MBA 3rd

Semester

Sujeet Kumar

Roll No. 25

[REGIONAL
IMBALANCE]
 Content

Topic Page No.

Concept of Regional Imbalance ……………………………………………………. (2)

Indicators of Regional Imbalance …………………………………………………… (3)

Causes of Regional Imbalance……………………………………………………... (11)

Measures to Remove Regional Imbalance………………………………………… (13)

Tenth and Eleventh Five year Plan and Regional Imbalance……………………. (16)

Bibliography

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 Concept of Regional Imbalance

Regional disparities are the result of our unfinished task of nation building. These
reflect essentially the inadequacies of the development strategy followed since
independence and its failure to correct the distortions brought about by colonial rule.
Of late, these tensions have acquired alarming proportions and are threatening to
strike at the very roots of the nation state. This has brought to sharp focus the need
of better understanding of the pattern of regionalization, the nature of regional
imbalances and their changing structure over time.

Hence, balanced regional development is necessary for the harmonious growth of

federal state like India, however, presents a picture of wide regional variations, in
terms of per capita income, proportion of population living below the poverty line,
working population in agriculture, the percentage of urban population over total
population, etc.

“The co-existence of relatively developed and economically depressed states

and even regions within each state is known as Regional Imbalance.”

Regional imbalance may be;

• Natural due to unequal natural endowments, or

• Man made in the sense of neglect of some regions and preference of others
for investment and development effort.

• Inter-state or intra-sate,

• Total or sectorial,

“Economic Backwardness” of a region indicated by symptoms like high population

pressure on land, excessive dependence on agriculture, absence of large-scale
urbanization, low productivity in agriculture and cottage industries, etc.

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 Indicators of Regional Imbalance
To study the regional imbalance, the 15 major states of India have been classified
into two major groups:

Forward States Population as Backward States Population as

(48% of Total per 2001 (42% of Total per 2001
Population) census Population) census
Punjab 2,43,58,999 Madhya Pradesh 6,03,85,118
Maharashtra 9,67,52,247 Assam 2,66,55,528
Haryana 2,11,44,564 Uttar Pradesh 16,60,52,859
Gujarat 5,06,71,017 Rajasthan 5,64,73,122
West Bengal 8,01,76,197 Orissa 3,68,04,660
Karnataka 5,28,50,562 Bihar 8,29,98,509
Kerala 3,18,41,374
Tamil Nadu 6,24,05,679
Andhra Pradesh 7,62,10,007
(Source: Manorama yearbook 2009)

These 15 states taken together accounted for 90% of the total population in 2001.

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 (Source:
http://www.mapsofindia.com/census2001/population/population-
india.htm#)

 Disparities in Per Capita:

Forward Per Capita Income at current

Rank
States prices (2005-2006) in Rs.
Punjab 36759 3
Maharashtra 37081 2
Haryana 38832 1
Gujarat 34157 4
West Bengal 25223 9
Karnataka 27291 7
Kerala 30668 5
Tamil Nadu 29958 6
Andhra Pradesh 26211 8
Average 31798
Backward
States
Madhya
15647 3
Pradesh
Assam 18598 6
Uttar Pradesh 13262 2
Rajasthan 17863 5
Orissa (2004-
16306 4
2005)
Bihar 7875 1
Average 14925
(Source: Manorama yearbook 2009)

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 Since, per capita income shows the average annual earnings of a single
person in a particular region. It can be treated as an indicator for regional
development. As the past record shows that:

o Punjab topped the list as it had the highest per capita income in 1990-91 and
Orissa was at bottom.

o In 2002-03, Maharashtra was at top and Bihar was at bottom on the basis of
per capita income.

o However, this list was again changed in 2005-06, Haryana was at top and
Bihar was at bottom on the basis of per capita income.

This implies that the backward states with very large population share – U.P.,
Bihar and Madhya Pradesh – acted as a drag on the growth process of the
Indian Economy.

 Differential Growth Rate (Net State Domestic Product):

Annual Average Growth

Forward Ran
Rate 1990-91 to 2004-
States k
05
Punjab 4.37% 11
Maharastra 6.06% 4

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 Haryana 5.37% 8
Gujarat 6.79% 3
West Bengal 6.88% 2
Karnataka 6.91% 1
Kerala 5.86% 5
Tamil Nadu 5.26% 9
Andhra Pradesh 5.65% 6
Backward
States
Madhya
1.78% 14
Pradesh
Assam 3.18% 12
Uttar Pradesh 2.79% 13
Rajasthan 5.11% 10
Orissa (2004-
5.52% 7
2005)
Bihar -0.99% 15
(Source: Dutta & Sundram, Indian Economy 60th Edition, Page No. 475)

In the above table, shows that the average growth rate of Net State Domestic
Product of Forward States was 6.03%, while that of the backward states was only
2.69% per annum. These differentials aggravated regional disparities during the
post-reform period. While forward states like west Bengal, Karnataka and Gujarat
indicated very high growth rates of NSDP (over 6%), the backward states like Uttar
Pradesh, Madhya Pradesh, and Bihar (with very large population) indicated very low
growth rates during the 14-years period (1990-91 and 2004-2005). The most
distressing fact was that Bihar indicated a negative growth rate of NSDP at (-)
0.99%, while U.P. with a population of 166 million (16.2% of total population)
indicated a very low growth rate of 2.79%.

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This implies that the backward states with very large population share- U.P., Bihar
and Madhya Pradesh – acted as a drag on the growth process of the Indian
economy.

 Disparities in Infrastructure:

Forward Infrastructure Ran

States Development Index 1999 k

Punjab 187.6 1
Maharashtra 112.8 6
Haryana 137.5 4
Gujarat 124.3 5
West Bengal 111.3 7
Karnataka 104.9 8
Kerala 178.7 2
Tamil Nadu 149.1 3
Andhra
103.3 9
Pradesh
Backward
States
Madhya
76.8 14
Pradesh
Assam 77.7 13
Uttar Pradesh 101.2 10
Rajasthan 75.9 15
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 Orissa 81 12
Bihar 81.3 11
All India 100
(Source: Dutta & Sundram, Indian Economy 60th Edition, Page No. 478)

Infrastructure development can be demand driven when it is followed by

investment in directly productivity activities and it is supply-driven when it is
preceded by investment in directly productive activities. The above mentioned
index is developed by CMIE where the items within the weights are as follows:

Transport
26%
facilities
Energy
24%
Consumption
Irrigation
20%
facilities
Banking facilities 12%
Communication 6%
Educational
6%
facilities
Health facilities 6%

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 Punjab has the highest value of IDI as 187.6, followed by Kerala and Tamil
Nadu as 178.7 and 149.1 respectively. Lowered value of IDI was for
Rajasthan (75.9), followed by Madhya Pradesh (76.8) and Assam (77.7).

The above result may be analyzed as since Punjab is having the highest
irrigated area(95%) as a proportion of gross cropped area, it has the highest
productivity per hectare, but in Uttar Pradesh though this proportion was quite
high (63%), yet its productivity per hectare was relatively low. This only
highlights the fact that whereas Punjab and Haryana were able to harness this
infrastructure facility for agricultural development, Uttar Pradesh did not
succeed adequately in this regard.

 Disparities in Physical Qualities of life:

Literacy Rate (2001)

Infant Mortality
Forward Ran
Rate (per Tota Ra Mal Ran Femal Ran
States k
thousand) in 2005 l nk e k e k

Punjab 44 4 69.9 5 75.6 10 63.6 4

Maharashtra 36 2 77.3 2 86.3 2 67.5 2
Haryana 60 9 68.6 7 79.3 5 56.3 8
Gujarat 54 6 70 4 80.5 4 58.6 6
West Bengal 55 7 69.2 6 77.6 6 60.2 5
Karnataka 50 5 67 8 76.3 9 57.5 7
Kerala 14 1 90.9 1 94.2 1 87.9 1
Tamil Nadu 37 3 73.5 3 82.3 3 64.6 3
Andhra
57 8 61.1 12 70.8 13 51.2 10
Pradesh
Backward
States
Madhya
76 15 64.1 10 76.8 7 50.3 12
Pradesh
Assam 68 11 64.3 9 71.9 12 56 9
Uttar Pradesh 73 13 57.4 14 70.2 14 43 14
Rajasthan 68 11 61 13 76.5 8 44.3 13
Orissa 75 14 63.6 11 75.4 11 51 11
Bihar 61 10 47.5 15 60.3 15 33.6 15
All India 58 65.4 76 54.3
(Source: Dutta & Sundram, Indian Economy 60th Edition, Page No. 479)

Infant mortality rate and literacy rate are two very good indices of physical
quality of life. Infant mortality rate shows a tendency to decline with economic

10
and social development. From this point of view, Kerala is far ahead of other
states. In 2005 infant mortality rate in Kerala were 14 per 1000 live births as
against the national infant mortality rate of 58 per 1000 live birth. Punjab,
Maharashtra, west Bengal and Tamil Nadu had infant mortality rates in range
of 36 to 55. The states registering high infant mortality rates in 2005 were
Madhya Pradesh (76), Orissa (75), Uttar Pradesh (73), Assam (68),
Rajasthan (68) and Bihar (61).

Literacy Rate in general and female literacy rate in particular are regarded as
good indicators of development. On these criteria Kerala (the first ranked
state) has done extremely well vis-à-vis other states. According to 2001
census, the overall literacy rate in Kerala was 90.9%, as against the national
average of 65.4%. Even the female literacy rate in Kerala was as high as
87.9%. In states of Bihar, Rajasthan and Uttar Pradesh the literacy rates
ranged between 47.5 and 61.0. In these states the female literacy rate ranged
from 33.8 to 44.3 %. Interestingly in Haryana, the first ranked state in terms of
per capita income both overall literacy rate and the female literacy rate were
more or less the same as all-India rates. This perhaps is due to the low
priority given to education in primarily agrarian societies.

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(Source: http://www.mapsofindia.com/census2001/literacyrate.htm)

12
 Causes of Regional Imbalances
There are certain deterrent factors which come in the way of rapid development of a
region; most important of them are:

• Geographical Isolation,

• Inadequacy of economic overheads like transport, labour, technology, etc.

Pre-independence Period:

Historically, the existence of backward regions started from the British rule in India.
The British helped the development of only those regions which possessed facilities
for prosperous manufacturing and trading activities. Maharashtra and west Bengal
were the states preferred by the British industrialists. The three metropolitan cities –
Calcutta, Bombay and madras – attracted all industries and rest of the country
remained backward.

Further, under the land system of British, the rural areas were continuously
pauperized and the farmers remained the most oppressed class; the zamindars and
the money lenders were of course the most prosperous person on the rural sense.
The uneven investment in irrigation during the British period helped some areas
become prosperous under the British rule.

Geographical Factors:

In developing countries, the developed regions are generally confined to urban

centers and urban areas. This is mainly because physical geography controls
economics growth in a greater degree in developing countries than in developed
countries.

For example, Japan and Switzerland have overcome the handicaps of mountain
terrain but our Himalayan states and the hills district of U.P., Bihar and NEFA, have
remained backwards and underdeveloped mainly due to inaccessibility.

Locational preferences:

Some regions are preferred because of certain locational advantages. The location
of iron and steel factories or oil refineries will have to be only in those technically
defined areas; which are optimal from all the viewpoints. They also attract labour,
capital, trade and the external economies offered by the developing regions.

New investment in the private sector has a tendency to concentrate in an already

well developed area, thus reaping the benefit of external economics. Since well-
developed area offers private investors certain basic advantages, i.e. labour,
infrastructural facilities, transport and the market.

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Post-independence Period:

Total
Total
assistance to Percentage of
assistance in
Plans Backward Assistance of
all states (Rs.
States (Rs. Backward States
Crore)
Crore)
Sixth Plan(1980-
16560 7590 46%
85)
Seventh Plan
31420 13200 42%
(1985-90)
Eighth Plan(1992-
93830 35160 37%
97)
Ninth Plan (1997-
185260 69990 38%
2002)
Tenth Plan (2002-
254100 91080 36%
07)
(Source: Dutta & Sundram, Indian Economy 60th Edition, Page No. 482)

The planning mechanism has itself accentuated the disparity between the states by
having a strong bias in favour of developed states and neglecting less-developed
states. Data shows that by and large, the more developed states were clearly
favored and the less developed states were neglected in planned outlay. Punjab and
Haryana have always received the highest per capita plan outlays form the first plan
to Eighth plans. At the same time, the poorest states like Bihar, Orissa, Uttar
Pradesh and Rajasthan have continued to receive the smallest allocation per capita
in all the plans. Accordingly, the disparities between the states in India has been
widening, this is despite a clear objective of planning to achieve regional balance in
development.

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15
 Measures to remove
Regional Imbalance
As recognized earlier the major three policies can short out the major disparities
among the states in greater degree of deals. They are:

• The recognition of backwardness as a factor to be taken into account in the

transfer of financial resources from the Centre to the states.

• Special area development programs directing at development of backward

areas

• Measures to promote private investment in backward areas.

Backwardness and Resource Transfer:

The Finance Commission in India has used backwardness of a state as one of the
criteria for the transfer of funds from the central pool to the states. The resource
transfer relate to central assistance for state plans, transfer effected under the
recommendations of finance commission, ad hoc transfer from the Centre to the
states, the distribution of assistance for centrally sponsored schemes, the distribution
of assistance of long-term and short-term credit from financial institutions etc. the
share of backward states in plan outlay and in central assistance steadily rose from
48% in the First Plan to 57% in the Third Plan. Since, then, the share of the
backward states in central plan assistance has been gradually declining to 50% in
the Fifth Plan, 46% in the Sixth Plan and 37% in the Eighth Plan (as shown below)

There are certain difficulties in solving the problem of regional disparities and
backwardness through transfer of resources from the Centre to the Sates. There is
16
no guarantee that the resources transferred from the Centre to the States would be
automatically used for the development of the backward areas or district. In fact
there is a tendency to divert funds intended for backward and difficult areas to more
forward areas and easier programs.

Special area development programs:

Specific Plan schemes have been formulated with Central assistance to develop-
prone areas. Moreover, schemes of rural development directed towards the
improvement of specific groups like small framers and agricultural laborers were also
located in backward areas. In course of time, these special schemes for particular
target groups become an apart of the program of block level planning for integrated
rural development and full employment.

The Eleventh finance Commission did not make backwardness as such a criterion
for resource transfer, but in the formula for resource transfer, among the different
criteria, the relative distance of the per capita income of the state with the income of
the state with highest per capita income and index of infrastructure development
were indirectly include backwardness. On the basis of new formula, backward states
and special category states, taken together would receive 61.2% of total resource
transfer.

Initiative to promote investment in backward areas

Various incentives have been provided in order to tackle the problem of industrial
backwardness and to promote private investment in backward areas. These
incentives have been provided by the Centre, by the States and by public sector
financial institutions.

• Central Government Incentives:

The Government of India has been providing important incentives to promote

private investment in backward areas. These incentives are:

 Income Tax Concession:

New industrial units located in backward areas set up after

January 1971 is allowed a deduction of 20% of profits for
computation of assessable income. This concession introduced
in April 1974 was to be available for period of 10 years.

 Central Investment Subsidy Scheme:

The scheme of Central subsidy, as originally announced in

1970, provided for an outright subsidy at the rate of 10% subject
to a maximum of Rs. 5 lakh on fixed capital investment, i.e.,

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 land, buildings, plant and machinery. The rate of subsidy was
subsequently raised to 15% and still later to 20%.

 Transport Subsidy Scheme:

Under this scheme, introduced in July 1971, industrial units set

up in hilly, remote and inaccessible areas were entitled to 50%
transport subsidy on the expenditure incurred for movement of
raw materials and finished goods to and from certain selected
rail heads to the location of the industrial units. The scheme is
applicable to remote and inaccessible areas in Jammu and
Kashmir and North-Eastern hill states.

• State Government Incentives:

State government has also offered incentives to attract private sector units to
the backward region. These incentives include:

 Provision for developed plots with water and power with no-profit
and no-loss basis

 Exemption from payment of water charges for some year

 Interest fee loans on sales tax dues

 Exemption from payment of property taxes for some years

 Monetary Assistance from State Financial Corporation, State

Industrial Development Corporation (SIDCO) etc.

• Concessional Finance by major financial institutions:

The three major public sector financial institutions, i.e., Industrial Finance
Corporation of India (IFCI), Industrial Development Bank of India (IDBI) and
the Industrial Credit and Investment Corporation of India (ICICI) provide
concessional finance for industrial projects located in backward areas. These
concessions relate to:

 A lower rate of interest on rupee loans (9.5% as against 11.5%),

 A longer period of repayment (generally 15 to 20 years, as

against 10 to 12 years),

 Participation in the risk capital or debenture issues,

 Charging only half the normal rate of underwriting commission,

waving of commitment charges, etc.

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 Tenth and Eleventh Five year plan
And regional disparities
Tenth Five year plan for less developed States

The major initiative and strategies adopted by the government in this plan to remove
regional imbalances are as follows:

• High level of Capital investment is an important component of this strategy. A

high proportion of Central assistance and State’s owned resources would be
devoted in improving infrastructure gaps in less developed states.

• Imitative towards the better governance and institutional reforms to make the
targeted investment effective.

• Formulated a new scheme called Rashtriya Sam Vikas Yojana- RSVY

(national Equal Development Plan) to support the development initiatives in
backward states and regions.

Eleventh Five year plan for less developed States

The eleventh five year plan has listed the programs which are particularly targeted
towards poor areas and poor people with the prime objective of resource transfer
from forward to backward states.

• Pradhan Mantri Gram Swaranjayanti Swarozgar Yojana (PMGSY) is targeted

at BPL (Below Poverty Line) families and has in-built safeguards for the
weaker sections with 50% benefits reserved for SC/STs.

• Indira Awas Yojana gives 75% weightage to housing shortage and 25% to
poverty ratios.

• National Rural Health Mission (NRHM) focuses on 18 states which have weak
public health indicators or weak infrastructure. 23% of funds from the scheme
are provided to two states, i.e., U.P. (16%) and Bihar (77%).

• Sarv Shiksha Abhiyan – under this program, seven states, i.e., Uttar Pradesh,
Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh, Rajasthan and Orissa
received 59% of total outlay.

• Under supplementary nutrition program, the seven backward states, received

82.3% of the total allocation through their population was only 44%.

Taking all the five schemes together, out of a total allocation of Rs. 31,901 crore
the allocation for the backward states was Rs. 17,864 crore – that is 56% of the
total.
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 Bibliography
Text Referred:

Dutta Ruddra and Sundharam K.P.M., 60th Edition (2009), Indian Economy,
Balannced Regional Developemnt, S.Chand & Company Ltd., New Delhi

Mishra S.K. and Puri V.K., 20th Edition, Indian Economy, Regional Planning in
India, Himalyan Publishing House, New Delhi

Journal Referred:

Mathew K.M., Manorama Yearbook 2009, Malayala Manorama Press, Kottayam

Web Site Referred:

http://www.mapsofindia.com/census2001/population/population-india.htm#

http://www.mapsofindia.com/census2001/literacyrate.htm

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