September 11, 2017

The ‘3-3-3’ Puzzle and What To Do About It

In this Livemint article, Resident Senior Fellow Vivek Dehejia reiterates concern for the widening income gaps among Indian states. Excerpts below:


"The ratio of per capita state income levels as between the richest three and the poorest three of the 12 largest states has been skyrocketing for the past quarter-century, and today stands at well over 300%. We have dubbed this the “3-3-3” puzzle: The three richest states are three times as rich as the three poorest states. It is a puzzle because orthodox economic theory predicts that contiguous economic units which are knitted together by movements of trade and people ought to exhibit convergence, not divergence.


The puzzle deepens because India’s states constitute a federal economic union characterized by—finally, after the goods and services tax (GST)—harmonized taxes and free trade among states. Apart from this, there is suggestive evidence presented in this past year’s Economic Survey that inter-state movement of people is more robust than we had thought. Finally, let us not forget that India’s states constitute not only a customs union and a fiscal union, but a monetary union as well. These are strong forces for convergence that are, evidently, being counteracted by even stronger forces of divergence, leading to widening divergence overall."


Read the whole article here.

Topic : Transitions / In : OP-EDS
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