Regional Inequality in India: A Fresh Look Nirvikar Singh Laveesh Bhandari Aoyu Chen Aarti Khare

1. Regional Inequality in India: A Fresh Look • Nirvikar Singh • Laveesh Bhandari • Aoyu Chen • Aarti Khare

2. Agenda • Structure of Paper • Paper Idea & Objective • Literature cited • Findings • Conclusion • Comments

3. Structure of Paper • Inequality – State of the Debate • Alternative Outcome Measures • Inequality below the state level • Conclusion

4. Paper Idea & Objectives Regional Inequality in India – looking through the lens of HDI Key Words • Concerns that regional inequality has increased in India since the reforms • Focus of this paper is to look at HDI as a measure of attainment • Also look at consumption and credit indicators for regions disaggregated below state level • Policy implications Regional Inequality Attainment measures Human Development

5. Literature cited Measures of personal income inequality tell us very little has changed • Possible that income of the super rich (1%) may not be captured here… due to under reporting and under-coverage • This ‘speculation’ needs to be investigated What the authors say: Nationwide Gini + top and bottom quintile income shares

6. Literature cited State-wise breakdown of Gini… no strong increase in HH inequality • It is important to note that this figure – • Tells us about inequality within rural and urban households for each state • It contains no information about inequality across the states • In doing so it actually treats all households within a state as equal since statewide averages are used

7. Literature cited Summary of studies -Absolute and conditional convergence- Private Investment matters Private Investment matters, Credit-deposit ratios & FDI approvals per capita impact growth positively, and credit- deposit ratios have become more varied across states

8. Literature cited Increasing inequality across regions a concern if it sharpens political tensions… Should we worry about increasing inequality of SDPs? • Evidence for increasing inequality of per capita SDP across the state may have limited consequences • No clear statistical evidence of long run divergence • Statistical analyses all use SDP as the outcome measure • State domestic products ignore remittances from • Emigrants abroad to rich states • Mobile labour from poor states within the country

9. Findings Looking at consumption to measure welfare of individuals The regressions suggest absolute divergence in both periods, but the evidence is weak for the late period (not significant at the 10% level)

10. Findings Looking at a broader outcome measure – standard of living National Human Development Report Singh and Srinivasan • Singh & Srinivasan (2002) suggest that HDI conducted in the NHDR does not show any increase in across-state variation as measured by the un-weighted standard deviation • National Human Development Report (NHDR) looks at 8 different dimensions of performance: • Per capita expenditure • Headcount poverty rate • Literacy rate • A formal education enrollment index • Infant mortality rate • Life expectancy • Access to safe water • Access to housing

11. Findings The average HDI has risen in the 1990s, the coefficient of variation has fallen These numbers are therefore quite consistent with the conclusion that inter-state disparities in well-being have not worsened in the 1990s

12. Findings Regressing the change in the HDI on the base year • Credit per capita also included as a separate regression to test for conditional convergence. • Such variables tend to be insignificant in affecting improvements in HDI • In summary on looking at a broad measure of well-being, there is no evidence of the absolute divergence that shows up in the output and consumption measures.

13. Findings The Bhandari-Khare (B-K) analysis —Approach to measure inequality— • Used data from NSSO. Data divides nation into 78 homogeneous agro-economic regions that are groups of contiguous districts demarcated on the basis of agro-climatic homogeneity. Each region contained within a state. • Construct an economic performance index based on • Petrol sales • Diesel sales • Bank credit • Bank deposits • Cereal production • Compare 1991-92 and 1988-89 and report how each region fared • Findings • East-west divide emerges • No north-south or coastal-inland divide • Most areas that do the best are centered around urban areas (growth poles) • Areas that lag are typically rain-fed agricultural regions

14. Findings Extending the B-K analysis • Examine the five variables individually • Diesel consumption and credit show evidence of absolute divergence • In summary productive economic activity is becoming more unequal across the regions but final consumption is not subject to such effects to the same degree (Appendix A) • Once conditioning variables are included in the regressions, diesel consumption still shows some evidence of divergence, but the statistical significance is weaker • Petrol convergence shows evidence of conditional convergence • Other variables have coefficients that do not permit an inference in either direction (Appendix B)

15. Findings Using dummies for ‘zones’ Findings • Use the East and Northeast as the base zone • Significance of the zonal dummies, particularly for South and the West • They are positive and significant for most of the 5 measures, it suggests that at this level of aggregation there are some possible concerns which deserve further investigation with disaggregated data (Appendix C & D)

16. Conclusion Policy discussion Factor Description • Central polices have incorporated inter-regional and inter-state considerations in directing investment, controlling prices and restricting movements of certain goods • Loosening of central controls has increased fears that • The poor would be left behind • Some political constituents of the nation would be left behind Historically Fears are overemphasized. To some extent increases in inequality are driven by factors necessary for growth – efficient allocation of capital and policy quality. Sub state level some states may see greater disparity emerging within their boundaries. One might guess that inter-state mobility is greater than across states. Problem could also be mobility across rural and urban areas and across social boundaries. Evidence Streamline the center-state transfer system to make it more efficient. Reduce the pervasive government presence in the financial sector. Lessons Record not bad. Reform has done better than expected. Policy improvements required are more reform not backpedaling Conclusion

17. Comments Factor Description • National Sample survey data not adjusted for comparability with previous rounds • Reference period changed from the uniform 30 day recall used till then to both 7 day and 30 day questions for food and intoxicants and only 365 day questions for items of clothing, footwear, education, durable goods and medical expenses. • These led to (qualified) conclusions that poverty had declined by 10 % Literature can be referenced in • Deaton and Dreze 2002 – Exploited the fact that only 30 day questions were asked for some non-food items in both rounds and assuming that probability of being poor has a stable relationship with spending on these • Sundaram and Tendulkar 2003 – denied the presence of 7 day questions on food etc inflated 30 day responses • Sen and Himanshu 2004 NSS

18. Comments Remittances • The amount of international remittances has steadily increased in the past decade to over $20 B • Authors assume that most of this remittance is to rich states (Punjab, Haryana and Kerala are specifically mentioned) • Is it possible that remittances within India from rich to poor states is larger that this dollar flow? • Most internal migration was either rural-rural (over 55 %) or rural-urban (30 %) • Most migration was moving for marriage and mainly women (44 %). Only 14.7 % had moved for employment (Deshingkar 2006) • Most internal migrant labour is unskilled

19. Appendix

20. Appendix A

21. Appendix B

22. Appendix C

23. Appendix D