There is a strong regional bias in corporate investment in India that leads to regional inequalities. Critically discuss while suggesting policy measures towards this.

India is a nation of great diversity. Regionalism is one prominent aspect of this diversity, which not only extends to cultural & linguistic preferences but also to economic investment preferences by corporates. As per R.K. Hazari committee on industrial licensing(1966), Indian business houses reflected strong regional biases while investing. Though since then the demographic composition of Indian business houses has changed, the phenomenon of the regional concentration in investment still remains high. As per a report, though in last three decades growth was rapid, the share of each state in the national economy remains nearly the same as it was three decades ago.
Top investment groups are concentrated in a few powerhouses of the Indian economy— states like Gujarat and Maharashtra are on top in this list. This regional inequality in investment leads to inter-regional inequality in India. 2016-17 Economic Survey also highlighted that inter-state inequality grew during the period 2004-14. Investment concentration not only create inequalities but it also accentuates such gaps. Even when large shifts take place, there is very little geographical diversification. There is a vicious cycle of poor infrastructure- less investment- less revenue – fund scarcity to improve infrastructure.

GST has limited the states’ ability to offer tax incentives to attract new private investments, further limiting the scope of diversification of industry, making it more difficult for backward states to attract investments. Keeping this aspect in mind government announced tax exemptions in the north-eastern and Himalayan states through a refund mechanism.

There is a need to put special emphasis on infrastructure & law and order. States should take initiatives to improve ease of doing business, the idea of cooperative competitive federalism can help in reducing such investment inequalities.

Topics: GS-III: Investment Models