“Indian States-Why there are a few states poor, where a few states are rich?”

Indian states economic growth inequality explained

Why few Indian States are doing better than others? How come are they reducing rural poverty?

Have you ever thought about why few states or Region or UT are way more developed than others? How Jharkhand & Chhattisgarh are low in HDI (Human Development Index) after being mineral-rich?

First, let’s look into some data’s

In this article, we will try to clear all your doubts about Indian States’ inequality.

Pasts of Indian States

From 1970-80 when Indian as a nation started to develop, from that time country’s economic activity has limited in a few states. More than half of India’s GDP generated in 5 states only. The 5 states are Maharashtra, Gujarat, Tamil Nadu, Karnataka & U.P. These 5 states have generated 47% GDP in 2018-19.

After contributing this high also, inequality is there in terms of *Per Capita Income & per capita GDP.

*Per Capita Income or PCI helps to measure the average income earned in a given area.

The difference between the richest & the poorest states has been on a steady rise. According to a report, the difference between the 5 richest and poorest states 145%.

And this is not only in India, the same you can see in Europe. Where Western Europe is a little rich than Eastern Europe. Similar to this you can see in the whole world.

Here we will only discuss India.

This all started way back in history when British Govt. & industrialists developed those places which had the potential. Port cities, as Mumbai, Chennai & Kolkata got tremendous support. Chennai & Kolkata had a huge role in East Indian Companies.


Private investments are generally more attracted in developed or highly developing areas. There is an advantage as those places can have the basic needs and equipment.

Thus it makes the basic infrastructure provisions such as electricity, financial institution, transportation extremely important. After the British Govt. even the Indian govt. boosts these infrastructures more to those places in order to grow fast and attract foreign investments.

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Geographical Elements of Indian States

The geographical challenges make the development more difficult and costly. Such as floods in Bihar & Assams, dense forest in Chota Nagpur Plateau, etc. This is one of the major reasons for traditionally destitute regions Himachal Pradesh, Northern Kashmir, Uttarakhand, North East states.

At the same time, some regions get benefits for geographical factors. Availability of irrigations, raw materials, markets port facilities, etc attracts investments and enhances productivity. Because of good irrigation Haryana, Punjab & Western U.P. came to the green revolution zone.

The ports brought the benefits in Gujarat, Maharashtra such as trades, oil refining centers. Bombay or Mumbai High Field became one of the major oil fields and that helps to develop more in the surrounding.

Policy Issues

According to some experts over centralize economic policy is also one of the main reasons for inequality. These policies ignore regional issues over time.

Although state intervention has been lacking in traditionally poorer states. Thus it has further hastened the impoverishment.

 Freight equalization policy

In 2017 the former president Mr. Pranab Mukherjee said in the Bihar conference that the Freight equalization policy in 1952 is a curse for resource-rich eastern states of India. Under the policy, the central Govt heavily subsidised the mineral transportation costs from the resource-rich states to the interior location-based production units. The policy became a major reason for the impoverishment of mineral-rich states like Bihar, Jharkhand, West Bengal, Orissa, and Madhya Pradesh.

If for once you avoid the factor of the market in mineral resource states, everything was in the favor of them. Minerals such as coal and steel dictate that the production unit must be located near those states, but it didn’t happen the way it should be due to the Freight Equalization Policy.

Green Revolution

Revolution has started in 19s but most of the parts became limited in Punjab Haryana & in U.P. There are several reasons for that. First, these regions were traditional crops like wheat & rice-growing zones. And at that time even somewhat now also India’s main focus is this two production. India is the 2nd largest rice manufacturing & trading nation worldwide. These places in India used to have good irrigation facilities which still have. The population was less, so the land fragmented issue was not there. Although today Uttar Pradesh is the highest population state in India.

Criminalization Issue

The rise of extremist ideas like Naxalism, Insurgency in the Northeastern States, Caste wars, etc has also played a significant role as obstacles to growth. Law & Order issue raised & ease of doing business became difficult of Entrepreneurs and investors.

According to the data of NCRB, the highest crime rate was in U.P. This can happen for few reasons, but economically there can be two main reasons, below poverty line life & unemployment. And both were in a bad situation in U.P.

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Internal issues

Middle man became Zamindar due to British land policies. Most of them used to exploit the poor farmers & laborers. Albeit there was a hope that after independence this will abolished, & this happens but mostly in papers. States like in Ganga belt land reforms became a challenge.

In some places Zamindar had an influence on the administration, using the loopholes of land ceiling that kept a vast extent of lands under their control.

 This is one of the reasons in the ’80s-’90s that the major population was being poor. And some of that places are below the poverty line still.

Indian states poverty line
States with below poverty line ,image courtesy wiki

Apart from that, we have seen intraregional disparity. In a state few places have improved & developed with time where some places couldn’t. For example, Bundelkhand, Vidarbha, Marathwada, are some places that couldn’t be able to develop compare to their State’s regional places. Now, there are several reasons for that, if you take Vidarbha or Marathwada the main reason for their impoverishment is their own geographical location. These places barely see rainfalls compare to Western Maharashtra. Water scarcity is one of the major obstacles to the ease of agriculture.


Uneven growth impacts the overall development in every country. As a matter of fact, if all the states would grow at the same growth rate of 5 states i.e.; 7.2% then by 2014 India would have a per capita income of 1900 us dollars.

If India wants to achieve equitable development, then India needs to address the growing regional economic disparity through region-specific comprehensive economic policies. This can help skilled labor force and good infrastructures.

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