Balanced regional development

INDIAN ECONOMICS
ASSIGNMENT
BALANCED REGIONAL DEVELOPMENT
MADE BY: YATIN NODIYAL [04114901813]
BBA [B&I] 3RD SEM
TO: DR. JASBIR DESWAL
MAHARAJA SURAJMAL INSTITUTE

Balanced Regional Development
The concept of regional development is based on the development of specific regions. It is gener-ally
undertaken where Regional differences exist and where a particular is to be developed.
Regional Development is carried through the regional planning which is a technique to evaluate
the potential of sub-natural areas and to develop them to the best advantages of the nation as a
whole. Like the national planning the regional planning also has the objective of accelerating the
process of social advancement of the community through the technique of economic and social
planning, though it is restricted to the given region or area of the country. The major objective of
the regional development is to remove regional disparities in respect of economic and social
development and bring out the region at par with other regions of the country.
It is a significant means to remove regional backwardness, meet regional aspirations and
demands, make optimum and judicious use of regional resources, solve regional problems and
involve local people in plan formulation and implementation. It may also help in conserving the
environment and cultural heritage of a particular region. The planning for regional development
involves identifying the regionalism present, demarcating the region, determining the need of the
region, formulating the plan, implementing the plan within the framework of government set up
and reviewing the implementation of the plan.
Regional disparities are the result of our unfinished task of nation building. These
re fle c t e s sent ia lly the inadequa c ie s of the deve lopment s t ra tegy followed
s inc e independence and its failure to correct the distortions brought about by colonial rule. Of
late, these tensions have acquired alarming proportions and are threatening to strike
at the very roots of the nation state. This has brought to sharp focus the need of be t te r
unde r s tanding of the pa t te rn of regiona liza t ion, the na ture of regiona l
imbalances and their changing structure over time. Hence, balanced regional development
is necessary for the harmonious growth of federal state like India, however,
presents a picture of wide regional variations, in terms of per capita income,
proportion of population living below the poverty line, working popula t ion in
agr icul t ure , the pe rc entage of urban popula t io n ove r tota l population, etc.
“The co-existence of relatively developed and economically depressed states and even regions
within each state is known as Regional Imbalance.”Regional imbalance May be:
 Natural due to unequal natural endowments, or
 Man made in the sense of neglect of some regions and preference of others for
investment and development effort.
 Inter-state or intra-sate,
 Total or sartorial,
“Economic Backwardness” of a region indicated by symptoms like high population pressure on
land, excessive dependence on agriculture, absence of large-scale urbanization, low productivity
in agriculture and cottage industries, etc.

Theory of Balanced Growth
Balanced Growth means that there should be balanced development of different sectors of the
economy so that there is balance between demand and supply of production of different
sectors. Balanced growth does not mean that all industries should develop at same rate. Some
industries may develop at more or less rate than others.
According to the theory of balanced growth, it is not the industries alone in which large scale
investment should be made, rather both in industrial and agriculture sectors investment should
be so made as to result in their balanced growth.
The theory advocates that both the domestic and foreign sectors of the economy should have
balanced growth. From the view point of demand this theory lays stress on the creation of
effective demand and complementarity of demand and from the view point of supply it lays
emphasis on the need for keeping balance among different industries.
Balanced growth leads to external economies and hence extension of the market. Nurkse has
given more importance to the participation of private enterprise. Stress has been laid on the
optimum use of capital in order to break the vicious circle of poverty in underdeveloped
countries.
Nurkse was in favor of attaining balanced growth in both the industrial and agricultural sectors of the
economy. He recognized that the expansion and inter-sectoral balance between agriculture and
manufacturing is necessary so that each of these sectors provides a market for the products of the other
and in turn, supplies the necessary raw materials for the development and growth of the other.
Nurkse's theory discusses how the poor size of the market in underdeveloped countries
perpetuates its underdeveloped state. Nurkse has also clarified the various determinants of the
market size and puts primary focus on productivity. According to him, if the productivity levels
rise in a less developed country, its market size will expand and thus it can eventually become a
developed economy. Apart from this, Nurkse has been nicknamed an export pessimist, as he
feels that the finances to make investments in underdeveloped countries must arise from their
own domestic territory. No importance should be given to promoting exports.

Theory of Unbalanced Growth
 Scholars such as Hirschman, Rostov, Fleming and Singer propounded the theory
of unbalanced growth as a strategy of development to be used by the
underdeveloped countries.
 This theory stresses on the need of investment in strategic sectors of the
economy instead of all the sectors simultaneously.
 According to this theory the other sectors would automatically develop
themselves through what is known as “linkages effect”.
Prof.Hirschman, that creating imbalances in the system is the best strategy for growth.
Owing to the lack of availability of resources in the less developed countries, the little
that is available must be used efficiently. Accordingly strategic sectors in the economy
should get priority or precedence over others where income is concerned.
External Economies:
Unbalanced growth according to Prof. Hirschman generates externalities. Further
explaining, we could say that the growth of industry A leads to or stimulates the growth
of industry B and C and so on, similarly the growth of industry B and C wi ll lead to the
subsequent growth of industries E and F. Thus, the growth of a strategic industries
apart from providing the benefits belonging to itself also stimulates the growth of other
set of industries. The existing externalities are explored, and fresh ones generated.
Complementaries:
Growth of output of industry way generates the demand for the products of B and C and
also may reduce the marginal cost of production in these industries. There are technical
Complimentaries which stimulate the growth of related industries, following the strategy
of unbalanced growth. Thus states Prof. Hirschman, “Economic growth follows the
course of imbalances in the system. Competitions, tensions as well as inducements are
the inevitable outcome of the unbalanced growth, and more these are, greater the
prospects of growth.”
Classification of Investment by Hirschman:
Social Overhead Capital or SOC:
Social overhead capital comprises of those basic devices without which primary,
secondary and tertiary activities cannot function. This includes in it the expenditure on
roads, irrigation works, power, transport and communications. The investment on these
projects creates more economies and this is called divergent series of investment. Such
Investments are undertaken by Public agencies.

Direct Productive Activities or DPA:
These are those activities which are a consequence of some investment; add to the flow
of final goods and services. It is called convergent series of investment because these
project appropriate more economies than they have created. These series of
investments are undertaken by private entrepreneurs. Thus investment in agriculture or
industry would be deemed as that belonging to Direct Productive Activities. Therefore
both SOC and DPA cannot be taken up simultaneously in less developed countries,
owing to the general lack of resources. Initially, we should concentrate on either of the
two; the other one would be automatically stimulated.
Hirschman thus suggests the growth of the economy in two ways:
Unbalancing the economy through SOC:
Growth of SOC, according to Hirschman would stimulate investment in DPA. For
example, availability of cheap electricity is expected to encourage the growth of small
scale industries. Similarly, the development of irrigation works is expected to stimulate
the growth of agricultural works.
Unbalancing the economy with Direct Productive Activities or DPA:
Investment in DPA would press for investment in SOC. Demand for irrigation, roads,
transport and communication would increase, pressing for greater investment in these
activities. It is through this process of linkages that the economy will grow.
Merit of The Theory of Unbalanced Growth
Realistic Theory: The theory of unbalanced growth is a realistic theory. The theory
suggests appropriate utilization of the scarce resources in less developed countries.
The theory considers all aspects of growth planning.
More Importance to Basic Industries: The theory underlines the significance of basic
industries in the process of growth. This will automatically press for the growth of
consumer-goods industries.
Economies of Large Scale Production: The strategy of unbalanced growth generates
economies of large scale production. Establishing key industries calls for the
establishment of ancillaries, generating all round increase in income and employment.
Encouragement to New Inventions: Unbalanced growth generates pulls and
pressures in the system, calling for new inventions and innovations.
Self-reliance: Self-reliance is the under-current of the theory of unbalanced growth. It
starts with the realistic assumption of chronic scarcity of resources in less developed
countries and contemplates to initiate and accelerate the process of growth in
accordance with the needs and means of the country concerned.

Economic surplus: The strategy of unbalanced growth is expected to generate greater
surplus in the system. This is because of its emphasis upon the capital-goods
industries. This strategy is also expected to produce a very strong multiplier effect in the
system, stimulating income and employment.
Criticism of the Unbalanced Theory of Growth
Inflation-The theory gives undue emphasis to development through industrialization,
notwithstanding the significance of agriculture. Because of long gestation lags in
industries, flow of goods is expected to be constricted during the short period, causing
inflation.
Wastage of Resources-Being concentrated on a couple of industries, resources may
not be appropriately utilized. Some sectors of the economy will grow at a faster rates
while other sectors will remain neglected.
No mention of obstacles-Paul Streeten observes that the theory only mentions the
establishing key industries presses for the establishment of other industries. But the
theory is oblivious to the possible difficulties in establishing key industries to begin with.
It is not an easy task to establish key industries right at the beginning of a development
programme.
Increase in uncertainty-The theory inherently assumes that the success of the growth
process depends on external trade and foreign aids. This increases uncertainty of the
growth process.
Unbalance is not necessary-The critics are of the opinion that deliberately introducing
unbalances in the system is not so much needed in the less develop countries. These
imbalances are caused on their own due technical indivisibility and uncertain behavior
of demand and supply forces.
Neglect of the degree of unbalance-How much to imbalance and where to imbalance
are not known by the theory of unbalanced growth. It only tells of the need to imbalance.
Linkages effects are not based on empirical data-Prof. Hirschman has advocated to
start only those industries that have maximum linkages effect. But these effects are not
based on statistical data pertaining the less developed countries.
Lack of basic facilities-‘Unbalanced Growth Theory’ assumes the availability of certain
basic facilities in terms of necessary raw materials, technical know how and developed
means of transport. However in less developed countries mostly these are insufficient.

Causes of Regional Imbalances
There are certain deterrent factors which come in the way of rapid development of a region; most
important of them are:
 Geographical Isolation,
 Inadequacy of economic overheads like transport, labor, technology, etc.
Geographical Factors:
In deve loping count r ie s , the deve loped regions a re gene ra lly confined to
urban c ente r s and urban a re a s . This is ma inly be c ause phys ic a l geography
cont rols economics growth in a greater degree in developing countries than in
developed countries. For example, Japan and Switzerland have overcome the
handicaps of mountain terrain but our Himalayan states and the hills district of U.P., Bihar
and NEFA, have remained backwards and underdeveloped mainly due to inaccessibility.
Location preferences:
Some regions are preferred because of certain location advantages. The location of iron and
steel factories or oil refineries will have to be only in those technic ally defined
areas; which are optimal from all the viewpoints. They also attract labor, capital,
trade and the external economies offered by the developing regions. New investment in the
private sector has a tendency to concentrate in an already well developed area, thus
reaping the benefit of external economics. Since well-deve loped a re a offe r s
pr iva te inve s tor s c e r ta in ba s ic advantage s , i. e . labor , infrastructural facilities,
transport and the market.
Unequal distribution of Population Growth:
As far as the size of population is concerned, India ranks second in the world next only to China. India’s
landscape is just 2.4 per cent of the total world area, whereas its population is nearly 17.5 per cent of
the world population that too not distributed equally among the country. The population density of
India is having variations from state to state, where Uttar Pradesh is having 828 people per square
kilometer, Bihar having 1102 /km square. Jammu & Kashmir has 56/km square and Arunachal Pradesh
has 17/km square.
Many Financial Institutions and Organizations hesitate for operating in these type of areas because they
don’t find enough Consumers, quality workforce, and proper infrastructure.
Migration of rural population to urban areas:
Urbanization is the increasing number of people that migrate from rural to urban areas. It
predominantly results in the physical growth of urban areas, be it horizontal or vertical. This
unprecedented movement of people is forecast to continue and intensify in the next few decades,
mushrooming cities to sizes incomprehensible only a century ago. Indeed, today, in Asia the urban

agglomerations of Dhaka, Karachi, Jakarta, Mumbai, Delhi, Manila, Seoul and Beijing are each already
home to over 20 million people, while the Pearl River Delta, Shanghai-Suzhou and Tokyo are forecast to
approach or exceed 40 million people each within the coming decade. Outside Asia, Mexico City, Sao
Paulo, New York City, Lagos and Cairo are fast approaching being, or are already, home to over 20
million people.
Seasonal Unemployment:
Seasonal is specific to certain seasonal industries like tourism and farming. To reduce this, people must
be encouraged to take other jobs in off season. The worst type of unemployment is the structural one. It
comes into picture when there is a change in the structure of an economy. It is long term
unemployment and can be caused by various reasons. Machines replacing human, change in the
behavior of consumer, etc are the causes. Structural unemployment can be reduced to great extent by
providing retraining, on job training and by making people occupationally flexible.
People in rural areas do not have permanent jobs in some sectors like Agriculture, Horticulture, etc.
These people remain unemployed until the season for a particular crop they grow comes. Government
has taken some steps to fill the time lag for the seasonal unemployed people by launching schemes like
National Rural Employment Guarantee Act (NAREGA), Prime Minister Rozgar Yojana(PMRY), Mahatma
Gandhi National Rural Employment Guarantee Act (MGNREGA), Food for Work Programme (FWP),
Jawahar Rojgar Yozana (JRY), and many more but this doesn’t seem to fill the gap.
Measures to remove Regional Imbalance
They are:
1. The recognition of backwardness as a factor to be taken into account in the transfer of
financial resources from the Centre to the states.
2. Special area development programs directing at development of backward areas
3. Measures to promote private investment in backward areas.
Backwardness and Resource Transfer:
The Finance Commission in India has used backwardness of a state as one of the
criteria for the transfer of funds from the central pool to the states. The resource
t rans fe r re la te to c ent ra l a s s is tanc e for s ta te plans , t rans fe r e ffe c ted unde r
the recommendations of finance commission, ad hoc transfer from the Centre to the
states, the distribution of assistance for centrally sponsored schemes, the distribution of
assistance of long- term and short- term credit from financial institutions etc. the
share of backward states in plan outlay and in central assistance steadily rose from4 8% in
t he F i r s t P la n t o 5 7% in t he Thi r d P la n . S inc e , t he n, t he s ha r e o f
t he backward states in central plan assistance has been gradually declining to 50%
in the Fifth Plan, 46% in the Sixth Plan and 37% in the Eighth Plan The re a re c e r ta in
difficult ie s in solving the problem of regiona l dispa r it ie s and backwardness
through transfer of resources from the Centre to the Sates. There is no guarantee that the

resources transferred from the Centre to the States would be automatically used for the
development of the backward areas or district. In fact there is a tendency to divert funds
intended for backward and difficult areas to more forward areas and easier programs.
Special area development programs:
Specific Plan schemes have been formulated with Central assistance to develop -
p r o ne a r e a s . Mo r e o ve r , s c heme s o f r ur a l d e ve lo pme nt d i r e c t e d
t o wa r d s t he improvement of specific groups like small framers and agricultural laborers
were also located in backward areas. In course of time, these special schemes for
particular target groups become an apart of the program of block level planning for integrated
rural development and full employment. The Eleventh finance Commission did not make
backwardness as such a criterion for resource transfer, but in the formula for
resource transfer, among the different criteria, the relative distance of the per capita income
of the state with the income of the state with highest per capita income and index of
infrastructure development were indirectly include backwardness. On the basis of new
formula, backward states and special category states, taken together would receive
61.2% of total resource transfer.
Initiative to promote investment in backward areas:
Various incentives have been provided in order to tackle the problem of industrial
b a c k wa r d ne s s a nd t o p r omo t e p r iva t e in ve s tme nt in b a c k wa r d
a r e a s . The s e incentives have been provided by the Centre, by the States and by
public sector financial institutions.
Providing proper basic facilities in all areas:
This implies that all the areas of the country no matter where it is situated or how much
population it inhabits, there should be proper facilities of roads, water, food, sewage, shelter,
health, security, etc. To avoid migration from rural areas to urban areas there should be basic
facilities in the rural areas because the people migrate from rural areas to urban areas in search
of a proper living, that living can be provided in their areas also and stop urbanization.
Providing employment opportunities in backward areas:
Another reason for migration/urbanization is lack of employment opportunities on these areas.
These areas should provide employment opportunities to its residents. This will create more
employed workers and will develop the area as the more people are employed the more is the
growth. Growth depends on the earning of that area and standard of living of people residing in
it. Standard of living will automatically increase if the person is having a job.
Providing finance facilities to the residents of these areas:
The main requirement to start a business is capital; if there is no capital the business cannot be
commenced. The residents of these areas do not have sufficient funds to start the business on

their own, so proper financing should be provided to the people in these areas. This will
promote the industrial and the tertiary sector in the rural areas. The backward areas are mainly
dependent on agriculture and allied activities.
Promotion of industrial and tertiary sectors in these areas:
The main reason of the backwardness of the area is that only primary sector i.e. agriculture and
allied activities are practiced here; the output does not contribute much in calculation of
national income. The people should also engage in the secondary sector as well as tertiary
sector to promote balanced growth in the area because each sector is dependent on each
other.
By changing the mind set from discriminative to appreciative:
Some people in backward areas are still practicing discriminative activities based on people’s
religion, caste, sex, etc. Their style of thinking should be altered and this system of
discrimination on any basis should be abolished.
Providing proper education facilities:
The quality of manpower in backward regions is very bad; it is due to low qualification of the
public living in these areas. Proper education facilities should be provided in these areas and
certain incentives should be given to encourage them to send their kids to school.
Government Incentives to remove regional imbalances
Central Government Incentives:
The Government of India has been providing important incentives to promote private investment
in backward areas. These incentives are:
Income Tax Concession:
New indus t r ia l units loc a ted in ba ckwa rd a re a s se t up a fte r J a nua r y 1 9 7 1
is a l lo we d a d e d uc t io n o f 2 0% o f p r o f i t s fo r computation of assessable
income. This concession introduced in April 1974 was to be available for period of 10 years.
Central Investment Subsidy Scheme:
The scheme of Cent ra l subs idy, a s or igina lly announc ed in 1970, provided for
an outright subsidy at the rate of 10% subject to a maximum of Rs . 5 lakh on fixed

c apita l inve s tment , i. e . , land, buildings, plant and machinery. The rate of
subsidy was subsequently raised to 15% and still later to 20%.
Transport Subsidy Scheme:
Under this scheme, introduced in July 1971, industrial units setup in hilly, remote and
inaccessible areas were entitled to 50%transport subsidy on the expenditure
incurred for movement of raw materials and finished goods to and from certain
selected rail heads to the location of the industr ia l units.
The scheme inapplic able to remote and ina c c e s s ible a re a s in Jammu and
Kashmir and North-Eastern hill states.
State Government Incentives:
State government has also offered incentives to attract private sector units to the backward
region. These incentives include:
 Provision for developed plots with water and power with no-profit and no-loss basis
 Exemption from payment of water charges for some year
 Interest fee loans on sales tax dues
 Exemption from payment of property taxes for some years
 Monetary Assistance from State Financial Corporation, State Industrial
Development Corporation (SIDCO) etc.
Concessional Finance by major financial institutions:
The three major public sector financial institutions, i.e., Industrial Finance
Corporation of India (IFCI), Industrial Development Bank of India (IDBI) and the
Indus t r ia l Credit and Inve s tment Corpora t ion of India ( ICICI ) provide
concessional finance for industrial projects located in backward areas. These concessions relate
to:
 A lower rate of interest on rupee loans (9.5% as against 11.5%),
 A longe r pe r iod of repayment (gene ra lly 15 to 20 ye a r s , a s against 10
to 12 years),
 Participation in the risk capital or debenture issues,
 Charging only half the normal rate of underwriting commission, waving of
commitment charges, etc.

Balanced regional development

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