Measuring the economic potential of Indian districts

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. 

Three Key Results

The map above shows the main EPI results. As can be seen, districts are classified into five different bands of economic potential depending on their exact EPI score. These bands range from “very low” to “very high” potential. The map helps to reveal several interesting patterns:

1. Levels of economic potential aren’t simply randomly scattered across districts. Rather there is a notable clustering of districts with similar levels of potential.  In particular, we have both high and low potential clusters of districts.  While, the high potential clusters are centered on India’s major agglomerations (e.g. Delhi, Kolkata, Ahmadabad, Hyderabad, and Bangalore-Chennai), the low potential clusters tend to be located in the more peripheral regions of the country such as, for example, in the border regions with neighboring countries. Perhaps most notable in this regard is the linear cluster of low and very low potential districts that exists along the border with Nepal. This is on account of the fact that, unlike other low potential regions in India, this cluster is characterized by high levels of built-up area, which reflects the high population densities that exist in the North-east of India. 
    
2. Even though the high potential districts tend to be concentrated in clusters around major agglomerations, these districts also contain numerous secondary and intermediate sized cities, not to mention so-called “Census Towns” (i.e. towns which are governed as rural areas, even though the Indian census recognizes them as urban).  Indeed, out of the 233 urban settlements located in “very high” potential districts, 63 are Census Towns.
    
3. While the geography of economic potential depicted in the map resembles quite closely what we would see if we were to map levels of economic performance as measured by, for example, GDP per capita, there are clear examples of districts that buck this trend and where performance diverges significantly from potential. Thus, if we return to our train journey from New Delhi to Kanpur then the district of Kanpur Nagar, in which the city of Kanpur is located, ranks alongside Delhi in having “very high” economic potential. This is despite the fact that, in GDP per capita terms, Kanpur Nagar lags far behind Delhi. More generally, we find that there is a high concentration of districts that are performing below potential in Uttar Pradesh. This is a sign of hope for India’s densely populated Northeastern region where the bulk of the country’s extreme poverty is concentrated. In particular, while it may not be reflected in current levels of observed performance, many of the districts in this region of India possess the key fundamentals required to achieving heightened levels of productivity and, with this, the reduction of levels of extreme poverty. 

Our hope is that the EPI results presented here will add to the discussion of the key spatial development challenges that India finds itself faced with. Beyond that, the EPI also represents a much more general diagnostic tool that can be relatively easily applied to any country to provide preliminary insights into its geography of economic potential.

Note: The boundaries, colors, denominations, and other information shown on the map do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.