Viewing Development in India as the Outcome of Improved Governance and Infrastructure: An Empirical Exploration

Abstract

Based on state-level panel data for India for the period 1990 to 2019 we empirically establish that the wide interstate inequalities in the basic indicators of development can be explained in terms of the disparities in physical infrastructure and the quality of governance after controlling for state-level structural economic factors. Our robust dynamic panel regression estimates validate this claim. Results clearly show that the level of urbanization coupled with infrastructure and governance lead to better development outcomes in terms of all three fundamental dimensions – per capita income, life expectancy and literacy rates. As levels of governance and infrastructure in India are very unequal across states and regions, we conclude that improved governance and effective spending on social overhead capital in poorer and largely underdeveloped regions are essential for improvements in the basic indicators of development across the country. Finally, the results of the stochastic frontier with inefficiency effects reveal that efficiency of public spending is higher for states with improved governance.