dynamics of economic growth: a study of some selected

Asian Journal of Business and Economics Volume 1, No.1.1 Quarter I 2011 ISSN: 2231-3699

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DYNAMICS OF ECONOMIC GROWTH: A STUDY OF

SOME SELECTED INDIAN STATES

Hiranmoy Roy Assistant Professor, University of Petroleum and Energy Studies (UPES), Dehradun Surajit Ghosh Dastidar Assistant Professor, IBS - Hyderabad

Abstract: This paper makes an attempt to analyze the pattern of economic growth of North

Eastern (NE) States of India and also the levels of growth in some selected advanced Indian state

to identify the gap between these two groups of states. The North Eastern states are lagging far

behind the advanced Indian states in terms of economic development. So it is interesting to study

the levels of growth of these states. The reason for analyzing growth of NE states is that the rate

and pattern of economic growth of these states are quite different from the other advanced Indian

states. Growth curves were estimated by using the Gompertz growth equation and plotted using

Gompertz software.

The methodology we followed is that after studying existing theories of growth we have

evaluated their usefulness and application in less developed states like North East. We have

calculated the growth for the period 2000-01 to 2005-06 for NE states from NSDP data by

simple growth formula to facilitate the identification of gap in economic growth between NE

states and advanced states. Also the growth curves are plotted using Gompertz Growth curve by

Gompertz Software to see the relative position of these two groups of states. The influence of

infrastructre on economic growth of NE states is studied through regression technique by


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regressing the growth rate on infrastructure index. The effect of Central Govt. allocation of funds

on growth in NE States is also studied through regressing the growth rate on Central allocation of

funds.

The main finding of the study is that there is huge variability of infrastructure index in

NE states compared to the advanced India states which may be one of the very important reasons

of low growth in NE states. The other important factors responsible for falling economic growth

in NE states are non utilisation of Central Govt. funds for productive purposes by the respective

state Govt. while growth is increasing continuously in advanced Indian states due to better

infrastructure as well as positive impact of the other factor. So necessary steps to be taken

urgently by Central as well as respective State Govt. to accelerate growth in NE States. The

important steps that may be taken to augment growth are- (i) development of tourism, (ii)

Development of IT sector (iii) Strengthening educational sector and develop educational hub and

(iv) Border trade with neighboring countries as NE states are in proximity to international

border.

The plan of the paper is as follows (i) Defining Economic Growth(ii) Objective of the Study (iii)

Different Theories of Economic Growth (iv) Literature Review (v) Methodology (vi)

Application of the Growth Theories in NE Economy (vii) Empirical Analysis (viii) Main

Findings and Conclusion.

I. DEFINING ECONOMIC GROWTH


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Economic growth is the increase in the amount of the goods and services produced by an

economy over a period of time. It is conventionally measured as the percent rate of increase in

real gross domestic product, or real GDP.

In economic literature "economic growth" refers to growth of potential output i.e., production at

full employment, which is due to growth in aggregate demand.

The study of economic growth is usually distinguished from development economics. The

economic growth is basically the study of how countries can advance their economies. The

economic development is the study of the development process in low-income countries.

II. OBJECTIVES OF THE STUDY

In this study we intend to analyse the pattern of growth trajectory of North Eastern states of India

and for some of the selected advanced Indian states and to see the gap in economic growth

between NE states with that of advanced states. We have studied the existing theories of

economic growth and evaluate the usefulness of these theories and their application in case of

NE states as these states are lagging behind other advanced Indian states in terms of economic

development.

So it is interesting to study the levels of growth of these two groups of states. The reason

for analyzing growth of NE states is that the rate and pattern of economic growth of these states

are quite different from the advanced Indian states.


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The justification of the study is that as rapid economic growth takes place, social and

economic problems become far less of a burden. A rapid growing economy is one in which

people have more options and better choices: the people can advocate their individual private and

collective public decisions for example decide to consume more, lower tax rates, increase the

scope of public education, concern of the environment, strengthen national defense or achieve

any other goals they choose. These are sufficient reasons to consider growth a good thing. A

rapid growing economy is one in which people will have greater wealth, higher incomes, and

more of the necessities, conveniences, and luxuries of life. So it will be worthwhile to study the

growth pattern of NE states in India and the gap with that of advanced states to identify the

overall econmic gap between states.

III. DIFFERENNT THEORIES OF GROWTH

The distinction between short-term economic stabilization and long-term economic growth

has been emphasized by economists. The concept of economic growth is basically concerned

with the long run.

The long-run trajectory of economic growth is the central questions of economics.

Though there are problems in the measurement of economic growth; an increase in GDP of a

country is usually refered to as a rise in the standard of living of its inhabitants. Even small rates

of annual growth can have huge effects on over all economy.

The modern idea of economic growth began with the criticisms of Mercantilists, and

the physiocrats and with the thinkers such as David Hume and Adam Smith from Scotland, and

the background of the discipline of modern political economy. The idea of the physiocrats was


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that productive capacity itself led to growth, and the enhancing and increasing capital to augment

that capacity was "The Wealth of Nations". The physiocrats gave importance to agriculture and

identified urban industry as "sterile", Smith further extended the notion that industry was central

to the entire economy.

David Ricardo advocated that trade was beneficial to a nation, because if a nation could

buy a good more cheaply from other, it implies that there was more profitable work to be done in

own country. The theory of "comparative advantage" is the main criteria for arguments in favor

of free trade which a very important component of growth.

Per capita incomes of countries were very low until the industrial revolution took place.

This period of time is known as the Malthusian period, as it was guided by the principles

described by Thomas Malthus in his "Essay on the Principle of Population." In a nutshell,

Malthus said that any growth in the economy would lead to a growth in population. Thus,

although aggregate income increased, income per capita was actually roughly constant. The

theory of economic growth highlights that along with the industrial revolution and improvement

in medicine, life expectancy increased, infant mortality decreased, and the dividend to receive

education was higher. Thus, parents placed more value on the quality of their children and not on

the numbers. This led to the drop of fertility rates of industrialized nations. This period is known

as the fall of the Malthusian era. As income was increasing faster than population, industrialized

nations substantially enhanced their per capita income in the next periods.

Economists are of the opinion that entrepreneurship is having a profund influence on a

society's rate of technological progress and thus essentially on economic growth. Joseph


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Schumpeter was an important economist to understand the role of entrepreneurs on technological

progress. Entrepreneurship forces "creative destruction" in different markets and industries and

at the same time creates new products and business models. Thus creative destruction is largely

results in the dynamism of industries and economic growth.

Neo-classical growth models stressed the role of capital accumulation. In the Solow–

Swan model, output is produced by using two factors viz, capital and labour. Economic growth is

attuned with labour augmenting technical progress. In the long-term, output per capita and labour

productivity grow at a rate determined by exogenously given technical progress. Technical

progress is exogenous to these models.

The idea of growth in the stocks of capital goods which is referred to as means of

production is known as the Solow-Swan Growth Model, which analysed the relationship

between labor-time, capital goods, output, and investment. In the view of new classical

economists, the role of technological change became very important, even more important than

the accumulation of capital. This model was developed by Robert Solow and Trevor Swan in the

1950s, which was the first attempt to model long-run growth. The important assumptions of the

model are that countries use their resources efficiently and that there are diminishing returns to

capital and labor increases over time. The neo-classical model makes three important predictions

from these two assumptions. First, increasing capital relative to labor results in economic growth,

since people can be more productive given more capital. Second, poor countries where capital is

less per person will grow faster because investment in capital may produce a higher return than

rich countries where there is abundance of capital. Third, due to diminishing returns to capital,


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economies will usually reach a point at which no new increase in capital can create economic

growth. This state is called a "steady state".

Solow-Swan model can be described as the increase in capital stock at a point in time equals

gross investment less depreciation

K = 1- δK = s.F (K, L, T) – δK -------------------- (1)

If we divide both side of equation (1) by L we get

K/L = s.F (K) – δK ----------------(2)

The right hand side contains per capita variables only, but the left hand side does not. We can

write K/L as function of K by using the condition

K = d (KL/L)/dt = K/L – nk, --------------------(3)

Where n = L/L. If we substitute the result into the expression for K/L then we can rearrange

terms to get

k = s.f (K) – (n + δ). K ---------------------------------- (4)

Equation (2) is the fundamental differential equation of the Solow- Swan model. This non-linear

equation depends only on k.

The neo-classical growth model also states that countries can overcome this steady state

and continue to grow by innovating new technology. In the long run, output per capita is

influenced by the rate of saving. The process by which countries continue to grow despite the


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diminishing returns is due to "exogenous" factors and shows the creation of new technology that

allows production with lesser resources. Technology improves the steady state level of capital

increases which results in the increase in countries investment and growth.

One of the popular theories of economic growth in the 1970's was that of the "Big Push" which

advocated that countries required to jump from one stage of development to another through a

virtuous cycle in which there are large investments in infrastructure and education coupled to

private investment would push the economy to a higher productive stage, breaking from

economic theories appropriate to a lower productivity stage.

A group of growth models that were developed in the course of the 1980s, those models explain

long-term economic growth endogenously, by relaxing the assumption of diminishing returns to

capital and by representing technological progress endogenous to the model.

New Growth theory developed by economists such as Paul Roomer in the late 1980s and early

1990s. Other important new growth theorists are Robert E. Lucas and Robert J. Barro. Not

satisfied with Solow's defionition, economists worked to "endogenize" technology in the 1980s.

The New growth theorists developed the endogenous growth theory that incorporated a

mathematical explanation of technological advancement. New growth theory also incorporated a

new concept of human capital, the skills and knowledge that helps workers to be productive,

human capital has increasing rates of return unlike physical capital. Therefore, there are constant

returns to capital, and economies do not reach a steady state. Growth does not fall as capital

accumulation takes place; rather the rate of growth depends on the types of capital investment.

Research conducted in this area has focused on what enhances human capital (e.g.

education) or technological change (e.g. innovation)


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In mid 1980’s a group of growth theorists led by Paul Romer (1986) motivated the construction

of a class of growth models in which the key determinants of growth were endogenous to the

model like unexplained technological progress.

The simplest version of endogenous model is Y = AK ------------------- (5) where A is positive

constant represents level of technology, K = human capital.

Out put per capita is Y = AK. If we substitute f(K)/K = A in equation. All percapita variables in

the model grow at a rate لا = لا* = sA – (n + δ) --------------- (6)

An economy described by AK technology can display posetive long run percapita growth.

The growth experience of market economies shows that these economies grow through increase

in tangible capital and labour and also technological change with more weightage to labour and

less to capital along with technological change.

Analysis of recent success of economies shows a close correlation between economic

growth and climate change. It is possible that there is absolutely no real mechanism among them,

and the relation may be spurious. In early human history there is evidence of economic as well as

cultural development that was concentrated in warmer parts of the world, like Egypt.

Acemoglu, Johnson and Robinson are of the opinion that, the positive correlation

between high income and cold climate is evidenced in history. The earlier colonies have

inherited bad governances and geo-politico boundaries which are not exactly placed according to

the geographical locations of different ethnic groups. This is responsible for internal disputes and

conflicts among the ethnic groups. Also, these authors are of the opinion that the egalitarian


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societies that evolved in colonies without solid native populations, and this could be exploited by

native farmers led to their own property rights and incentives for long-term investment. The

colonizers created exploitative institutions, which did not foster growth. Colonies in temperate

climate regions such as Australia and USA did not inherit exploitative governments.

The recent trend of economic growth is that labour productivity in different countries falling.

Improvements in Information Technology (IT) and huge investment in IT sector leading to

higher economic growth in different economies.

IV. LITERATURE REVIEW

The study by Canning and Pedroni (2004) analysed the long run effect of infrastructre provsion

on percapita income in a number of countries between 1950 – 1992. The main findings of the

study is that in majority of the cases infrastructre provision induces long run economic growth,

but there is also variation in results among the countries. The over all result shows that

telephone, electricity and paved roads have strong effect on economic growth. The study also

reveals why the past time series and cross section studies established contradictory results

regarding the causal relationship of provision of infrastructre and lon run economic growth.

The authors Egert, Balazs et al. (2009) analysed the empirical relationship between infrastructre

and econiomic growth. The analysis of time series data shows that there is a positive impact of

infrastructre on economic growth. The study also reveals that the effect varies between countries.


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Specifically the investment on telecommunication and electricity sector has a strong effect on

long – run growth.

It was established by the authors Kim and Lau (1994a, 1994b, pp.235-271, 65-103) that the

postwar economic growth of the East Asian newly industrialized economies (NIEs)—Hong

Kong, South Korea, Singapore and Taiwan--was mostly the result of the growth of tangible

inputs--tangible capital and labour--and not technical progress or equivalently the increase in

total factor productivity. On the other hand, the economic growth of the developed Group-of-

Five (G-5) countries—France, West Germany, Japan, the United Kingdom and the United

States--was mostly attributable to technical progress. These empirical results, as well as those

form the basis of Krugman’s, (1994, pp.62-78) challenging article on the “The Myth of the East

Asian Miracle”. Krugman’s elucidation of these results is very pessimistic—according to

Krugman, it is due to lack of technical progress, economic growth in these East Asian NIEs is

bound to slow down and come to a halt eventually as a result of the diminishing returns to

additional capital accumulation.

East Asia has been the fastest growing region in the world Lau and Jungsoo,

(2003, pp.6-7) for the past several decades. On average, the East Asian developing economies as

a group, including China, Hong Kong, Indonesia, South Korea, Malaysia, Philippines,

Singapore, Taiwan and Thailand, has grown at almost eight percent per annum since the 1960s.

The notable exception is Philippines, which has only been able to grow at less than half the

average rate. In contrast, the non-Asian Group-of-Five (G-5) developed economies--France,

West Germany, the United Kingdom and the United States--have grown at an average rate of a


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little over three percent to pooled time-series aggregate data for nine East Asian developing

economies--Hong Kong, South Korea, Singapore, Taiwan, Indonesia, Malaysia, Philippines,

Thailand and China--and a sample of developed economies (e.g., the G-5 countries).

The authors also evaluate the role of human capital, as distinct from and in addition to

tangible capital and labor, in the growth of the nine East Asian developing economies. Our

interpretation of technical progress is that it mostly reflects the effects of unmeasured, and

possibly immeasurable, intangible inputs. An important and typically unmeasured, but

measurable, intangible input is that of human capital. In this study, human capital is measured as

the total number of years schooling of the working-age population. If measured technical

progress is in fact attributable to the growth of intangible inputs such as human capital, then the

explicit introduction of human capital as input in an empirically estimated aggregate production

function should result in a lower rate of measured technical progress as well as a lower estimated

contribution of technical progress to economic growth.

In America slow economic growth appears to heighten political gridlock, and thus reduce

the quality of political decisions. The era of slow economic growth which began in 1973

produced, Krugman, (1994, pp. 62-78) an Age of Diminished Expectations. Slower growth in

private incomes led to a political backlash that greatly reduced the ability of the U.S. government

to undertake large-scale projects. From the government perspective, cynicism toward

government expansion may be a good thing.

The study by Nelson and Phelps (1966, pp. 69-75) emphasized that human capital as the

one of the prime determinant of economic growth. Investments in human capital—formal


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schooling, on-the-job training, and informal learning—directly contribute to economic growth by

increasing the productivity or “quality” of a nation’s work force. Investments in human capital

also contribute to expanding the technological frontier, since educated labor is a key to the

creation of new ideas. A more-educated work force, furthermore, facilitates the initial adoption

and rapid diffusion of new technologies.

In United States there was mass secondary schooling by which it took lead in education

by at the dawn of early twentieth century and also the secondary and higher education system

was multi dimensional and flexible as found in the study of Goldin (2001, pp.263-91). At the

end of the twentieth century, however there was a decline in schooling for the younger cohort

compared to an increase in other advanced and OECD nations. The educational attainment of

recent cohorts in some countries has actually surpassed that of the United States (OECD 2001).

The reason for this as highlighted in the study is that educational quality is a moving average of

survival rate, the quality of labour force in US now stagnate where as in other countries it is not

so.

Both the neoclassical growth model and endogenous growth models Lucas (1988, pp.3-

42) suggest that the rate of the output growth is being affected by growth of the human capital

stock. Other growth models Mankiw, Romer, and Weil (1992, pp. 407-437) emphasize the the

educational attainment level of the work force as affecting the rate of economic growth by

increasing the rate of creation of new ideas and the rate of technological progress. Cross-country

growth regressions indicate a positive relationship between both the level and rate of growth of

schooling on the growth in output per capita. But measurement error and omitted variable bias


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raise questions about the causal interpretation of such estimates as shown by Krueger and

Lindahl (2001, pp. 1101-36). The authors estimated the direct contribution to economic growth

of increases in the educational attainment of the U.S. labor force from 1915 to 2000 employing a

standard growth-accounting framework which was pioneered by Denison, Edward F. (1962).

They also examined the implications of recent demographic and educational trends for future

economic growth.

These theories however, not being able to suggest effective policies to boost

growth. Designing the right intellectual property system to accelerate technological progress in

the twenty-first century is an extremely hard problem. During the twentieth century it was

America's willingness to invest in education that was one of the important sources of its

extraordinary economic performance throughout the entire century as has been highlighted in

these studies. Simple exploration of literature shows that, with the current policies, this

willingness to invest in people is not keeping pace with needs and projections see much slower

rates of increase in the educational attainment of the American labor force in the future than in

the past. Adopting the policies that renew America's commitment to invest in education and

carry out it smoothly is perhaps the most important and fruitful step that might be taken to

sustain American economic growth is the basic premise of these studies.

This study by Sahoo et al. (2009) examined the output elasticity of infrastructure for four South

Asian countries viz., India, Pakistan, Bangladesh and Sri Lanka using Pedroni’s panel co

integration technique for the period 1980-2005. The study found a long-run equilibrium

relationship between output (and per capital income) and infrastructure along with other relevant


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variables such as gross domestic capital formation, labour force, exports, total international trade

and human capital. The results reveal that fixed capital formation, labour force, export and

expenditure on human capital exhibit a positive contribution to output. More importantly

infrastructure development contributes significantly to output growth in South Asia

In another work by Sahoo et al. (2009), they investigated the role of infrastructure on

economic growth in India for the period 1970-2006. In this context, they developed an index of

infrastructure stocks and estimate growth-accounting equations to investigate the impact of

infrastructure development on output. Overall, the results reveal that infrastructure stocks, labour

force and total investment play an important role in economic growth in India. More importantly,

we find that infrastructure development in India has a significant positive contribution toward

growth than both private and public investments. Further, causality analysis shows that there is

unidirectional causality from infrastructure development to output growth.

V. METHODOLOGY

We have studied the existing theories of economic growth and evaluated the usefulness of these

theories and their application in the lagging behind states of India i.e., NE states of India viz.

Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Sikkim. The

literature survey on various empirical works on economic growth is taken as background of the

study. The secondary data of NSDP for NE states for the period 1999 to 2005-06 collected from


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Reserve Bank data bank and simple economic growth is calculated based on NSDP data for the

period 2000-01 to 2005-06. The formula used for simple economic growth is as follows.

Growth = ( ) 100

The growth figures for advanced Indian states viz. Andhra Pradesh, Maharashtra, Punjab,

Tamilnadu and Gujarat were also calculated. We have estimated growth curves for the two

categories of states in our study through Gompertz Growth curve and using Gompertz Software

for these two groups of states.

The growth curve which is most widely used to describe growth is Gompertz curve and Logistic

curve. These curves are S- shaped for increasing series when plotted with an arithmetic vertical

scale and are concave downward on semi logarithmic chart. We have used the Gompertz curve to

measure the growth. The equation of Gompertz curve is as follows

Y = ka -------------------------------(7)

Which when put to logarithmic form become

log Y = log k + (log a) bx

The Gompertz curve serves to describe the growth of series which while increasing seem to

approach some maximum value as limit. Although the growth continues it does so at a

decreasing rate. We have used Gompertz curve because it is suitable for growth curves compared

to other curves. The logistic curves approaches both the asymptotes symmetrically while

b ……

x


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gompertz curve approaches right asymptote gradually which is the normal behavior of growth

curves.

We have analysed the influence of infrastructre on economic growth through regressing growth

rate on infrastructre index.

We have also studied the effect of Central Govt. allocation of funds on economic growth of NE

states as NE states receive huge amount of central dole as special category states. This is done

through regressing growth of NE states on Central Govt. allocation of funds.

VI. APPLICATION OF GROWTH THEORIES IN NE STATES

Some of the growth theories have useful applications in NE states. Joseph Schumpeter’s

observation that entrepreneurship development leads to technological progress which in turn

leads to economic growth. There is ample scope for development of entrepreneurship in the

north eastern states based on local forest and natural resources as the NE states are highly

endowed with natural and forest resources. Development of entrepreneurship will add further

momentum in growth dynamics of these states.

Solow-Swan neoclassical growth model also has got an important application. As the

model makes some important predictions first, increasing capital relative to labour results in

economic growth, the same is applicable in case of NE states as these states are in dearth of

capital investment compared to advanced Indian states to accelerate the growth process. The

second condition of the model that in poor economies where percapita capital is less, may grow


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faster due to increase in capital investment fits well in case of north east as these states are

relatively poorer compared to the relatively rich advanced Indian states. These states are far

behind yet to reach “steady state” a position where rate of return on capital falls due to huge

capital investment. The capital investments in north eastern states are very less compared to

advance Indian states.

The new growth theory as advocated by Paul Romer that importance of human capital

towards economic growth i.e., skills and knowledge of the workers results in higher productivity

as human capital has high rate of return compared to physical capital and thus higher growth.

Human resources in NE states are better as percentage of education is higher. The north east is

having highest percentage of English speaking population who can take advantage of

globalization and highly market oriented economy. Moreover, if these human resources are

trained in proper direction can reap high return and will be able to augment economic growth of

the region.

VII. EMPIRICAL ANLYSIS

The reason for selecting NE states and to identify the gap with advanced states in our analysis

is that economic growth in NE states are relatively lower than other advanced Indian states.

Despite India’s recent strong growth performance, there is a growing concern that the benefits of

growth have been concentrated in India’s richer states, leaving the poorer states lagging further

and further behind (Catriona 2006), NE states are also lagging far behind the advanced Indian

states in terms of economic growth. These states are characterized by lower economic

development, poor infrastructure, low industrialization, traditional method of agriculture, lack of


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public and private investment coupled with insurgency, are responsible for lower economic

growth in these states1. For our analysis Net State Domestic Product (NSDP) data for NE states

are collected from Reserve Bank of India (RBI) data bank. NSDP for the states of Arunachal

Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura from 1999 to

2005-06 as shown in table-1. We have calculated growth figures as given in table- 2 for North

Eastern states and also the advanced states viz. Andhra Pradesh, Maharastra, Punjab, Tamilnadu,

Gujrat, following simple growth formula. The data for advanced Indian states is collected from

the same source. Growth curves were estimated by using the Gompertz growth equation and

plotted using Gompertz software as shown in the figure - 3 to figure - 13 below. It may be

mentioned that growth curve for NE state of Tripura and could not be constructed due to the

insufficiency of the data set for Gompertz growth curve. The growth curve displays a graphical

output of the estimated curve vis a vis the observed curve (Dastidar S.G. 2006)2. The trend of

growth curves are represented in figure-1 and figure-2 below as estimated based on the data

given in table-2.

Average Growth in NE states in the year 2000-01 is 11.13 and for advanced states it is

7.28 in the same year which very clearly shows average growth in NE states are higher compared

to advanced states. This high growth in NE states may be due to very high amount of central

dole. More specifically growth in Nagaland, one of the NE states is 28.55 during this period the 1 . Source: Speech by Chief Minister of Assam on 50th NDC meeting, http://planningcommission.nic.in/plans/planrel/pl50ndc/assam.pdf 2 American Journal of Statistical Software.


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obvious reason for this may be high amount of financial support provided by then NDA Govt.

during that period. This high growth in Nagaland has given a high boost to average growth of

NE region in 2000-01 compared to the average growth of advance states 7.28 in the same year. It

is observed from table-2 that average growth of NE states falls continuously from 11.13 to 9.58

during the period of our study i.e. 2000-01 to 2005-06. The possible reason for falling growth in

NE region is due to low industrialization, subsistence nature of agriculture, poor infrastructure,

insurgency and utilization of most of the Central Govt. funds for consumption purposes and not

for further income generation3. The situation in advanced states is that growth has increased

continuously from 7.28 to 13.78 during 2000-01 to 2005-06. Moreover, among the NE states

some states such as Manipur and Arunachal Pradesh growth is negative in the year 2000-01 and

2002-03 respectively while there is negative growth only in Gujarat in 2000-01 among the

advanced states during the period of our study. It is very interesting to note down here that

variability of growth among the NE states are higher than advanced states as evident from

standard deviation figures shown in table-2.

For analysing the effect of infrastructre on economic growth in NE states we have regressed the

growth rate on infrastructre index of different states based on the data in table - 4. The result

shows that infrastructre has got a significant effect on economic growth.

We have also analysed the effect of Central Govt. allocation of funds on growth of NE states.

This is done through regressing growth on Central Govt. allocation of funds. The result shows 3 Speech by Chief Minister of Assam on 50th NDC meeting, http://planningcommission.nic.in/plans/planrel/pl50ndc/assam.pdf


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that the central allocation of fund has got no strong effect growth of NE states. This may be due

to the fact that central funds are not properly utilised for productive purposes by the NE states

and thus not having stronger effect on growth.4

In table-3 a position of North Eastern states of India and that of advanced Indian states is

shown in terms of population, percapita income and NSDP. The difference is revealed in terms

of size of population and percapita income and NSDP. It is revealed that per-capita income in

North Eastern states is lagging behind than those of advanced Indian states, though there is lower

population in those states.

VIII. MAIN FINDINGS AND CONCLUSION

Low economic growth in North Eastern states is caused by higher variability and inadequate

infrastructure and also non utilisation central Govt. funds for productive purposes. Moreover, the

variability of infrastructure index is higher among the NE states compared to that of advanced

Indian states

The main finding of the study is that the growth in NE states are falling continuously due to non

utilization of Central Govt. funds for productive purposes and higher variability of infrastructure

So necessary steps to be taken urgently by Central as well as respective State Govt. to accelerate

the economic growth in NE states so as to reduce gap between different states. Steps to be taken

to develop tourism sector which may boost the growth of NE states. There is enough potential in

4 Sanjay Hazorika, http://www.indiaedunews.net/conversation/sanjoy.asp


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NE states to develop tourism sector. Development of IT sector is another important step to

augment the economic growth in NE states. Strengthening Education Sector and developing

educational Hubs may also boost growth. Border Trade is another important way to foster

growth in NE states as these states are in proximity to international borders..

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States: An Examination”, International Research Journal of Finance and Economics, Issue

24(2009), 117-130


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2. Aiyar, Shekhar. (2001), “Growth Theory and Convergence across Indian States” in Tim

Callen,Patricia Reynolds, and Christopher Towe (ed) India at the Crossroads: Sustaining Growth

and Reducing Poverty, Washington: International Monetary Fund, 143–69

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102

Table-1

NSDP of North-Eastern and Advanced States of India

1999-00 2000-01 2001- 2002- 2003- 2004- 2005- 2006-


27

02 03 04 05 06 07

Arunachal

Pradesh 1497 1665 1961 1920 2193 2549 2598 3020

Assam 32011 33760 35094 39394 42927 47513 52390 57378

Manipur 2954 2814 3014 3142 3564 4058 4477 4726

Meghalaya 3211 3593 4057 4310 4723 5138 5617 6162

Mizoram 1410 1567 1752 1933 2083 2181 2398 2629

Nagaland 2556 3286 3874 4382 4699 4980 5255 NA

Sikkim 765 855 956 1078 1209 1356 1539 1746

Tripura 4496 5114 5889 6223 6990 7648 8712 9533

Source: RBI Database on Indian economy.

States 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Andhra

Pradesh 112966 131123 142598 152066 173275 188855 210772

Maharastra 217198 219038 235370 258511 294202 332070 375472

Punjab 61139 67779 71260 73494 79840 85761 96108

TamilNadu 119704 130413 131392 138253 153874 177222 205596

Gujarat 92541 92274 101790 118130 142534 155184 180271


28

Source: RBI Database on Indian economy.

Table-2

Growth of NSDP for North Eastern and advanced Indian States of India

2000-01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

Arunachal

Pradesh 11.22 17.76 -2.13 14.24 16.23 1.9

Assam 5.46 3.95 10.19 8.96 10.68 10.26

Manipur -4.75 7.12 4.06 13.45 13.85 10.31

Meghalaya 11.89 12.9 5.86 9.57 8.79 9.32

Mizoram 11.19 11.78 7.12 7.79 4.69 9.93

Nagaland 28.55 17.9 12.9 7.23 5.99 5.52

Sikkim 11.75 11.8 11.78 12.13 12.15 13.49

Tripura 13.76 15.13 17.9 12.33 9.4 13.91

Mean 11.13 12.29 8.46 10.71 10.22 9.58

Stnd.

Deviation 9.24 4.87 6.12 2.66 3.86 3.96

Source: Calculated by author from NSDP figures in table-1


29

States 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Andhra Pradesh 16.07 8.75 6.63 13.94 24.19 11.6

Maharastra 0.84 7.45 9.83 13.8 28.45 13.07

Punjab 10.86 5.13 3.13 8.63 16.69 12.06

TamilNadu 8.94 0.75 5.22 11.29 28.18 16.01

Gujarat -0.28 10.31 16.05 20.65 31.36 16.16

Mean 7.28 6.47 8.17 13.66 25.77 13.78

Stnd. deviation 6.91 3.72 5.03 4.46 5.68 2.17

Source: Calculated by author from NSDP figures in table-1


30

Trend of Growth in NE States

Figure- 1

Trend of Growth in Advanced States

Figure-2


31

Table-3

Comparative position of NE States

North Eastern

States

Population

2001

Percapita Income (Rs)

2001

Growth of SDP

2001

Arunachal

Pradesh 1091117 9678 9.4715

Assam 26638407 6520 7.5705

Manipur 2388634 8751 2.0681

Meghalaya 2306069 NA 14.7868

Mizoram 891058 NA 26.941

Nagaland 1988636 NA 47.0815

Tripura 3191168 NA 15.6785

Sikkim 540493 NA 16.1221

Average 4879448 8316.333 17.456

Advanced States

Andhra Pradesh 75727541 11333 12.2

Maharashtra 96752247 16479 1.29

Punjab 24289296 15800 11.22

TamilNadu 62110839 12976 9.45

Gujarat 50596992 16779 1.16

Average 61895383 14673.4 7.064


32

Source: North Eastern Development Finance Corporation.

Source: https://editorialexpress.com/cgi-bin/.../download

Table-4

Infrastuctre Index and Growth Rate of Different States of India

States

Growth Rate,

2000

Infrastructre

Index, 2000

Arunachal

Pradesh 9.4715 111.65

Assam 7.5705 117

Manipur 2.0681 147.83

Meghalaya 14.7868 112.66

Mizoram 26.941 233.66

Nagaland 47.0815 209.83

Sikkim 15.6785 122.85

Tripura 16.1221 143.48

Mean 17.456 149.87

Stnd. Deviation 14.03 46.77

Andhra

Pradesh 12.2 105.01

Maharastra 1.29 102.7


33

Punjab 11.22 144.18

TamilNadu 9.45 154.08

Gujarat 1.16 88.76

Mean 4.451 118.946

Stnd. Deviation 5.42 28.46

Source: CMIE Basic Statistics, States

Table- 5

Central Govt. Allocation to NE States and Growth

States

Central Funds Central Funds Growth Growth

2000-01 (Rs

Lakhs)*

2005-06 (Rs

Lakhs)** 2000-01*** 2005-06***

Arunachal 330 1935.49 17.76 1.9

Assam 1876 1081 3.95 10.26

Manipur 160 592 7.12 10.31

Meghalaya 0 494 12.9 9.32

Mizoram 0 903.48 11.78 9.93

Nagaland 394 456 17.9 5.52

Sikkim 95.4 622 11.8 13.49

Tripura 1800 1296 15.13 13.91

*Source: http://db.nedfi.com/content/nsdp-north-east-states


34

**Source: Planning Commission

***Source: Calculated by author

Figure-3

Arunachal Pradesh


35

Figure-4

Assam


36

Figure-5

Manipur


37

Figure-6

Meghalaya


38

Figure-7

Mizoram


39

Figure-8

Sikkim


40

Figure-9

Andhra Pradesh


41

Figure10

Maharastra


42

Figure-11

Punjab


43

Figure-12

Tamilnadu


44

Figure-13

Gujarat

dynamics of economic growth: a study of some selected

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