REGIONAL IMBALANCE

Regional Imbalances implies that there is difference in ‘economic development’ of

different regions. In India ‘region’ means a state or district or union territory. Regional
imbalances may be inter-state or intrastate. Economic development of an economy like
India is possible only when there is balanced economic development of all regions in
the country i.e. of 28 states and 7 union territories. Balanced economic development of
different regions does not mean that rate of development of regions should be uniform.
It implies that difference in the economic development of different regions should be
minimised.

Regional imbalances may be:

(i) Natural Regional Imbalances:
These are the imbalances in inter regional or intra-regional development due to unequal
distribution of natural resources by the nature. Each region is different from the other
region in respect of natural resources, water capacity, transport etc.

(ii) Man Made Regional Imbalances:

There may be some regions where more efforts have been made for development by
giving preference for investment and other development efforts like – subsidies, grants
etc.

Prof. N.J. Kurion has divided the regions in two categories:

(a) Regions situated in the centre of India; like, Uttar Pradesh, Orissa and Bihar etc. are
considered backward regions as far as economic development is concerned. These are
also termed as ‘Backward States’.

(b) Regions situated at the periphery of India like Punjab, Gujarat, Karnataka, West
Bengal, Kerala, Tamil Nadu and Andhra Pradesh have developed more. We can also
call these ‘Forward States’.
Indicators of Regional Imbalance:
There are a number of factors which have to be studied and understood in detail to
understand the pattern of regional development of the Indian economy.

In a country like India socio-economic indicators are very prominent to reflect the
regional imbalances.

1. Per Capita Income:

The most important indicator of regional imbalance in India is per capita income. The
following table shows this per capital income in descending order.

The table clearly indicates that Goa is the state with highest per capita income amongst
these states. Haryana stands second in number with Rs. 78,781. Punjab, Haryana,
Maharashtra, Gujarat and Tamil Nadu have more than average per capita income of
India. Bihar has the lowest per capita income. States of the southern region of India,
Tamil Nadu, Andhra Pradesh, Kerala etc. seem to be better developed, than most of the
states of northern India. The present trend of growing income disparity among various
states of India has been continuing in recent years.

2. Population:
State wise analysis of population reveals that maximum population of India is
concentrated in four states i.e. Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh
(BIMARU). The major task of Population Commission is to bring about a decline in birth
rate in BIMARU states which are the main contributors to population growth in the
country. To step up its efforts, the outlay for the Department of Family Welfare has been
increased from Rs. 6,500 crores in the Eighth Plan to Rs. 15,120 crores in the Ninth
Plan.

Bihar, U.P., Orissa and M.P are four states which have the highest percentage of
population below poverty line. Punjab is a state maintaining the status of lowest
percentage of population living below poverty line because of a strong production base
and distribution of income in Punjab.

3. Agricultural Production and Agricultural Productivity:

While discussing the share of agricultural production of different states we concentrate
on production of food-grains as it forms the major proportion of agricultural production in
India. Share of food-grain production has been highest in case of Uttar Pradesh. Next
stands Punjab although it is seventh in India with regard to area.

Madhya Pradesh is the largest states of Indian area wise but it stand third in
production of food grains:

Agricultural productivity is calculated per hectare of yield of different crops. Punjab,

Uttar Pradesh and Haryana have maximum productivity in rice and wheat. One of the
main items of daily consumption in food is rice in Kerala, but it’s per hectare productivity
is low. Punjab and Haryana have maximum productivity of wheat. Southern states i.e.
Tamil Nadu, Andhra Pradesh and Karnataka have shown maximum productivity of
sugarcane while Rajasthan has shown the minimum productivity.
4. Net Domestic Product:
The following table shows contribution of few important states to net domestic product
of India.

It is quite evident from the above table that Maharashtra’s contribution to National
income of India is the maximum. Bihar is a state which contributes the minimum.

5. Development of Factories and Employment:

Although Industrial development in India has been at a fair rate but distribution of
industries to different states is quite uneven. 15 percent of total factories in India are
located alone in Maharashtra. Also the credit goes to four states i.e. Maharashtra,
Gujarat, Tamil Nadu and Andhra Pradesh only for having more than 50 per cent
contribution in respect of factories, industrial production, employment generated by
factories and investment in India. Bihar being rich in mineral wealth and Punjab being
an agricultural state their share in respect of number of factories, output, generated
employment and investment has been very low. It has been observed that states
maintaining higher degree of industrialisation are maintaining higher proportion of
industrial workers to total population.

6. Infrastructure Disparities:
Development of infrastructure is the backbone of economic and social development of
any economy.

Sh. Montek S. Ahluwalia, “Good infrastructure not only increases the productivity of
existing sources going into production and therefore helps growth, it also helps to attract
more investment which can be expected to increase growth further.”

Table below shows wide disparities in infrastructure Development in India.

Causes of Regional Imbalances or Disparities in India:

1. Historical Factors:
Regional imbalances in India started from its British regime. British industrialists mostly
preferred to concentrate their activities in two states like West Bengal and Maharashtra
and more particularly to three cities like Calcutta, Bombay and Madras and neglecting
the rest of the country to remain backward. The uneven pattern of investment had
resulted in uneven growth of some areas keeping other areas neglected.

2. Geographical Factors:
Geographical factors play an important role in the developmental activities of a
developing economy. Adverse climate and floods are also responsible factors for poor
rate of economic development of different regions of the country which is shown by low
productivity and lack of industrialisation. Natural factors resulted in uneven growth of
different regions of India.

3. Locational Advantage:
Due to some locational advantages, some regions are getting special favour in respect
of site selections of various developmental projects. Regional imbalances arise due to
such locational advantages accrue to some regions and the locational disadvantages to
some other regions.

4. Inadequacy of Economic Overheads:

Economic overheads like transport and communication facilities, power, technology and
insurance etc. are considered very important for the development of a particular region.
Due to adequacy of such economic overheads, some regions are getting a special
favour in respect of settlement of some developmental projects whereas due to
inadequacy of such economic overheads some regions of the country i.e. North-Eastern
region, Himachal Pradesh, Bihar etc. remained much backward.

5. Failure of Planning Mechanism:

Although balanced growth has been accepted as one of the major objectives of
economic planning in India, since, it did not make much headway in achieving this
object. In fact planning enlarged the disparity among states. In respect of allocating plan
outlay developed states get much favour than less developed states. Due to such
divergent trend, imbalance between the different states in India has been continuously
widening, inspite of framing achievement of regional balance as one of the important
objective of economic planning in the country.

6. Lack of Growth of Ancillary Industries in Backward States:

The Government of India has been following a decentralised approach for the
development of backward regions through its investment programmes on public sector
industrial enterprises located in backward areas like Rourkela, Barauni, Bhilai etc. But
due to lack of growth of ancillary industries in these areas, these areas remained
backward in spite of huge investment by the centre.

7. Lack of Motivation on the Part of Backward States:

Growing regional imbalances in India have also resulted from lack of motivation on the
part of the backward states or industrial development while the developed states like
Maharashtra, Punjab, Haryana, Gujarat, Tamil Nadu etc. are trying to attain further
industrial development, but the backward states have been showing their interest on
political interferences and manipulations instead of industrial development.

8. Political Instability:
Political instability in the form of instable Government, law and order problem etc. have
been obstructing the flow of investment into these backward regions besides making
flight of capital from these backward states. Thus this political instability prevailing in
some backward regions of the country are standing as a hurdle in the path of
development of these regions.

Measures Taken by Indian Government to Control Regional Imbalances:

It is clear that regional imbalances are threatening the development of a country.

Therefore it becomes the need of the hour to control it. In India regional disparities are
persisting even in recent years since the very beginning inspite of repeated attempts
made from different corners to contain it.

In order to tackle the problem of regional imbalances and backwardness the

Planning Commission in India has been adopting a three-fold strategy in the
following manner:
(i) While transferring resources from the centre to the states, backwardness of the
region has been given due recognition and weightage.

(ii) For the development of backward areas, special area development programmes are
being formulated.

(iii) Necessary measures have been taken for promoting private investment in those
backward regions of the country.

1. Resource Transfer and Backwardness:

While making necessary awards; the Finance Commission in India has been giving due
weightage to backwardness of a state as an important criteria for resource transfer from
the center to the states.

Under the present system of federal fiscal transfer, the transfer of resources from the
centre to the states includes central assistance for state plans. Hon plan transfer as per
the recommendations of the Finance ad-hoc transfer, allocation of funds for centrally
sponsored schemes, allocation of both short term and long term credit from financial
institution etc.

2. Special Area Development Programme:

In order to develop hilly areas, tribal areas, drought-prone areas specific plan schemes
have been designed with full central assistance. The Tribal Sub-plans are implemented
through 194 Integrated Tribal Development Projects (ITDP) and 250 modified Area
Development (MADP).

In this manner, different special schemes for particular target groups located in the
backward areas are being included for block level planning for attaining integrated rural
development and considerable employment opportunities. All these programmes, IRDP
(Integrated Rural Development Programme) Drought Prone Area Programme (ODAP),
Crash Scheme for Rural Employment (CSRE) etc. have been formulated.

3. Incentives for Promoting Investment in Backward Regions:

In order to fight the problem of industrial backwardness of some backward regions and
also to promote private investment in backward regions, various fiscal and other
incentives have been provided by the centre, states and other financial institutions
under public sector.

These incentives are as follows:

(a) Central Government Incentives:
In order to promote investment in the backward regions, the Government of India has
been providing different important incentives.
These incentives include:
(i) Income Tax Concessions:
As per this concession scheme, new industrial units settled in backward areas are
allowed a deduction to the extent of 20 percent of their profits for the computation of its
assessable income.

(ii) Tax Holiday:

In order to give stimulus to new industries in backward regions, the Government
introduced a system of tax holiday for new industrial units located in backward regions
i.e. in all states in the North eastern region, Jammu and Kashmir, Himachal Pradesh,
Sikkim, Goa and the Union Territories of Andaman and Nicobar Islands, Daman and
Diu.

(iii) Central Investment Subsidy Scheme:

The Central Government announced the scheme of Central Government subsidy which
made a provision for subsidy at the flat rate of 10 percent subject to a maximum limit of
Rs. 5 lakh on fixed capital investment like land, factory, buildings, plant and machinery,
subsequently, this rate of subsidy was raised to 15 percent and then 25 percent.

(iv) Transport Subsidy Scheme:

In July 1971, this transport subsidy scheme was introduced for those units established
in hilly and remote areas of the country. Under this scheme, these industrial units were
entitled to 50 percent transport subsidy on the expenditure incurred particularly for
movement of raw material and finished goods to and from certain selected rail heads to
the location of these industrial units. This scheme is applicable to remote and
inaccessible areas of Jammu and Kashmir and also in North-Eastern hilly areas.

(v) Promoting New Financial Institutions in Backward Region:

In order to accelerate the pace of industrialisation in backward areas the Government of
India has promoted new financial institutions especially for those areas. The
Government has announced the establishment of Regional Rural Development Bank
(RRDB) for the North-Eastern Region. Later on this institution was inaugurated in the
name and style of North-Eastern Development Finance Corporation Ltd. NEDFI for the
development of North- Eastern Regions.

Moreover the Government has established a new Rural Infrastructural Development

Fund (RIDF) within NABARD for the infrastructural development of rural as well as
backward areas.

(vi) Other Measures:

The Government has been introducing some other measures for the development of
backward regions. The Government is giving priority to backward areas in respect of
issuing industrial licenses.

The Central Government has again introduced a scheme for assisting the state
Governments to undertake infrastructural development projects in those identified as
“no industry districts” to the extent of one third of total cost of such development projects
subject to a maximum unit of Rs. 2 crore. With this scheme, the Central Government
has been helping the state Governments to develop a good number of Growth Centres
through the development of infrastructural facilities.

(b) State Government Incentives:

In order to attract private sector investment in backward regions, the State governments
have also been offering incentives in different forms. These incentives include providing
developed plots with electricity and water connection on a no profit and no loss basis,
exemption from payments of water charges for some years, sales tax exemption,
interest free loans, exemption from payment of property taxes for initial years, providing
subsidy on industrial housing scheme, establishment of industrial estates for setting up
small industries etc. In recent years more than 50 percent of loans sanctioned by
institution like SFCS, SIDCO and SIIC under concessional finance scheme have gone
to backward districts.

(c) Concessional Finance Available from Major Financial Institutions:

In India, there are some important public sector financial institutions which are providing
concessional finance for setting up industrial projects in the backward areas of the
country. These institutions include Industrial Development Bank of India (IDBI), the
industrial Finance Corporation of India (IFCI) and the Industrial Credit and Investment
Corporation of India (ICICI). These institutions are offering loan at concessional rates of
interest and also at longer period repayment facilities waiving of Commitment Charges
etc. They are also arranging entrepreneurial development programmes for providing
necessary training to small and medium prospective entrepreneurs. Moreover these are
setting up Technical Consultancy Organisations (TCOs) to provide technical
consultancy services to these prospective industrial units of backward areas at cheaper
rates.