Introduction
Spatial balance is an indispensable pillar of inclusive growth, ensuring that economic prosperity is distributed equitably across geographies rather than confined to concentrated enclaves. As highlighted by the Economic Advisory Council to the Prime Minister (EAC-PM, 2024), sub-national economic divergence in India has widened significantly: five southern states account for roughly 30% of national GDP, with states like Telangana reaching a relative per capita income of 193.6% of the national average, while Bihar trails sharply at approximately 33%.
Causes of Persistent Regional Disparities
Regional divergence in India is rooted in historical legacy, capital concentration, logistics constraints, and asymmetric human capital development:
- Historical Policy Distortions: The Freight Equalisation Policy (1952–1993) neutralised the natural comparative advantage of mineral-rich eastern states (such as Bihar, Jharkhand, and Odisha) by subsidising long-distance rail freight for minerals. This incentivised manufacturing clusters to locate in western and southern coastal regions rather than at the source of raw materials.
- Capital and Credit Asymmetry: Private investment exhibits a pronounced agglomeration bias. Over 65% of Foreign Direct Investment (FDI) equity inflows are concentrated in just five states (Maharashtra, Karnataka, Gujarat, Delhi, and Tamil Nadu). Furthermore, Reserve Bank of India data shows that Credit-Deposit (CD) ratios in lagging states like Bihar (~53%) lag far behind southern states (>80%), effectively siphoning local household savings to finance economic activity in already industrialised states.
- Human Capital and Demographic Divergence: Southern and western states experienced an earlier demographic transition, accompanied by sustained public investments in basic health, schooling, and higher education. This prepared their workforce for high-productivity service exports and advanced manufacturing, while northern hinterland states continue to grapple with high dependency ratios and human capital deficits.
- Logistics and Geographic Penalties: Landlocked hinterlands face elevated transport costs and lack direct access to coastal shipping infrastructure, creating cost disadvantages that impede participation in global value chains and export-led growth.
Strategic Policy Interventions
Addressing these structural asymmetries demands deliberate spatial planning and coordinated policy action across multiple tiers of government:
- Targeted Spatial Industrialisation: Expand and implement the Purvodaya initiative to build integrated industrial, mining, and manufacturing corridors across eastern India, drawing lessons from international spatial rebalancing frameworks such as China's 'Go West' strategy.
- Inland Logistics Equalisation: Accelerate multimodal connectivity through the PM Gati Shakti National Master Plan, rapid operationalisation of the Eastern Dedicated Freight Corridor (EDFC), and development of inland waterways like National Waterway-1 (Ganga) to substantially reduce hinterland logistics tariffs.
- Credit Deepening and Institutional Capacity: Enforce district-level Credit-Deposit ratio targets to retain and reinvest local domestic savings. Leverage the Aspirational Districts and Blocks Programmes to enhance the credit absorptive capacity and institutional governance of lagging districts.
- Fiscal Cohesion Transfers: The 16th Finance Commission and Union government should design performance-linked capital grants aimed at hinterland infrastructure equalisation, drawing parallels to the European Union's Cohesion Fund mechanism.
Conclusion
To avert an entrenched core-periphery divide, India must embrace collaborative spatial federalism that combines targeted infrastructure investments with human capital deepening. Achieving balanced regional development is imperative to ensure that the vision of Viksit Bharat 2047 fosters equitable and shared prosperity across all states.