Since liberalization in 1991, growth rate of India has been remarkable. India moved from Hindu rate of growth to 21st century. Higher growth rate increased prosperity across India, with this healthy growth all major indicators of prosperity shows significant upward move in trend. We found a structural break at liberalization for all these indicators. One such structural breakdown is found for divergence also. But it’s is not for good, it shows increasing inequality among Indian states. Since 1990, the world had moved towards convergence, whereas India moved to divergence. Even China, also a developing economy which was at a similar level in 1990 as India, had moved to convergence. Economic Survey 2017, shows this concern of divergence among Indian states.
What is Convergence/Divergence?
Convergence is a metric to compare relative growth rates of economies over time. Convergence means that a state which starts off at low-performance levels on an outcome of importance (Income or Consumption), should see faster growth on that outcome over time. It improves its performance faster so that it catches up with states which had better starting points. In the figure, the growth of per capita GDP is on the y-axis and the log value of the initial level of per capita GDP (in PPP terms) on the x-axis. For convergence or catch-up to occur, the relationship should be negative (the line of best fit should be downward sloping because convergence theory says that the less developed you are to start off with the faster you should grow subsequently). The blue, red, and green lines plot the relationship for India, China, and the world respectively.