Convergence of Indian States in the First Decade of the 21st Century

The paper examines inequality across the Indian states from 2000-2001 to 2009-2010. To address the factors causing the interstate differences we have focused on the coefficient of variation of private and public investment across the Indian states over the time period 2001-2010. In both of the cases we have observed an increasing trend. In this context we have identified the determinants of private as well as public investment. Here we observe conditional divergence across the Indian states but fixed effect panel data model exhibit conditional convergence. The factors such as grants received by the states as recommended by the Finance Commission, and political stability of the states in terms of irregular government change from one ruling political party to another and infrastructure are the statistically significant determinants of private investment. However, in the case of public investment, infrastructure of a state is not a statistically significant determinant. Therefore, to address the issue of inequality across states, the policy should focus on these determinants of private and public investment across them.