Income disparities across Indian States: evidence from Kuznets curve and shift analysis

This study aims to analyse the patterns of growth and income disparities and to have a future insight about its behaviour across 22 Indian states for the period from 1980-1981 to 2010-2011.

This paper uses a three-stage methodological procedures to arrive at the results. First, the distributional aspect of per capita income has been analyzed by using Kuznets’s Inverted-U Hypothesis. Second, to analyse the relative performance across India states, the Shift Analysis Technique has been utilized. Finally, analyzing the future aspect of the growth and disparities among the low-, middle- and high-income states a catch process has been performed.

The empirical results rejects the Kuznets’s hypothesis for both aggregate and sectoral incomes across Indian states. The relative performance of Indian states shows signs of decreasing the income disparities over the time with a positive shift. Finally, the catch-up process among the low-, middle- and high-income states suggests different time bands for each group to narrow down or eliminate the income disparities in future.

This study contributes to the literature in three ways. First, examining the sectoral growth and disparities across Indian states by testing the Kuznets’s Inverted-U Hypothesis to highlight the specification issue; second, to measure the relative performance of Indian states over the time that can help us to find out the individual states that are purely responsible for income disparities in India. Finally, estimates of catch-up speed among Indian states provide a prediction about their behaviour to eradicate the disparities in future.