Despite growing rapidly on average, there is sign of growing regional inequality among the Indian states.

This is puzzling because the underlying forces in favor of equalization within India — namely strong and rising movements of goods and people — are strongly evident.

One possible reason that there might be governance traps that impede the catch-up process. And if there are such traps, labor and capital mobility might even aggravate underlying inequalities.

But why such traps persist if competitive federalism is forcing change upon the lagging states remains an open question.

In contrast, on health and demography, there is strong evidence of convergence amongst the states in the 2000s.

This was not true in the previous decades for IMR and fertility. Here it is the international contrast is striking.

With regards to life expectancy, the Indian states are close to where they should be given their level of income.

However, this is not true of IMR, suggesting that the “mother and child” (discussed also in last year’s Survey) bear the brunt of weaker delivery of health services.

What really stands out in the international comparison is fertility and how much better the Indian states are performing than their international counterparts on that metric.

These unusually large declines in fertility have strong—and positive—implications for India’s demographic dividend going forward.

Internal trade is 1.7 times bigger than international trade and so the country has great integration. This shall only improve now that the landmark “Goods and Services Tax ” shall be implemented creating a “One nations , One tax”.

Some other unusual facts about internal trade in India:

  1. States close to each other trade more with each other than other states.
  2. Usually states that share a same language trade more than states that don’t share the language and this trend is not seen in India.
  3. The Central excise Act gives exemption from excise duty on all goods manufactured in North Eastern states, Sikkim, Jammu and Kashmir, Uttarakhand, Himachal Pradesh and Kutch in Gujarat.
  4. Since the intrastate trade has higher taxation then the interstate trade as rate of Value added tax is higher than Central sales tax. Interstate trade is more lucrative.
  5. States that are richer trade with each other more than others.

Smaller states tend to trade more, while the manufacturing states of Tamil Nadu, Maharashtra and Gujarat tend to have trade surpluses (exporting more than importing).

Belying their status as agricultural and/or less developed, Haryana and Uttar Pradesh appear to be manufacturing powerhouses because of their proximity to NCR.

Traditionally the states that see a low development also see out migration of people to places that have high development and so more growth. The region that witnesses the in migration gets the benefit of cheap labor and so more industrial growth. the under developed region sees a higher remittance and so increase in household spending.

The migration is around 5-9 million annually and the female migration grew at the rate nearly twice that of the rate of growth of male migration.

Language barriers between the Northern Hindi and southern non Hindi speaking states doesn’t create any impediment for migration.

Portability of food security benefits, healthcare, and a basic social security framework for the migrant are crucial – potentially through an interstate self registration process.

While there do currently exist multiple schemes that address migrant welfare, they are implemented at the state level, and hence require inter state coordination of fiscal costs of migration.

UP – Delhi and Bihar to Delhi migration corridor is the highest in volume.

The states that have been closer to the ocean i.e. the peninsular states of the country have been high in growth and development. Comparitively the growth and development in the interior regions of the country like the Central and North eastern India has remained low.

The peninsular states have seen growth due to various models of development;

E.g: Gujarat, Maharashtra and Tamil Nadu have grown due to manufacturing. Kerela due to remittances from abroad and Andhra Pradesh and Karnataka due to specialized services like IT.

The less developed states like North east and Central India have become dependent on the aid of the center and so haven’t developed their own tax bases as effectively.

This means the current system of resource allocation needs to be improved so that the states can mobilize their resources too. The 14th Finance Commission removed an essential criteria that enabled this – “Fiscal Distance”.

This criteria had ensured some discipline in states but a case can be made to study whether such a criteria can be reintroduced.

The mineral rich regions like Central Indian states receive a revenue from the mining activities. The revenue goes to a “District Mineral Fund” to be spent on welfare of residents of that regions. States have to create a committee to effectively manage these funds for the welfare.

However the short term growth created in these regions can lead to a long term disadvantage as the mines exhaust. Hence the state has to effectively use the revenue to escape from this “natural resource” curse.

There are 8000 cities and towns out of which majority are statutory towns and remaining are census towns. 53 of these are million plus cities. The population has changed due to urbanization and currently 38 crore people live in urban areas.

Urban Indian produce 60% of the country’s GDP.

However are the cities equipped to handle the responsibility of providing better quality of life to the citizens. The situation isn’t good now because urban local bodies suffer from many problems.

  1. Lack of data available due to poor implementation of e-governance.
  2. multiple state agencies and not a single agency in charge of everything.
  3. Poor infrastructure like water, sanitation, waste management, healthcare, safety and pollution.
  4. 39 lakh crore investment shall be needed to create urban infrastructure over the next 20 years.
  5. States are not devolving adequate financial resources to the Local bodies and the local bodies too are not developing their own resources.