Two Indias

India’s economic mass remains concentrated in the coastal region, largely in the southern India. The South has made India into the fastest growing large economy in the world. It has a large and growing middle class, which is much more dynamic and enterprising than Europe and the US. It is well endowed with physical and human infrastrcuture and globally connected. This is the “shining India” that has a bright future ahead.

India’s poverty mass is concentrated in the hinterland, largely in northern India. It has the largest concentration of poor people on the planet. Its poverty mass is greater than many Sub-Saharan African countries. This is the “suffering India” that seems to be trapped in poverty.  

The spatial divide between “shining India” and “suffering India” has only widened in the last two decades. South India has always outperformed North India in terms of GDP growth, poverty reduction, and physical and human development indicators. The five southern states -- Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Kerala -- contribute the most to India’s economic growth. Tamil Nadu’s per capita income is almost double the national average. Their rise in per capita income has been associated with positive outcomes, such as better health, more education, and a higher standard of living.

Spatial indicators on poverty show a clear divergence between shining and suffering India. The proportionate reduction in poverty rate and unemployment rate has been much slower in the North compared to the South. Similarly, per capita incomes have diverged between North and South. The spatial disparities between North and South India are much deeper compared to regional disparities observed in China, Europe, the US, as well as in the developing world. 

Why have the two Indias failed to converge? India has made a lot of effort to integrate North and South by scaling up the physical infrastrcuture connectivity, especially highways. But its spatial development has been lopsided. A good example of this is the Golden Quadrilateral (GQ) highway launched by then Prime Minister Atal Bihari Vajpayee. The GQ is the longest road project in India and the fifth-longest highway in the world, connecting four major cities: Delhi, Mumbai, Chennai, and Kolkata.

Did the GQ highway integrate shining and suffering India? A detailed examination of all the districts along the GQ highway has shown that the more developed parts of South India benefitted more from it, compared to the suffering India. The overall impact of the investments made in highways was shaped by the local financial conditions.

New enterprises came up more in the South, near the highways, as they had greater access to finance. The districts in shining India along or near the GQ highway benefitted from higher levels of financial development and the GQ. The benefit of GQ was not in the North, as it did not have a well-developed financial sector. Physical infrastructure investments promote economic growth when enterprises can access capital and the financial sector is developed along with the physical infrastructure. The disconnect between the financial sector and physical infrastrcuture investments was a key reason for further widening spatial disparities in income and poverty indicators between North and South India.

India has the largest youth bulge in the world, and their higher mobility rates should have reduced the spatial disparities between North and South. Poor people tend to move from poorer to richer regions in search of jobs. Unfortunately, internal migration rates within India, between North and South, remain low, compared to internal migration rates in the rest of the world. India’s internal migration rate for unskilled workers is even lower, and much lower compared to more educated and skilled workers. 

Most poor and unskilled people in Bihar (I was born in Bihar) and Uttar Pradesh tend to be more risk-averse. They work part-time in cities, and to reduce their exposure to risks, they keep a foot in agriculture to avoid being too dependent on their non-agricultural jobs. By spreading
their risk between rural and urban areas, they choose not to specialise or develop their skills.

This has resulted in low migration rates for unskilled people and constrained the migration between the two Indias. There are also other difficulties such as social and language disparities. 

Low internal labour migration rates have worsened the job problem in India. India adds nearly 10 million new workers to the labour force every year, and most of them come from the North. But the pace at which new jobs are being created in the North is too slow to absorb new workers joining the labour force, and internal migration rates between North and South too low to achieve more efficient allocation of labour within India. 

The impact of global connectivity on spatial development is still evolving. So far, it has largely benefitted the South that has better physical and human infrastructure and stronger connectivity to the global markets. It has long been recognised that external trade has a limited impact on spatial development. For example, infrastructure and financial markets are more likely to be associated with bigger changes in the spatial allocation of activity within a country, while external trade can only shift the overall sizes of sectors.

At a crossroads

India’s spatial development is still evolving, as the manufacturing sector migrates from cities to rural areas, and enterprises move from the coastal regions to the hinterland. Reviving growth in the hinterland will not be easy, given inadequate physical and human infrastructure. Poverty will continue to persist, as poverty is known to have strong spatial characteristics.

India suffers from large poverty traps. Economic growth will lift all boats and so more policy focus is needed to directly reduce poverty itself. This will yield a double dividend, and reducing human misery could spark growth. The escape from poverty and human misery need not be a slow process. Mahatma Gandhi once said, “Poverty is the worst form of violence”. 

(The writer is a senior fellow at the Pune International Development Centre. He has formerly worked with the United Nations and World Bank)