Is India Shining?

• Date: 01 February 2014
• DOI: http://doi.org/10.1111/rode.12069
• Author: Anurag Banerjee,Nilanjan Banik
• Published date: 01 February 2014

Is India Shining?

Anurag Banerjee and Nilanjan Banik*

Abstract

The popular perception about economic reforms having benefitted only the richer districts of India

between 1999/2000 and 2004/2005 is investigated. Using the spatial dynamics of district-level per-capita

income it was found that income distribution did not change between the years examined. It is argued that

this is because of per-capita income across districts being spatially positively correlated. Physical infrastruc-

ture, human capital, and factories are identified as factors responsible for increase in income for both the

rich as well as the poor districts. Infrastructure, physical or social, is a key component of growth in India. A

policy impact analysis shows development of better drainage and potable water systems has a large impact

on income. For the year 2001/02, it was found that for every 1% increase in closed drainage system and

potable water, district-level median income increases by 1.39% and 0.21%, respectively.

1. Introduction

In 2004, the Congress-led United Progressive Alliance (UPA) government came to

power after defeating the BJP-led National Democratic Alliance (NDA) government.

This defeat for the NDA government came in spite of the fact that Indian economy

was growing fast, at 8.5% in 2003/2004. A popular perception explaining the ousting

of the then ruling NDA government lay in its inability to check rise in regional

income inequality. How true then, is this perception about economic reforms enhanc-

ing regional income disparity? We answer this question by studying the dynamics of

income distributional pattern in India. If reforms are favoring rich-income districts

then we would see the emergence of twin peaks in the underlying income distribution

function: clustering of the rich-income district, and clustering of the poor-income dis-

trict with pockets of economic growth pulling-up the national average income. In con-

trast, a uniform growth process at a pan-India level would lead to a disappearance of

such clusters. Considering district-level per-capita income data from the Planning

Commission, Government of India, in 1999/2000 and 2004/2005, we find that the

income distribution has not changed, thus the perception about economic reforms

having benefitted only the rich-income district is not supported by the data. Results

suggest that between 1999/2000 and 2004/2005 there was no statistically significant dif-

ference in the median adjusted income distribution functions. In fact, the income

density function for 2004/2005 has become more platykurtic (with fewer extreme

values) than it was during 1999/2000, suggesting that there has been a reduction in

inter-district per-capita income disparity.

* Banerjee: Department of Economics and Finance, Durham University, 23/26 Old Elvet, Durham, UK.

Tel: +44-(0)191-33-46356; Fax: +44-(0)191-33-46341; E-mail: a.n.banerjee@durham.ac.uk. Banik, 24 Kothari

Road, Institute for Financial Management Research, Chennai, India. Support of the research grant from

South Asia Network of Economic Research Institute (SANEI) is gratefully acknowledged. The authors

thank an anonymous referee, Mia Mikic, Sajal Lahiri and Sharon Barnhardt, for useful comments on an

earlier draft of this paper. The authors acknowledge data provided by Savita Sharma from Ministry of Sta-

tistics and Programme Implementation, Government of India, and research assistantship provided by Jyoti

Prasad Mukhopadhyay. The usual disclaimer applies.

Review of Development Economics, 18(1), 59–72, 2014

DOI:10.1111/rode.12069

© 2014 John Wiley & Sons Ltd