Papola (2011), reforms removed central government regulations on investment and industrial location and gave more freedom and opportunity to states to base their industrial development on specialization. Trend towards easing of regulations and promotion of investment-friendly climate in states is one of the factors which explain differential growth rate of manufacturing sector across the states. States like Gujarat and Maharashtra, Karnataka and Andhra Pradesh have offered 'best' and Uttar Pradesh and West Bengal 'poor' investment climates.
Besley and Burgess (2004) have examined how the industrial relations climate in Indian states has affected the pattern of manufacturing growth. The states which amended the Industrial Disputes Act in a pro-worker direction experienced lowered output, employment, investment and productivity in registered or formal manufacturing. In contrast, output in unregistered or informal manufacturing increased. Some states like Andhra Pradesh, Gujarat, Karnataka, Tamil Nadu and Maharashtra show striking growth, while states like Assam, Jammu and Kashmir and West Bengal stagnate.
Analytical Part 分析部分
The states are competing against each other through incentives to attract private investment. Private investment is of two types i.e., private domestic investment and Foreign Direct Investment. Given the time horizon i have looked only into FDI to examine how incentive competition is aggravating regional imbalance of manufacturing and service sector growth.
Data and Methodology:
The data for the study is taken from Annual Survey of Industries (ASI), Handbook of Statistics on the Indian Economy, RBI, Department of Industrial Policy and Promotion and EPW Research Foundation (EPWRF).
A policy indicator has been calculated by assigning "1" to states for each policy they are perceiving. Otherwise the value would be "0". The indicator is simple average of number of policies for each state. States with high indicator value are offering more policies and states with low indicator value are coming out with fewer policies. Median FDI flow has been calculated on the basis of which states are divided into High FDI Attracting States (HFAS), Medium FDI Attracting States (MFAS) and Low FDI Attracting States (LFAS). Gujarat, Karnataka, Tamil Nadu and Andhra Pradesh come in the category of HFAS, Goa, Chandigarh, West Bengal, Kerala are in the MFAS category and Bihar, Rajasthan, Uttar Pradesh, Madhya Pradesh, Orissa come under LFAS.
Coefficient of variation has been used to examine the regional imbalance of manufacturing and service sector growth. It is one of the most commonly used measures of variation. It is defined as the standard deviation divided by mean. Symbolically, CVx x /µx , where x is the standard deviation, µx is the mean of the variable X (say, employment or output). A higher value of the CV implies higher regional imbalance of manufacturing and service sector.(责任编辑：BUG)