Daily Current Affairs UPSC : 29 Dec 2025 /Vicious cycle” of regional and capital-based inequality.

Why in news ? The article ‘s core argument is that in the current Indian economy, this bridge is broken. Instead of a “virtuous cycle” of jobs, we are seeing a “vicious cycle” of regional and capital-based inequality.

The Core-Periphery Pattern (Regional Lopsidedness):

India’s export engine is becoming dangerously concentrated in a small “core.”

• The 70% Concentration: Just five states—Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh—now command nearly 70% of the national export basket.
• Decoupling of the Hinterland: While coastal belts in the South and West are integrating with global supply chains, the Northern and Eastern heartlands (the “periphery”) are effectively decoupling from the trade engine.
• Market Concentration: The article uses the Herfindahl-Hirschman Index (HHI) to show that this concentration is rising, meaning regions aren’t catching up; they are falling further behind.

Shifting from Volume to Value:

The traditional “low-skill, labor-intensive” path used by East Asian Tigers is no longer available to India’s hinterland.

• Economic Complexity: Global capital now seeks “high economic complexity” rather than just low-cost labor.
• Advanced Clustering: High-value goods like machinery and electronics cluster in “dense core areas” with advanced logistics, making it nearly impossible for lagging regions to enter these value chains.

Capital Deepening vs. Labor Absorption:

This is the “smoking gun” of the report, using data from the Annual Survey of Industries (ASI) 2022-23.

• The Investment Gap: Fixed capital investment grew by 10.6%, but employment growth lagged at only 7.4%.
• Expensive Factory Floors: Fixed capital per person has risen to Rs 23.6 lakh. We are now “exporting value” rather than “exporting jobs.”
• Jobless Growth: Manufacturing’s share of total employment remains stuck at 11.6%–12%, despite record-high export values. The elasticity of employment (jobs created per unit of growth) has collapsed.

 The Financial “MRI”: Credit-Deposit (CD) Ratios:

The article highlights a perverse form of capital flight within India.

• Export Powerhouses: In states like Tamil Nadu, the CD ratio is often over 90%, meaning local savings are recycled into local industry.
• The Hinterland Drain: In states like Bihar or Eastern UP, the ratio is below 50%. Essentially, the savings of the poor in the hinterland are being lent out to finance industrial projects in the wealthy coastal hubs.

The Virtuous Cycle (The Goal):

A virtuous cycle is a “Success Spiral.” One positive event leads to another, which reinforces the first, making the system stronger over time.

• The Traditional Model: 1. Investment: A company builds a factory (e.g., in Vietnam). 2. Jobs: Thousands of low-skilled workers are hired from farms. 3. Income: Those workers now have money to spend. 4. Demand: Their spending creates more business for local shops. 5. Growth: The whole region gets richer, leading to more investment.

Key Sentiment: “The rich get richer, and the poor get jobs.”

The Vicious Cycle (The Trap):

A vicious cycle is a “Doom Loop.” A negative situation feeds on itself, making it harder and harder to escape.

• The Modern “Hinterland” Trap (from your article):

  1. Low Skills: Workers in Bihar or Eastern UP lack technical training.

  2. No Investment: Because skills are low, high-tech companies avoid these areas.

  3. Capital Flight: Banks take local savings from poor states and lend them to wealthy coastal states (Tamil Nadu/Gujarat).

  4. Stagnation: The poor states stay poor, schools remain underfunded, and the workforce stays “unskilled.”

  5. Poverty Trap: The gap between the coast and the heartland grows wider every year.