Investigating Inclusive Growth: A Comparative Analysis of Tamil Nadu and Gujarat

This study presents a comparative analysis of the nature of inclusiveness of economic growth of two of India’s fastest-growing states, Gujarat and Tamil Nadu. Using the Household Consumer Expenditure Survey (HCES) unit-level data for the years 1993–1994, 2004–2005 and 2011–2012, collected by the National Sample Survey Organization, this study examines the inclusiveness by deploying a poverty decomposition technique, followed by spatial/sectoral and household type–based decomposition of inequality in both regions. We find that Tamil Nadu has outperformed Gujarat with respect to poverty reduction for the two periods of analysis—1993–1994 to 2004–2005 and 2004–2005 to 2011–2012—in both urban and rural sectors. The poverty decomposition exercise demonstrates that although economic growth contributed significantly to reducing the level of poverty, the magnitude of poverty decline has been slowed down due to accelerating inequality. The growing divergence among households of various types has been significant in explaining rising inequality. Hence, poverty-alleviating policies should consider the distributional dynamics and should be more holistic in nature.