Transfer Dependence of Northeast States: Are the Growth Effects of Grants Uniform Across States?

Abstract

After decades of intergovernmental transfers in India, studies to analyse the impacts of central government transfers on regional growth are inadequate. Even the limited studies that have been done have excluded the northeastern region (NER) from their analysis, except for the state of Assam. This article examines the impact of central government grants on economic growth in northeast India. In addition, we analyse if the growth impact of grants, if any, is uniform across states. Our analysis, based on official secondary data from eight northeastern states for the period 1991 to 2010, shows that per capita real central grant is positively associated with economic growth, but conditional on other variables being held constant. However, the effects of such grants are not uniform across the states. The growth effect of grants is estimated to be highest in Assam and lowest in Mizoram.