Income gap as a pointer to inequality within states
December 01, 2023 Vaidya R
Economic surveys, or socio-economic reviews as some states call it, are reports published by state governments on the state of the economy in their states. We have economic surveys of Karnataka, Maharashtra, Telangana and Delhi. The government of Tamil Nadu has not published any such reports, so we don’t have data on Tamil Nadu.
One of the important tables in these reports is the Gross District Domestic Product (GDDP) data for all the districts in the state. Accompanying that is usually a Per-capita Income (PCI) table for each district, which tells you what your average income is likely to be if you were living in that district.
Growth skewed towards capital cities
One of the things we observe when it comes to economic growth in Indian states is that growth is skewed heavily towards one or two districts in the state, usually the capital city and another major city. The rest of the districts tend to lag far behind with little job opportunities which is reflected in their PCI. The district-level PCI in effect becomes an indicator of the inequality in the state.
For the purpose of this analysis, we consider two metrics – the district average per-capita income and the median per-capita income. Note that the district average PCI is not the state’s PCI. The average is just the average of all the districts’ PCI and the state’s value is a different number weighted by population. The average is of use only to compare the districts by their PCIs and nothing else. The median is a more representative number which tells us the PCI most of the districts are clustered around.
For the purpose of this analysis we have considered Maharashtra, Telangana and Karnataka and their top two highest earning districts. We have chosen these three states because the per-capita income data is available and they also include four major metros in India. Delhi straddles the fine line between a state and a metro and the differences would be harder to reconcile within it in comparison to the other states. Chennai and Tamil Nadu would have been a natural addition to this analysis, but the lack of official data means we will have to do without them.
Compared with the median and the district average, what we notice is that the difference is stark in Karnataka and Telangana. The PCI in Bengaluru and Rangareddy is thrice the respective state median, while in Mumbai it is around twice and less than twice in the case of Thane and Pune. That there are three major districts with high income instead of two in the other two states by itself paints a different picture for Maharashtra.
In statistics, the Standard deviation of a sample is a measure of how much the data points in the sample vary from the average of the sample. In this case it gives you an idea of how much the districts vary from the district average.
The number of standard deviations for a data point is calculated as the value of the data point divided by the standard deviation. The higher this value, the farther it is from the rest of the sample. In our case, the larger the number of standard deviations is for a district, the farther it is from the other districts and the more unequal is the distribution of income within the state.
In the case of Bengaluru and Rangareddy the distance is highest, more than 3.5 standard deviations in the case of the former and almost five in the case of the latter. This suggest a massive gulf with the rest of the districts. In fact, the distance between these two districts and the next in the state – Dakshina Kannada and Hyderabad respectively suggests how wide the gulf is with the rest of the districts.
Income distribution within states
If we divide the districts into bins of Rs. 50,000 starting from the lowest per-capita income, we get an idea of the distribution of the districts in the three states.
We can see that 22 out of the 33 districts in Telangana fall in the lowest bin. In fact, the first two lowest bins cover 30 of the 33 districts. The last three districts fall in individual bins that are not even contiguous, emphasising the gulf between them. The gap between the highest income district and the lowest districts in almost Rs. 5 lakhs!
As can be seen here, the PCI distribution in Telangana is exponential, with most districts under Rs. 2 Lakh, with a sudden spurt at the end for Hyderabad and Rangareddy districts.
In the case of Karnataka, even though unequal, the distribution is slightly less unequal when compared to Telangana. 12 out of 30 districts, 40%, fall in the first bin and 9, or 30%, in the second bin. The first three bins cover 25 of the 30 districts. The last two bins have one district each and even though there are gaps it is not as pronounced as in Telangana. The gap between the highest district and lowest bin is Rs. 4.5 Lakhs, but a lot fewer districts are in the lowest bin. Income distribution in Karnataka is unequal, but not as badly as in Telangana.
Karnataka is close to exponential, but not as much as Telangana with the last five districts – Bengaluru Rural, Chikkamagaluru, Udupi, Dakshina Kannada and Bengaluru Urban – showing an increase from the gradual incline leading up to them.
Maharashtra is a lot more evenly distributed. The first bin has 15 of the 34 districts and the second has 12. However there are only 5 bins and no gaps. The gap between the highest earning district and the lowest bin is only around Rs. 2 Lakh.
Maharashtra is more evenly distributed with a gradual ramp-up from the lowest to highest district.
Despite the massive inequality amongst its districts Telangana has the highest per-capita income among the three states, followed closely by Karnataka. These two cities – Bengaluru Urban and Telangana also lead in terms of software exports and the services sector. While they have immensely benefited these districts the fruits are yet to reach the other parts of the state.
The goal of this analysis is not to say that one state is more developed than the other. It is only to see how much the growth and development is clustered in a few city centres with little benefit being seen outside. Maharashtra has 14 districts where the PCI is less than 1.5L while Telangana and Karnataka have only 8 such districts. That the average income in a city like Mumbai is lower than Bengaluru and Rangareddy and Hyderabad could also be because how unequal the distribution within the city is. But that is a different analysis that needs a different dataset to work with.
Investments in human capital – education and health – can be a great way to redistribute the wealth in their main cities. This is much needed as data from the NFHS-5 shows. Telangana lags behind both the states in terms of important social indicators like female literacy. While Karnataka is better than Telangana, it is barely above the national average of 71.5%.
While these investments might not bear fruit immediately, they can ensure that the current growth thanks to sectors like IT can be sustained over the decades, across multiple sectors, and lead to lasting social development across the state.