solving the problem of regional disparities and backwardness through transfer of resources from the Centre to the Sates. There is no guarantee that the resources transferred from the Centre to the States would be automatically used for the development of the backward areas or district. In fact there is a tendency to divert funds intended for backward and difficult areas to more forward areas and easier programs.

Special area development programs:

Specific Plan schemes have been formulated with Central assistance to develop-prone areas. Moreover, schemes of rural development directed towards the improvement of specific groups like small framers and agricultural laborers were also located in backward areas. In course of time, these special schemes for particular target groups become an apart of the program of block level planning for integrated rural development and full employment.

The Eleventh finance Commission did not make backwardness as such a criterion for resource transfer, but in the formula for resource transfer, among the different criteria, the relative distance of the per capita income of the state with the income of the state with highest per capita income and index of infrastructure development were indirectly include backwardness. On the basis of new formula, backward states and special category states, taken together would receive 61.2% of total resource transfer.

Initiative to promote investment in backward areas

Various incentives have been provided in order to tackle the problem of industrial backwardness and to promote private investment in backward areas. These incentives have been provided by the Centre, by the States and by public sector financial institutions.

Central Government Incentives:

The Government of India has been providing important incentives to promote private investment in backward areas. These incentives are:

Income Tax Concession:

New industrial units located in backward areas set up after January 1971 is allowed a deduction of 20% of profits for computation of assessable income. This concession introduced in April 1974 was to be available for period of 10 years.

Central Investment Subsidy Scheme:

The scheme of Central subsidy, as originally announced in 1970, provided for an outright subsidy at the rate of 10% subject

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to a maximum of Rs. 5 lakh on fixed capital investment, i.e., land, buildings, plant and machinery. The rate of subsidy was subsequently raised to 15% and still later to 20%.

Transport Subsidy Scheme:

Under this scheme, introduced in July 1971, industrial units set up in hilly, remote and inaccessible areas were entitled to 50% transport subsidy on the expenditure incurred for movement of raw materials and finished goods to and from certain selected rail heads to the location of the industrial units. The scheme is applicable to remote and inaccessible areas in Jammu and Kashmir and North-Eastern hill states.

State Government Incentives:

State government has also offered incentives to attract private sector units to the backward region. These incentives include:

Provision for developed plots with water and power with no-profit and no-loss basis

Exemption from payment of water charges for some year

Interest fee loans on sales tax dues

Exemption from payment of property taxes for some years

Monetary Assistance from State Financial Corporation, State Industrial Development Corporation (SIDCO) etc.

Concessional Finance by major financial institutions:

The three major public sector financial institutions, i.e., Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI) and the Industrial Credit and Investment Corporation of India (ICICI) provide concessional finance for industrial projects located in backward areas. These concessions relate to:

A lower rate of interest on rupee loans (9.5% as against 11.5%),

A longer period of repayment (generally 15 to 20 years, as against 10 to 12 years),

Participation in the risk capital or debenture issues,

Charging only half the normal rate of underwriting commission, waving of commitment charges, etc.

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Tenth and Eleventh Five year plan

And regional disparities

Tenth Five year plan for less developed States

The major initiative and strategies adopted by the government in this plan to remove regional imbalances are as follows:

High level of Capital investment is an important component of this strategy. A high proportion of Central assistance and State’s owned resources would be devoted in improving infrastructure gaps in less developed states.

Imitative towards the better governance and institutional reforms to make the targeted investment effective.

Formulated a new scheme called Rashtriya Sam Vikas Yojana- RSVY (national Equal Development Plan) to support the development initiatives in backward states and regions.

Eleventh Five year plan for less developed States

The eleventh five year plan has listed the programs which are particularly targeted towards poor areas and poor people with the prime objective of resource transfer from forward to backward states.

Pradhan Mantri Gram Swaranjayanti Swarozgar Yojana (PMGSY) is targeted at BPL (Below Poverty Line) families and has in-built safeguards for the weaker sections with 50% benefits reserved for SC/STs.

Indira Awas Yojana gives 75% weightage to housing shortage and 25% to poverty ratios.

National Rural Health Mission (NRHM) focuses on 18 states which have weak public health indicators or weak infrastructure. 23% of funds from the scheme are provided to two states, i.e., U.P. (16%) and Bihar (77%).

Sarv Shiksha Abhiyan – under this program, seven states, i.e., Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh, Rajasthan and Orissa received 59% of total outlay.

Under supplementary nutrition program, the seven backward states, received 82.3% of the total allocation through their population was only 44%.

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Taking all the five schemes together, out of a total allocation of Rs. 31,901 crore the allocation for the backward states was Rs. 17,864 crore – that is 56% of the total.

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Bibliography

Text Referred:

Dutta Ruddra and Sundharam K.P.M., 60th Edition (2009), Indian Economy, Balannced Regional Developemnt, S.Chand & Company Ltd., New Delhi

Mishra S.K. and Puri V.K., 20th Edition, Indian Economy, Regional Planning in India, Himalyan Publishing House, New Delhi

Journal Referred:

Mathew K.M., Manorama Yearbook 2009, Malayala Manorama Press, Kottayam

Web Site Referred:

http://www.mapsofindia.com/census2001/population/population-india.htm#

http://www.mapsofindia.com/census2001/literacyrate.htm

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