India Goes Global--Chapter 2

Chapter 2: Is Economic Growth Leaving Some States Behind?

This chapter focused on India's economic growth and the growing gap between the poor and rich in India. It discussed how growth has benefited many of India's richer states, but the poor states are left lagging further and further behind. As this continues to occur, there will be more people left in poverty and subject to inequality. The author goes through and explains five different facts about growth in India which help to explain the widening gap.

First, the gap between richer and poorer states has widened-rich states have grown three times faster than poorer states. While the economic growth is occurring in the rich states, the poorer states are continuing to grow more and more populous. This continues to hurt their chances of growing and becoming more wealthy. Also, the richer and faster growing states are better in reducing poverty. The author states that they are in fact about 50% more effective than poorer states in reducing poverty. So as the wealthy states continue to grow, they will reduce poverty even more--which will allow them to become even more wealthy, leaving the poorer states behind. A third fact is that the poor and slower growing states generate fewer private sector jobs. In fact, the poorest and more populous states, where about 40% of the population live, accounts for only one quarter of organized sector employment. Capital and labor flows do little to address the imbalances across states. The economic activity is extremely concentrated in particular areas, and India's most populous states contribute much less to output than their share of the population. Growth has been the most volatile in the poorest states. This is because the poor are much more prone to swings in income. One month or week an individual may have a job, the next week he or she may not. The reason some states are progressing much more quickly, and others seem stuck in poverty has a lot to do with state level policies. They play a large role in the economic growth across the Indian states. The author states that "states can influence their relative growth performance and accelerate convergence through their policy choices."