‘Economic disparity has dangerous implications’

NEW DELHI: India’s wealthier states are getting richer while poorer states are lagging behind, creating an economic gulf that has “dangerous” implications for the country’s stability, the finance minister said on Friday.

Private investors, both foreign and domestic, prefer to invest in wealthier states such as Gujarat, Maharashtra, Haryana and New Delhi, where they find better infrastructure and bigger markets for their products.

As a result, those states continue to expand faster, growing at an annual average of 8 percent to 10 percent, while cash-strapped poorer states, whose economies are mostly agrarian and whose administrations often depend on federal funds, have had sluggish growth.

“States which are growing faster and are doing well appear to have an advantage,” Finance Minister P Chidambaram told a conference of heads of states, senior officials and economists to discuss the economic ranking of India’s 28 states. But the widening gap has “some dangerous and very important implications,” Chidambaram said.

The growing imbalance coincides with the increasing liberalisation and privatisation of the Indian economy in the past decade, during which government spending on development projects has slowed.

The Indian economy has expanded by about 6 percent annually in the past decade.

Weak growth and widespread unemployment drive people from poorer states to the wealthier states and urban centres, where resentment and resistance from local residents sometimes lead to violence.

Western Maharashtra state, the country’s most industrialised state and the home of India’s financial capital, Mumbai, experienced violent backlashes against immigrants in the 1960s and early 1990s. In recent years, India has also seen a proliferation of regional parties, which have capitalised on state rivalries and resentments, provoking frequent changes in government.

Chidambaram said a stable and progressive federal system requires closing the gap.

He said the federal government could help redress the problem by opting for a “funding bias,” giving poorer states a bigger share of development funds.

But good governance in poorer areas holds the key to bridging the gap, he said. ap

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