Economic Survey 2016-17: Chapter-10: Income, Health & Fertility: Convergence Puzzle

India’s continued success as a federation depends on the progress of each of its individual states, so a reasonable standard for assessing how well the states are doing.  In Chapter 10, The economic survey has focused on how different states of India have fared in terms of Income, Health and Fertility; Inequalities among states; and comparison of states with its international peers. While making these comparisons, the survey has used two broad indicators into account viz. economic and health/demographic indicators.

The Convergence Puzzle

The survey says that despite overall growth, there is a striking evidence of divergence or widening gaps in income as well as consumption across the Indian states. This pattern is opposite to many other countries in the world including China. Across the world, the poorer countries are catching up with richer countries. Across China, the poorer Chinese provinces are catching up with richer ones, but in India, the less developed states are not catching up; instead they are on average falling behind richer states.

Explanation

The income convergence occurs through trade and mobility of the factors of production {land, labour, capital}. Despite the fact that India has least restrictions on inter-state trade and mobility, the convergence is increasing. This makes this puzzle more complicated and further research is needed to understand the underlying reasons. The survey presents two hypothesis regarding this.

First hypothesis is that the convergence fails to occur due to governance or institutional traps.  This implies that capital, as a factor of production, is unable to move to capital scarce states because of governance and institutional reasons.

Second hypothesis links this divergence to India’s pattern of development. India unlike other most growth successes in Asia has relied on growth of skill intensive sectors rather than on low skills ones. This implies that skilled jobs have been drivers of growth in India and less developed states failed to catch up because of shortage of skilled labour.

Case of Health Convergence

While taking example of health sector, the survey says that despite of low level of health expenditures, there has been convergence on key health indicators among states in India. Two of these key indicators are Life expectancy (LE) and Infant Mortality Rate (IMR).

Two possible primary reasons for convergence in key health indicators could be:

  • The worse initial situation but progress occured because many medical technologies such as antobiotics and other medical practices. These are commonly available across the world and India but despite such availability the progress is comparatively slow.
  • Measurement issue: There are much clearer bounds on health indicators which would naturally lead to convergence. For example: once a country has reduced its IMR to near zero, its almost impossible for it to further reduce, while countries with high IMR have much more room for improvement.

This type of natural limit found in LE and IMR does not exist for Income.

How does this progress compared on a global scale ?

  • When LE is compared, there is strong evidence of international convergence where all the Indian states lie below the global average which means Indian states are making slower progress than the other average country.
  • For example: Kerala’s LE increased by 1.7% in 11 years.
  • Interpretation on IMR: Nearly all the Indian states posted larger decline in the IMR then average country.
  • For example: Odisha registered a 38 point decline in IMR, over 2000’s, where as the average country with similar IMR’s in 2000’s posted only a 28 point decline.

Convergence with in India on two health indicators are not fare too badly compared to other countries, this also suggest that there are no traps as discussed earlier that prevent technology from flowing freely with in India.

Case of Fertility

The survey finds that as far as fertility is concerned, India has done exceptionally well. This is evident from the fact that 12 out of 23 reporting states have reached below replacement level of fertility (2.1). Thus, as in case of LE and IMR, there is evidence of strong convergence across the states.  Further, compared globally all Indian states (Except Kerala) are performing much “better” than countries on average in reducing TFR. These developments have strong implications for demographic dividend in future.

Conclusion

This chapter concluded that India is still witnessing growing regional inequalities and this is a matter of concern because the forces for strong convergence viz. strong and increasing movements of goods and people are evident but still there is growing inequality. The problem is further compunded due to the fact that governance traps persist even when competitive federalism is forcing to change the lagging states. However, there is convergence in terms of health and demography in the country.

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