Regional disparities, targeting, and poverty in India

How much can India reduce poverty nationwide by manipulating the distribution of income between regions or sectors? What is the overall effect on the poor of targeting resources toward the poorer states of India - or toward the generally poorer rural sector. Given real constraints on policy changes, it can be argued that the costs and the benefits of regional policies will tend to be borne widely within regions. Some benefits are likely to leak to the nonpoor in recipient regions, and some costs to the poor in donor regions. This paper's simulations suggest that the quantitative potential for alleviating national poverty through purely regional redistributive policies is small. Even assuming no political problems, the maximum impact on poverty is no more than could be achieved simply by giving everyone a uniform (untargeted) windfall gain equal to about 1.5 percent of India's mean consumption. And other considerations - including increased migration to areas of higher benefits - make it unlikely that the maximum impact will be attained in practice. Greater alleviation of poverty requires supplementary interventions that reach the poor within regions, by reducing the costs borne by the poor in donor regions and enhancing benefits to the poor in recipient regions.