The North–South Divide in India

Regional Divergence, Conditional Convergence, and Growth Volatility (1980–2024)

Abstract

The idea of ‘North-South Divide’ first emerged globally in the Brandt Report (1980), which articulated a developmental boundary between the industrialised North and the agrarian South. The present study attempts to put the Indian sub-continent into this framework. Although regional income disparities have steadily increased over the last four and a half decades inciting a wide discourse of studies, a general consensus regarding the underlying dynamics of convergence across Indian states has not yet been achieved. This paper examines and compares growth trajectories of Indian states and union territories over the period of 1980 to 2024 based on Sigma Convergence, Beta Convergence (conditional and unconditional) and a Growth-Volatility Analysis. Results indicate that sigma divergence is persistent over the years, i.e., there has been a sustained increase in the dispersion of per capita income. No statistically significant evidence of unconditional beta convergence was found. This means that initial income levels alone do not explain subsequent growth performance. However, panel fixed effects estimates, that take into account time-invariant state characteristics and common shocks, revealed a statistically significant negative relation between growth and lagged income. This shows conditional convergence and hence it can be said that Indian states might be converging towards their own distinct, structurally determined steady states instead of moving towards a common national equilibrium. The growth volatility analysis fails to establish a systematic relationship between average growth and instability across states but further descriptive statistics indicate that economically stronger states mostly exhibit lower fluctuations compared to their lagging counterparts. In a nutshell, this paper puts persistent structural heterogeneity into the convergence perspective of Indian states. This has implications for policy-making as well – fiscal transfers tied to state-level metrics based on capacity building, infrastructural development and shock vulnerability reduction; shifting from a one-size-fits-all model to a differentiated model based on regional economic structure and expanding supply chains of core industries to periphery regions to infuse developmental spillover.