A lot is written about inter-state disparities of income. To an economist, the twin lines of attack through which these disparities will decline are:
- Connecting low price labour to markets.
- This gets done by improvements in infrastructure. As an example, the new NHAI roads are linking up locations where labour is extremely cheap into global markets. New opportunities are now available for entrepreneurs to buy labour at a low price and sell goods at a global price.
- Shifting low price labour to high wage locations through migration.
- If the jobs won't come to the people, the people must move to the jobs. This happens through migration, which has been taking place in India on a fairly big scale (though there is some dispute on just how big it is). It is taking place in two parts - through workers that fully relocate, or through migrant workers. But in either event, these movements of people are driven by wage differentials and serve to reduce wage differentials.
These `equalising differences' are fundamental to the logic of the market economy. Both lines of attack are prominent in the Chinese growth story. India has made significant progress on the institutional transformation required for the first - this is the task of building roads, ports, airports, telecom, etc. India has not particularly begun on the second - that of becoming a migrant-friendly country. Too often, migrants lead a tenuous existence without the full rights of locals. Today, Laveesh Bhandari has an excellent article in Indian Express on the lack of institutional infrastructure to support migration.
The economic logic in favour of migration is powerful, and I expect that migration flows will grow considerably. This is partly a mere reflection of differences in the price of labour. In addition, migration is enabled by dropping costs of telecom and transportation.
There is a link between migration and the functioning of the land market. If the land market functioned better, then more land-owning agriculturists would have the choice of selling land and migrating to cities. The rigidities of the land market serve to keep poor people in place.
Update: In today's New York Times I saw an article on the problems faced by migrants in China. The situation seems to be quite a bit worse than that seen in India. Chinese migrant workers weren't able to get their children into public schools until 2003, and through some weird twists and turns, the government seems to be sometimes shutting down private schools that spring up to serve the children of migrants.