Why the rich states have become richer and the poor ones poorer

The reason for this, however, is not really the rapaciousness of capitalism, as Marx would have had us believe, but the destructiveness of perverted socialism. The states which have had a fall in growth are also the states which kept splurging on subsidies, let their budgets get totally out of control and ran up huge debt bills to square the circle. Understandably, they spent less on infrastructure, as a result of which their economies collapsed.

Bihar, for instance, let its fiscal deficit shoot up from a high 5.5 per cent of state GDP in 1991-92, to a completely unsustainable 8.2 per cent in 1998-99. Its debt stock went up from 36.6 per cent of GDP to an even worse 38.6 per cent during the period. Uttar Pradesh saw its fiscal deficit shoot up from 4.4 to 7.2 per cent, and its debt stock from 27.3 to 32.4 per cent. Rajasthan’s fiscal deficit went up from 3.4 to 6.2 per cent, and debt stock from 28.4 to 33.8 per cent.

Go through the World Bank’s latest India report and you’ll find that, state after state, the trend’s the same: those whose budgets are out of shape are the one’s which have seen their income growth fall. The state that looks an exception to the rule is Punjab — its income growth rate has fallen, but its fiscal deficit looks marginally better in the period under study. But probe a bit deeper, and you see that Punjab’s no exception either. Its fiscal deficit, which fell from 4.8 per cent of its GDP in 1991-92 to 3.2 per cent in 1996-97, then began to rise to 4.3 per cent the next year, and then to a budgeted 4.6 per cent in 1998-99. Not surprisingly, its debt stock, as a per cent of GDP, also showed the same downward trend at first, and later a rise.

Some others, like Madhya Pradesh, also seem a bit of an oddity. MP has seen its per capita income growth increase, from 2.6 per cent to 4.1 per cent in the reference period, though its fiscal performance has worsened. This increase in income, however, is probably explained by the success the State has had in redistribution policies over the past 15 years. It is clear, though, that if MP’s budget continues to get worse, its income growth will get hit.

The MP exception notwithstanding, not surprisingly, the states with higher growth, are also the ones which have been the most successful in reducing poverty. Maharashtra, to cite just one instance, whose per capita income growth increased from 3.7 per cent in the ’80s to 7.4 per cent in the nineties, saw the number of poor people decline from 68 per cent in 1978 to 43 per cent in 1994. Shelley would have called this poetic justice!