As anyone who has travelled around the country will testify, India is marked by glaring spatial disparities in well-being. On the one hand, New Delhi is relatively prosperous, and if you visit the recently renovated Connaught Place, you will find not only a bustling outdoor market, but also designer shops, upmarket restaurants and a gleaming new metro station.
However, take the Prayagraj Express train east for seven hours and you will find yourself in Kanpur, which is one of the largest cities in the densely populated state of Uttar Pradesh, where per capita income is less than one-fifth its level in Delhi and the poverty rate is three times as high.
Such large variations in well-being are a natural cause for concern among India’s policymakers and have generated intense interest in India’s spatial landscape of potential for economic development. Is it the case that less prosperous parts of the country lack the basic ingredients that can give rise to the high productivity that economists believe provides the key to well-being or is it the case that, while they may possess some of these ingredients, they are failing to make the most of them?
The Economic Potential Index
In an effort to provide some insights into both this and other key questions related to India’s spatial development, we have recently published a working paper that examines underlying variations in “economic potential” across Indian districts.
Our analysis is based on a composite “Economic Potential Index” ( EPI) that measures, in a single summary score, the extent to which a district possesses attributes that can be considered “universally” important to achieving a high local level of productivity, whether or not a high productivity level is currently actually observed.
There’s a lot of good news in the World Bank’s latest economic report on South Asia: the region is the fastest growing in the world and its limited exposure to global economic turbulence means that its near-term prospects look good.
Technological content of India’s exports
The evolution of Indian exports has not followed a “textbook” pattern. The pattern of evolution points to a dichotomy in the Indian economy – a well integrated, technologically advanced services sector and a relatively lagging manufacturing sector. The share of service exports in total exports has grown to over 32 percent in 2013 from 28 percent in 2000. On the other hand, the share of manufacturing exports in total export has declined to 67 percent from nearly 80 percent during 1990-2013.
The growth in service exports has been more rapid, resulting in the share of services exports in total exports to increase rapidly over the last decade. This can be explained by technological changes. Many services do not require face-to-face interaction, and can be stored and traded digitally. These services are called modern services. Modern services are the fastest growing sector of the global economy. This is particularly evident in India, where modern services exports account for nearly 70 percent of the total commercial services exports (compared to around 35 percent in EMs) (see Figure 1).