The paper has tried to analyze how incentive competition is increasing regional imbalance in the manufacturing and service sector growth. The paper has found that the incentives have increased the already existing imbalance in both the sectors. The FDI is flowing into states where there was already investment. Thus states should concentrate on improving the necessary conditions to attract private investment along with offering incentives which is just a sufficient condition.
India liberalized its economy in the year 1991. Prior to this the main thrust of the Indian economic policy was to bring about a balanced regional development and India relied upon Five Year Plans to achieve this objective. But some of the political economic developments inside and outside the country pushed India on the throes of severe economic crisis which made Indian policy makers to rethink on the policy being pursued hitherto. There were sweeping reforms to overhaul the entire economic structure. There was change in the federal power structure with state governments becoming more powerful vis-à-vis central government which ultimately gave rise to the concept of incentive competition. Incentive competition has impact on regional growth by affecting private investment. The paper is organized as follows: In the next section we have looked into the policy prior to the economic reforms. In the third section we have examined policy after the reforms. In the fourth section we have seen how the concept of incentive competition got evolved and what are the economic rationales behind it. In the fifth section literature review has been done. In the sixth section analysis has been undertaken to see how incentive competition is aggravating regional imbalance of manufacturing and service sector growth. Then some of the limitations of the study have been examined. Finally, some policy implications have been drawn as to what should be done to attract private investment and to achieve balanced growth.
Policy prior to 1991 Economic Reforms 政策前到1991年的经济改革
Immediately after independence India embarked upon the plan regime. Probably India is the first non-communist country to implement a full-fledged industrial policy and the aim of this policy was to bring about a balanced regional development by directing the resources to backward and underdeveloped regions. This policy was greatly influenced by Indian top leaders association with the Fabian Socialism and Labor Party leaders of UK like Harold Laski. It has also drawn inspiration from what was then regarded as highly successful Soviet Planning model. The purpose of the policy was to co-ordinate investment decisions both in the public and the private sectors and to seize the 'commanding heights' of the economy by bringing certain strategic industries and firms under public ownership (Ajit Singh, 2008).(责任编辑：BUG)