A False Divide

SOMETIMES, POLITICS SEEKS unity. At other times, it seeks divides. The attempted canard about a rich South India pitted against a poor North is dangerous. It is also false. The purported grievances that allegedly stem from this divide are disingenuous. And betray a limited understanding of both politics and economics.

Consider the facts from the government data of 2021-22, the most recent financial year for which comparable figures for all states are available. India’s richest state in per capita income is indeed in the south, but not one of the big five states. It is Goa. The state has a per capita income of around ₹4.72 lakh ($5,900), more than twice the India average. In close competition is the northeastern state of Sikkim with a per capita income of ₹4.63 lakh ($5,800). Now, note the figures for the big five southern states, in descending order of prosperity. Telangana ₹2.7 lakh ($3,400), Karnataka ₹2.65 lakh ($3,300), Tamil Nadu ₹2.42 lakh ($3,000), Kerala ₹2.33 lakh ($2,900), and Andhra Pradesh ₹1.92 lakh ($2,400). Indeed, all above the India average for that year but considerably lower than Goa and Sikkim.

Now, consider some of the ‘north’. Delhi comes in with a per capita income of ₹3.89 lakh ($4,800), Chandigarh ₹3.33 lakh ($4,100), Haryana ₹2.65 lakh (same as Karnataka), Gujarat ₹2.41 lakh (same as Tamil Nadu), and Maharashtra and Uttarakhand both at around ₹2.1 lakh (richer than Andhra Pradesh). Himachal Pradesh at ₹2 lakh is also richer than Andhra Pradesh.

It is tempting to dismiss Delhi and Chandigarh as points of comparison. These are essentially cities, not states and, therefore, don’t have any agricultural sector to speak of, to pull down the average income. That is true but it also reveals a fact that is not discussed in this debate of regional inequality. Cities are the real engines of growth and the largest contributors to GDP and taxes. Now look at the five southern states with the presence/absence of an economic engine. Telangana, the richest, is home to Hyderabad, and Karnataka, which comes close behind, is home to Bengaluru. These are the two biggest growth engines in India after Delhi and Mumbai. Tamil Nadu has Chennai which is a rung below the top four cities, but dynamic nonetheless. Unsurprisingly. Kerala and Andhra Pradesh don’t do as well because they lack the dynamic economic engine of Delhi or Mumbai or Bengaluru or Hyderabad or even a Chennai kind.

If there is an inequality to note, it is between cities and the rest, not north versus south. And this is not a plea to discriminate against cities but to accelerate urbanisation across India. In fact, it is an argument for empowering city governments so that they can emerge as even more attractive hubs for investment, talent, and growth.

That said, there is no doubt that there is a big difference in the prosperity of the richer and poorer states. Uttar Pradesh at ₹73,000 ($900) and Bihar at ₹41,000 ($500), Jharkhand at ₹84,000 ($1,000), for example, don’t even make the six-digit per capita income grade. Some of the eastern and northeastern states are in a similar, though slightly higher, category. West Bengal is at ₹1.24 lakh ($1,500), Odisha at ₹1.28 lakh ($1,600).

The argument that those states that contribute more to taxes should in turn receive a bigger share is poor in politics and economics

Share this on

There are several reasons for the relative backwardness of these states related to geography, history, and governance. Whatever the reason, the argument that those states that contribute more to taxes should in turn receive a bigger share is poor in politics and economics. Taxes are always redistributive. The rich pay more and the poor receive a greater share. This applies to individuals and states. The point is that the poorer states need to converge with the richer ones. For this, more resources are required not just because there are more poor people who need welfare but because the essential infrastructure required for accelerated growth is either not there or insufficient. In every country, richer regions cross-subsidise poorer ones. It is in the logic of political union.

The richer states have a long runway of opportunity to become much richer. And capitalising on it doesn’t depend merely on a state government’s budget. As these states are further ahead in their development journey, they need to focus on growth-enhancing reforms in land, labour, logistics, and ease of doing business. Real prosperity will be delivered by entrepreneurs and the private sector, not the government. The richer states need to compete on structural reforms. They should move beyond welfare and eyeing a slice of the existing cake when they can bake an entire on their own and share it with the rest.

About The Author

Dhiraj Nayyar

Dhiraj Nayyar is chief economist, Vedanta Ltd, and the author of Modi and Markets: Arguments for Transformation

•