Abstract
Chapter 1 Introduction
1.2 Statement of the Problem
It is well known that India, a big developing country, is becoming a major power with high growth rate. The affluence in our urban areas is testimony to this.
However, the gloomy side of this satisfaction is that our rural areas where more than 70 per cent of people are living are lagging far behind its counterpart urban areas. Therefore, obviously question arises about the sustainability of this overwhelming growth of the economy.
The Approach Papers to the 11th and 12th five year plan of India also states the need to make growth more inclusive in terms of benefits flowing through more employment and income to those sections of society which have been bypassed by higher rates of economic growth witnessed in recent years. Majority of the bypassed poor people are living in rural areas and rural-urban disparity is seen prominent in our country. According to Sen (2007), the necessary condition for inclusive growth is that the disparity in per worker income between agriculture/rural and non-agriculture/urban should not widen. With significant reduction in the incidence of poverty during 80’s, income disparities among households might have reduced to some extent within the rural and urban areas in India. But with differential rates of rise in incomes for the non-poor households in
the rural and urban areas, income disparity between rural and urban areas may have increased at varying rates over the states (Sawant and Mhatre, 2000).
Assam, in the north eastern region of India, is a backward state compared to other states of India. The per capita income of the state is one of the lowest in the country. In 2007-08, the per capita Net State Domestic Product (NSDP) of the state at constant prices (1999-00) was Rs.16, 597 against the per capita Net National Product (NNP) for the country of Rs. 24, 295 (Government of Assam, 2008-09).
However, the economic condition of the state was much better at the time of independence. In 1950-51, the per capita income of the state was 4.1 per cent higher than the national average. The per capita income of the state lagged behind the rest of the country by 1960’s and since then the economy of the state has remained below all India level. By 1980-81, the per capita income of the state was 27 per cent lower than the national average (Government of Assam, 2003) and the same was found to be 46.38 per cent lower than the national average in 2008-09. It indicates that the economy of the state is not going in line with the growing path of the national economy. The state has experienced considerable rural-urban variations in all aspects of developments, viz. in access to services, employment growth, economic activity, access to education, health services, basic amenities etc.
(Government of Assam, 2003). Rural poverty in the state has been much higher than urban poverty. As per data available, two out of five people in rural area are below the poverty line while the incidence is less than one in ten in urban Assam in 1999-2000 (Government of Assam, 2003). Urban poverty was 3.3 per cent in 2004-05 whereas rural poverty was much higher at 22.3 per cent (NSSO, 2006a).
The average Monthly Per Capita Expenditure (MPCE) of urban people in the state is more than double than that of rural people. In 2005-06, the figure for average MPCE for urban people was Rs.1352 against Rs. 626 for rural people (NSSO, 2008). Rural-urban disparity has worsened in the state during the last four decades as evident from the findings of a study carried out by Chand (2007) for the states of India. He has found that during 1973-2005, the rural-urban disparity has worsened most in Gujarat followed by Punjab, Assam, Haryana, Uttar Pradesh, Rajasthan and Karnataka. The findings also affirm that rural areas in the state have failed to reap the benefits of accelerated growth in the era of economic reforms.
Investment plays a major role in economic development of backward economies. High levels of investment are considered as the precondition for sustained economic growth, especially in developing countries. The relationship between public investment spending and private investment is a matter of controversy both from theoretical and empirical perspective. It also has strong implications for determining the government policy to promote economic growth (Kollamparambil and Nicolaou, 2011). According to the Neo-classical economists, government investment may “crowd out” private investment when the state decides to increase its contribution of investment within the economy. On the other hand, Keynes argued for state intervention as in a state of less than full employment, the interest rate sensitivity of investment is assumed to be low and hence output and income expand. This attracts private investors and “crowding in”
of investment takes place. Empirical studies by Easterly and Rebelo (1993), and Argimon et al. (1997) have also argued that public investment may “crowd in”
private investment specifically when public investment is made in infrastructure of the economy.
In the case of the economy of Assam, the inter-sectoral interdependence of production is considered to be weak (Government of Assam, 1990). In economic sense, the forward and backward linkages of the primary sector (mainly rural) and non-primary sector (mainly urban) is not strong in the state. There are some modern industries operating in the state with few backward or forward linkages.
The surplus generated by these industries has not been reinvested in the state (Government of Assam, 2003). Therefore, whatever development has occurred in the selected urban industrial areas, the effect has not spilt over to the surrounding rural agricultural area (as observed by Ramadhyani, 1984 in case of India and Government of Assam, 2003 for Assam). Even though oil and tea industries, which were established before independence, have flourished in the state, neither agricultural nor industrial sector has developed compared to other states of the country. The Vision Document for the North Eastern Region, prepared by the Ministry of Development of North Eastern Region and North Eastern Council, rightly observes that “There is overwhelming dependence for resources on the Central Government, public investment in the region has sub-optimal productivity due to weak forward and backward linkages” (Government of India, 2008).
Therefore, it is imperative to look into the future line of investment (mainly public investment) which can bring development with better sectoral linkages in the state. However, it is ironical to see that the major sector of the economy in the state, i.e. agriculture, has not witnessed adequate investment so far (Chand, 2000).
On the basis of foregoing discussion it is felt that a comprehensive study is required on the strategy of rural-urban linkage to narrow down the rural-urban divide in the state. Accordingly the present study has been taken up to assess the nature and magnitude of rural-urban divide, reasons behind this divide and the means to increase the strength of the rural sector to establish fruitful linkage between rural and urban sectors. This study is also an attempt to explore the ways for better rural-urban linkages for balanced development and inclusive growth in the state.