Are Indian States Converging in the Post-Reform Period?: An Empirical Inquiry

This paper studies the convergence phenomenon for 23 states of India for the period 1981 to 2001. The decades of the 1980s and the 1990s has been studied separately to comment on the convergence behaviour in the pre reform and post reform period. In addition to that of per capita SDP, convergence of per capita output emanating from the agriculture, industry and the services sector has been analysed to get a deeper insight. Both sigma (σ) convergence and beta (β) convergence have been examined. The study finds absence of sigma (σ) convergence and unconditional beta (β) convergence of per capita NSDP both in the 1980s and 1990s. However, conditional beta (β) convergence estimates reveal that the poorer states are catching up with their richer counterparts in the 1990s. The panel GMM estimates reveal that Indian states converged to their steady state output at a higher rate in the 1990s compared to the 1980s. At the sectoral level, Industry had a higher speed of convergence than agriculture in both decades. Further, divergence rather than convergence is observed for the services sector in both decades.