Regional Imbalance

a. Meaning -

Regional imbalance is the disparity in economic and social development of two regions. One

region/city/area is stronger than another region/city/area. Regions develop when investments

are made to set up industries, service sectors, educational institutions, health care facilities

etc. In India after liberalization, the role of private sector has increased in investment

decisions. Naturally, the investments will flow in regions which are favourable to return

maximum return on investments. This rules out the possibility of investments in poorly

connected and geographically separated regions (for example mountains), and regions with

hostile political environment. The maximum share in gained by the regions which have

adequate physical and social infrastructure and a conducive environment. This results in

development of one region as compared to the other region.

b. Consequences of Regional Imbalance

1. Migration: Migration from economically backward area towards economic strongholds. For

example the rural-urban migration. Cities are more prosperous as compared to rural areas,

providing better quality of life and more sources of income.

2. Social unrest- Differences in prosperity and development leads to friction between different

sections of the society causing social unrest. For example Naxalism. Naxalites in India function

in areas which have been neglected for long for development purposes/economic prosperity.

3. Aggregation of the imbalance: Once an area is prosperous and has adequate infrastructure
for development, more investments pour-in neglecting the less developed regions. So an area

which is already prosperous, develops further. For examples- the rate of growth of the four

metropolitan cities, as compared to other metro cities is still higher.

c. Reasons Behind Regional Imbalance in India

1. Historical Factor:

Historically, regional imbalances in India started from its British regime. The British rulers as

well as industrialists started to develop only those earmarked regions of the country which as per

their own interest were possessing rich potential for prosperous manufacturing and trading

activities. British industrialists mostly preferred to concentrate their activities in two states like

West Bengal and Maharashtra and more particularly to three metropolitan cities like Kolkata,

Mumbai and Chennai. They concentrated all their industries in and around these cities neglecting

the rest of the country to remain backward.

2. Geographical Factors:

Geographical factors play an important role in the developmental activities of a developing

economy. The difficult terrain surrounded by hills, rivers and dense forests leads to increase in

the cost of administration, cost of developmental projects, besides making mobilization of

resources particularly difficult. Most of the Himalayan states of India, i.e., Himachal Pradesh.

Northern Kashmir, the hill districts of Arunachal Pradesh and other North-Eastern states,

remained mostly backward due to its inaccessibility and other inherent difficulties.

Adverse climate and proneness to flood are also responsible factors for poor rate of economic

development of different regions of the country as reflected by low agricultural productivity and
lack of industrialization. Thus these natural factors have resulted uneven growth of different

regions of India.

3. Political Instability:

Another important factor responsible for regional imbalance is the political instability prevailing

in the backward regions of the country. Political instability in the form of unstable government,

extremist violence, law and order problem etc. have been obstructing the flow of investments

into these backward regions besides making flight of capital from these backward states. Thus

this political instability prevailing in same backward regions of the country are standing as a

hurdle in the path of economic development of these regions.

4. Inadequacy of Economic Overheads:

Economic overheads like transport and communication facilities, power, technology, banking

and insurance etc. are considered very important for the development of a particular region. Due

to adequacy of such economic overheads, some regions are getting a special favour in respect of

settlement of some developmental projects whereas due to inadequacy of such economic

overheads, some regions of the country, viz., North-Eastern Region, Jharkhand, Chattisgarh etc.

remained much backward as compared to other developed regions of the country. Moreover, new

investment in the private sector has a general tendency to concentrate much on those regions

having basic infrastructural facilities.

5. Lack of Growth of Ancillary Industries in Backward States:

The Government of India has been following a decentralized approach for the development of

backward regions through its investment programmes on public sector industrial enterprises
located in backward areas like Rourkela, Barauni, Bhilai, Bongaigaon etc. But due to lack of

growth of ancillary industries in these areas, all these areas remained backward in spite of huge

investment made by the Centre.

6. Failure of Planning Mechanism:

Although balanced growth has been accepted as one of the major objectives of economic

planning in India since the Second Plan onwards but it did not make much headway in achieving

this object. Rather, in real sense, planning mechanisms has enlarged the disparity between the

developed states and less developed states of the country. In respect of allocating plan outlay

relatively developed states get much favour than less developed states. From First Plan to the

Seventh Plan, Punjab and Haryana have received the highest per capita plan outlay, all along.

The other three states like Gujarat, Maharashtra and Madhya Pradesh have also received larger

allocation of plan outlays in almost all the five year plans.

On the other hand, the backward states like Bihar, Assam, Orissa, Uttar Pradesh and Rajasthan

have been receiving the smallest allocation of per capita plan outlay in almost all the plans. Due

to such divergent trend, imbalance between the different states in India has been continuously

widening.

7. Lack of Motivation on the Part of Backward States:

Growing regional imbalance in India has also been resulted from lack of motivation on the part

of the backward states for industrial development. While the developed states like Maharashtra.

Punjab, Haryana, Gujarat, Tamil Nadu etc. are trying to attain further industrial development, but

the backward states have been showing their interest on political intrigues and manipulations

instead of industrial development.

d. Measures to Reduce Regional Disparity

1. Resource Transfer and Backwardness:

While making necessary award, the Finance Commission in India has been giving due weightage

to backwardness of a state as an important criteria for resource transfer from the centre to the

states. Under the present system of federal fiscal transfer, the transfer of resources from the

Centre to States includes central assistance for State Plans, Non plan transfer as per the

recommendations of the Finance Commission, ad-hoc transfer, allocation of fund for centrally

sponsored schemes, allocation of both short-term and long-term credit from financial institutions

etc.

2. Special Area Development Programmes:

In order to develop hilly areas, tribal areas, drought- prone areas, specific plan schemes have

been designed with full central assistance. Besides, other schemes of rural development

formulated for the improvement of specific groups such as marginal farmers and agricultural

labourers were implemented in the backward regions. An area based approach of Tribal Sub-

Plans (TSPs) is now being implemented for the development of scheduled tribes located in the

backward rural areas. The Tribal Sub-Plans are implemented through 194 Integrated Tribal

Development Projects (ITDP) and 250 Modified Area Development Projects (MADP). All these

programmes include SFDA, MFAL, Drought Prone Area Programme (DPAP), Crash Scheme for

Rural Employment (CSRE) etc.

3. Incentives for Promoting Investment in Backward Regions:

In order to fight the problem of industrial backwardness of some backward regions and also to

promote private investment in backward regions, various fiscal and other incentives have been

provided by both the Centre, the States and other financial institution under public sector. These

incentives are as follows:

(a) Central Government Incentives:

In order to promote investment in the backward regions, the Government of India has been

providing different important incentives since 1970.

These incentives include:

(i) Income Tax Concession:

As per this concession scheme, new industrial units settled in backward areas and set up after

January 1971 are allowed a deduction to the extent of 20 per cent of their profits for the

computation of its assessable income. This concession was introduced in April 1974 and it was to

be availed by an industrial unit for a period of 10 years.

(ii) Tax Holiday:

In order to give stimulus to new industries in backward regions, the 1993-94 budget introduced a

system of tax holiday for new industrial units located in backward regions, i.e., in all states in the

North-eastern region, Jammu & Kashmir, Himachal Pradesh, Sikkim, Goa and the Union

Territories of Andaman and Nicobar Islands, Dadra and Nagar Haveli, Daman and Diu.

(iii) Central Investment Subsidy Scheme:

In 1970, the central government announced the scheme of central Investment subsidy which

made provision for outright subsidy at the flat rate of 10 per cent subject to a maximum limit of

Rs. 5 lakh on fixed capital investment like land, factory buildings, plant and machinery.

Subsequently, this rate of subsidy was raised to 15 per cent and then to 25 per cent.

(iv) Transport Subsidy Scheme:

In July 1971, this transport subsidy scheme was introduced for those industrial units established

in hilly, inaccessible and remote areas of the country. Under this scheme, these aforesaid

industrial units were entitled to 50 per cent transport subsidy on the expenditure incurred

particularly for movement of raw materials and finished goods to and from certain selected rail

heads to the location of these industrial units. This scheme is applicable to remote and

inaccessible areas of Jammu and Kashmir and also in North-Eastern hill states.

(v) Promoting New Financial Institution in Backward Region:

In order to accelerate the pace of industrialization in backward areas the Government of India

has promoted new financial institutions specially for those areas. In the budget of 1995-96 the

government has announced the establishment of Regional Rural Development Bank (RRDB) for

the North-Eastern region.

Later on, this institution was inaugurated in 23rd February, 1996 in the name and style of North-

Eastern Development Finance Corporation Ltd. (NEDFC) as a catalyst for the industrial and

infrastructural development of North- Eastern Region. Moreover, the Government has

established a new Rural Infrastructural Development Fund (R1DF) within NABARD from April

1995 for the infrastructural development of rural as well as backward areas.

(vi) Other Measures:

Moreover, the Central Government has been introducing some other measures for the

development of backward regions. Accordingly, since August 1972, the Central Government has

been giving priority to backward areas in respect of issuing industrial licenses.

The Central Government has again introduced a scheme for assisting the state governments to

undertake infrastructural development projects in those identified no-industry district to the

extent of one-third of the total cost of such development projects subject to a maximum limit of

Rs. 2 crore.

With the help of this scheme the Central Government has been helping the state governments to

develop a good number of growth centres through the development of infrastructural facilities.

The Government has again granted liberal concessions to MRTP/FERA companies for setting up

particular types of industries located in backward areas.