Effect of Regional Imbalances on Stabilization Policy

1. Effect of Infrastructural Facilities on Stabilization Policy
2. Effect of Distributional Inequality on Stabilization Policy
3. Effect of Regional Imbalances on Stabilization Policy

Regional imbalance is a policy framed by the government which focuses on fixing development within the country. The purpose of the government to remove regional imbalance is to unite representatives of poor and rich regions and to use only those human resources who are living in backward area which is declining from the economic context. If there is a coexistence between developed regions and economically underdeveloped regions, then it is termed as regional imbalance.

Regional imbalance arises due to various reasons like unequal distribution of resources like wealth, income, human resources, etc. These have been the major causes of the last year’s regional imbalance. There is a wide variety of factors which cause a regional imbalance in the economy. These factors are:

(a) Historical Factors: This factor started in India during the British regime when Britishers focused their attention on prosperous manufacturing and trading activities for their own self-interests. The Britishers used to focus their attention only on two states, West Bengal and Maharashtra and particularly three cities, Kolkata, Mumbai and Chennai. Thus, they neglected the rest of the regions in the country, which created a regional imbalance in the economy.

(b) Geographical Factors: Geographical factors also play a prominent role in the development of a particular region. The difficulty arises due to dense forests, hills and rivers, which increases the cost of any development project in these areas. Due to the inaccessibility of resources, most of the regions in Uttar Pradesh, Himachal Pradesh, and Jammu and Kashmir are still backward.

(c) Lack of Economic Overheads: Economic overheads comprise transport and communication, technology, banking and insurance, etc., are considered essential for the development of any particular region. Some regions are developed due to the adequacy of economic overheads, like metros, but some regions remain backwards due to inadequacy of economic overhead, like the northeast region and some parts of UP and Bihar.

(d) Failure of the Planning Mechanism: Some states got preferential treatment during the formulation of five-year plans, and some were neglected during the plan period, which created a regional imbalance in the economy.

(e) Lack of Growth of Small-Scale Industries in Backward States: Though the government focuses their attention on major industrial projects of public enterprise in areas like Jamshedpur and Rourkela, but still they are lacking behind because of the absence of small-scale and ancillary industries.

Thus, these were the major factors which created a regional imbalance in the country, but factors like unemployment, inflation, and political instability also created a regional imbalance in the economy.

Removing regional disparities in the country rests on the proper stabilization policy of the government. The government need funds for the establishment of any industry or arranging of any overhead in a particular area, and the government use it to generate and plan their funds from the tax and expenditure policy and monetary policy formulated for the country. Thus, the stabilization policy should be such that there should be an equal distribution of financial resources to each and every state so there is development in each and every region in the country.

The state and the central government also give tax concessions and interest-free loans for the development of a particular region and giving interest-free loans depends on the monetary policy where interest rate structures are being decided. Banks also give financial assistance for the development of a particular region, and banks use it to manage their financial resources through monetary and fiscal policy framed by the government.

Progressive and capital gain tax, in particular, will also help in removing regional disparity from the economy. Thus, it is truly said that regional imbalances are also taken into consideration while formulating a stabilization policy for the country.

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