NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, September 1, 2017

COUNTRIES find it easier to get rich once their neighbors already are. East Asia’s growth pattern has for decades been likened to a skein of geese, from Japan at the vanguard to laggards such as Myanmar at the rear. The same pattern can often be seen within big countries. Over the past decade, for example, China’s poorer provinces have grown faster than their wealthier peers. India is different. Far from converging, its states are getting ever more unequal. A recent shake-up in the tax system might even make matters worse.

Bar a few Mumbai penthouses and Bangalore startup offices, all parts of India are relatively poor by global standards. Taken together, its 1.3bn people make up roughly the third and fourth decile of the world’s population, with an income per person (adjusted for purchasing power) of $6,600 dollars. But that average conceals a vast gap. In Kerala, a southern state, the average resident has an annual income per person of $9,300, higher than Ukraine, and near the global median. With just $2,000 or so, an Indian in Bihar, a landlocked state of 120m people, is closer to a citizen of Mali or Chad, in the bottom decile globally.

The gap has been widening. In 1990, point out Praveen Chakravarty and Vivek Dehejia of the IDFC Institute, a think-tank, India’s three richest large states had incomes just 50% higher than the three poorest—roughly the same divergence as in America or the EU today, and more equal than in China. Now the trio is three times richer.

Photo courtesy of Peter Haden.