Uttar Pradesh - lagging state of India: economic development and role of banks

by Arora, Rashmi Umesh

The present study challenges the negative and static stance of the recent literature on Uttar Pradesh, the most populous state of India, and espouses a balanced and moderate approach. The existing literature focuses only on human development and ignores the underlying social, political and economic changes taking place in the state. It ignores the decline in credit to the state. The present study synthesises and amalgamates various streams of literature on the state to fill the gap. It uses bank credit and its role in UP’s economic development as a tool to explore the changes and structural and regional shifts in the state. It examines bank credit to various regions, districts, occupations, rural and urban populations, large and small borrowers and gender in UP. This study explores credit in a multi-dimensional framework as a route to growth, development, inequality, globalisation, urbanisation, and empowerment. The study further explores the relationship between bank credit and the state’s human development.

As a critique of the existing literature, the study examines whether UP is really lagging behind other states of India. Through a twin indicator approach, broadly grouped into income and non-income, the study shows that the state does lag on income front. The non-income indicators analysis, however, shows that a number of other states including high-income states are lagging. The study eschews the watertight categorisation of east and west UP as pursued in the existing literature, and adopts a broader regional classification. This showed that, although gradual, change has occurred in UP.

The overall findings of the study suggest that structural and non-structural constraints characterise the development of the state. The multiple roles of credit have generated growth, helped in poverty reduction, but also influenced regional inequality and rural-urban inequalities, and widened the gap between small and large borrowers in the state. The empowerment of women through credit from commercial banks remains a distant goal as women receive less than 20 per cent of the total credit. Another significant finding of the study is that the income and non-income factors are strongly correlated, for instance, the strong negative relationship between income and the Human Poverty Index. The study, therefore, underlines the need for increased economic growth to achieve better economic and human development outcomes.