All Things Policy Economic Trajectory of India’s States
Jan 21, 2025
Rijesh Panicker, a colleague of Sarthak Pradhan at the Takshashila Institution, dives into the diverse economic trajectories of India's states. They discuss the stark disparities in growth, examining how states like Odisha have thrived while others, such as Bihar and Uttar Pradesh, face persistent challenges. The conversation highlights the need for tailored fiscal policies and accountability in state finances. Through analysis of recent studies, they reveal how educational resources and urban dynamics significantly impact regional prosperity.
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State Income Disparities
- High-income Indian states have generally grown at a faster rate than low-income states, defying the convergence predicted by economic models.
- Odisha is a notable exception, demonstrating impressive growth despite being a middle-income state.
Neoclassical Growth Model in India
- The neoclassical growth model predicts convergence of per capita income across regions, assuming free movement of labor and capital.
- This convergence hasn't occurred in India, suggesting limitations to this model's applicability in the real world.
Rethinking Convergence
- The concept of economic convergence, where all regions achieve equal development, is questioned.
- Focusing on improving all regions' growth trajectory, rather than forcing uniform development, might be more beneficial.