Why inequality between South and West India and North and East could grow – and the dangers that carries

The disparity between South and West India compared to North and East India is growing. Economic activities, including manufacturing, services, and consumption, are predominantly concentrated in the southern and western regions. This imbalance is exacerbating inequalities and creating deeper divisions.

Explaining the Widening Gap Through Comparison Between

• Bihar and Andhra Pradesh: In the 2023-24 period, the average income of an individual in Andhra Pradesh was about four times higher than that of a person in Bihar. Assuming both states maintain their historical growth rates, the income disparity is expected to widen, with Andhra Pradesh’s average income becoming approximately four-and-a-half times that of Bihar by the decade’s end. Not to forget, Andhra Pradesh still has the lowest per capita income among the wealthier southern states.
  • Now, if we reverse the growth rates—Bihar grows at Andhra Pradesh’s current rate, and Andhra Pradesh grows at Bihar’s slower pace—after 15 years, an average person in Andhra Pradesh would still be three times wealthier than someone in Bihar. This shows the deep-rooted nature of income inequality between regions.

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Contribution to the Economy

In the early ’90s, these states accounted for less than 25 percent of the Indian economy. By 2022-23, their share had risen to roughly 33 percent.

Why South and West India are Growing Rapidly

• Historical Accidents: During the colonial era ports, railways and even educational institutions got developed more extensively in the South and West part of the country. This benefited the people of the area after the Independence.
• Policy Intervention: The government policies of these states is one of the reasons. Bengaluru city of Karnataka is known as the IT hub of India because the government built the technological infrastructure and created educational institutions that produced IT professionals.
• Market Forces: It shouldn’t come as a surprise that any company would like to establish their business where they get skilled workers, good infrastructure, better logistics, etc. 
• Agglomeration Effect: The presence of an industrial ecosystem i.e. existing manufacturing and services base, a skilled workforce, financial networks and infrastructure, etc makes these states desirable for establishment of business as compared to states like Uttar Pradesh and Bihar.
• • Understanding Agglomeration Through the Example of Delhi: We can draw a parallel with Delhi being a study hub. It always had an ecosystem of good students, existing availability of  guidance, mentors, study material etc. So whenever an ed-tech company looked for establishing its institutes it often chose Delhi. Although we cannot ignore the changing scenario which is due to the growing popularity of online education.

How Has It Benefited Southern and Western States?

• Quality of Life: These five southern states are not only richer, but the people living in these states are more likely to live longer, are more likely to be better educated, and their children are more likely to have better health.
• Factories and Employees: In fact as per the Annual Survey of Industries the five southern states account for 37 per cent of all factories and 33 percent of all formal sector employees (those contributing to EPFO)
• Exporting Districts: Of the top 20 exporting districts in the country 18 are located in western and southern states.
• Presence of Global Capability Centers: A significant share of the global capability centres that are being set up are located in the cities of Bengaluru, Hyderabad and Chennai, and in Mumbai and Pune.
• Apple Ecosystem: Foxconn is Apple’s contract manufacturer and is largely located in these regions.
• Semiconductor Projects: The four out of five semiconductor projects approved by the Centre, would be in Gujarat.

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Case of Noida and Ghaziabad

• Some cities like Noida and Ghaziabad benefit from their proximity to Delhi. These two cities account for 46 per cent of all formal jobs in Uttar Pradesh (those contributing to EPFO).
• Incentives for Company: The huge numbers of young and poor people in the northern states might seem attractive to manufacturers searching for cheap labour. 
  • Cities like Noida and Ghaziabad (and even other cities) have steady infrastructure of highways and airports which may also provide a burst of economic momentum to some parts of the state.
• Is This Enough Incentives?: Due to the agglomeration effect present in southern states the companies wouldn’t want to leave them.

Impact of Continuous Widening of Gap

Continuous widening of the gap will work as a double edged sword.

• The people from poor regions will migrate in search of work to the richer areas.
• This migration might put pressure on creaking infrastructure which might give rise to animosity towards migrants. 
  • Demand for Reservation: The local communities of these richer states might demand for reservation. Similar demands may be made by various caste groups in the lower-income states because of lack of jobs.
  • This might compel the government to not only provide reservations (populism) but would also think for a short term generation of jobs rather long term.

Way Forward

• Governments have to provide incentives to companies like the production-linked incentive scheme provided by western and southern states.
• Government has need to reform the economic structure of the society and opt for a balanced growth. 
• A zeal or passion on the part of political leadership in northern and eastern states is required to at least get the manufacturing companies to establish their factories in the states.

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Conclusion

To address regional disparity, it’s essential to have long-term planning, which requires building a strong and vibrant civil society.