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Economic Survey 2016-17 Chapter 10 | Income, Health, and Fertility: Convergence Puzzles


Introduction

India’s economic performance has been remarkable in the aggregate. But its continued success as a federation depends on the progress of each of its individual states. A reasonable standard for assessing a state’s performance can be to see how well individual states have done over time on two broad sets of indicators: economic and health/demographic indicators. Economic indicators include income or “per capita GSDP”. Health/demographic indicators include the following – 

1. Life expectancy at birth (LE) indicates the number of years a newborn would live if prevailing patterns of mortality at the time of its birth were to stay the same throughout its life.

2. Infant mortality rate (IMR) is defined as the number of infants dying before reaching one year of age, per 1,000 live births in a given year.

3. Total fertility rate (TFR) is defined as the number of children that would be born to a woman if she were to live to the end of her childbearing years and bear children in accordance with age-specific fertility rates in a given year.

Across these health and demographic indicators, there have been dramatic improvements over the last 3 decades.

But there is no obvious benchmark to measure these improvements. How has Odisha done relative to Kerala? How have Odisha and Kerala done relative to other states?

Economic theory provides one metric to make such comparisons: convergence (or unconditional convergence). Convergence means that a state that starts off at low performance levels on an outcome of importance, say the level of income or consumption, should see faster growth on that outcome over time, improving its performance so that it catches up with states which had better starting points.

For example, since the per capita GSDP of Odisha in 1984 was 25 percent lower than the per capita GSDP of Kerala, traditional convergence theory would suggest that Odisha would experience higher growth rates over time, thereby reducing the gap between the two states.

Convergence is thus an intuitive measure of absolute and relative performance, allowing national and international comparisons. 

Finding 1: Income/Consumption Divergence Within India

In terms of income convergence, Indian states offer a striking contrast to the catch-up that is happening globally and within China.

Poorer countries are catching up with richer countries, the poorer Chinese provinces are catching up with the richer ones, but in India, the less developed states are not catching up; instead they are, on average, falling behind the richer states. The opposing results in India versus those in China and internationally pose a deep puzzle.

Convergence happens essentially through trade and through mobility of factors of production. If a state/country is poor, the returns to capital must be high and should be able to attract capital and labor, thereby raising its productivity and enabling catch up with richer states/countries.

Trade, based on comparative advantage, is really a surrogate for the movement of underlying factors of production. A less developed country that has abundant labor and scarce capital will export labor-intensive goods (a surrogate for exporting unskilled labor) and imports capital-intensive goods (a surrogate for attracting capital).

Although more research is needed to determine the reasons for divergence in India, but there are some theories.

Convergence could fail to occur due to governance or institutional traps. It can also be related to India’s pattern of development. India, unlike most growth successes in Asia, has relied on growth of skill-intensive sectors rather than low-skill ones. Thus, if the binding constraint on growth is the availability of skills, there is no reason why labor productivity would necessarily be high in capital scarce states.

Unless the less developed regions are able to generate skills, (in addition to providing good governance) convergence may not occur

Finding 2: Health Convergence within India with Room for Improvement Against International Standard

India’s low level of expenditures on health (and education) have been the subject of criticism.

Two key indicators for  understanding state’s health and demographic outcomes are life expectancy at birth and infant mortality rate. There is convergence within India on the two health outcomes and India does not fare too badly compared to other countries.

In LE, the Indian states are doing about the same or better on average than their international counterparts but for IMR, most states look worse in this international comparison.

Finding 3: Fertility: Exceptional Performance

One of the most striking developments over the past decade has been in fertility.

12 Indian states out of the reporting 23 states have reached levels of fertility that are below the replacement rate (TFR-2.1)For their level of development, the Indian states have much lower levels of fertility than countries internationally. These fertility developments have strong implications for the demographic dividend going forward.

 

Conclusions

1. Despite growing rapidly on average, there is sign of growing regional inequality among the Indian states.

2. On health and demography, there is strong evidence of convergence amongst the states in the 2000s.

3. With regards to life expectancy, the Indian states are close to where they should be given their level of income. However, this is not true of IMR, suggesting that the “mother and child” (discussed also in last year’s Survey) bear the brunt of weaker delivery of health services.

Questions, suggestions and comments


  1. Profile photo of Hari Kiran Hari Kiran

    Can you please summarize the other chapters too. Thanks

    1. Profile photo of Discuss Discuss

      Hi guys, just wait 2-3 days. Chapters 11-14 coming then.

      1. Profile photo of rohit vyas rohit vyas

        Please provide summary for Chapter 8 as well.

      2. Profile photo of TEJ. G TEJ. G

        pls provide summary of rest of the chapters ..

    2. Profile photo of Akash Jain Akash Jain

      same question
      please sir, complete the remaining chapters

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