India’s economy is growing. Its GDP is rising, cities are expanding, and digital infrastructure is reaching corners of the country once considered remote. And yet, something doesn’t add up. Why, despite decades of impressive growth, do deep regional inequalities persist? Why are some districts booming while their neighbours lag behind? And is it time to admit that growth alone cannot fix inequality?

Drawing on a unique dataset of District Domestic Product (DDP) and Human Development Index (HDI) values, we tested a classic development theory, the Kuznets curve, at a more granular level than ever before in India. First proposed by Nobel Laureate economist Simon Kuznets in the 1950s, the theory posits that inequality rises in the early stages of economic development and falls once an economy matures (see Figure 1). It’s an appealing idea: just wait, and growth will eventually become more equitable. But what we found is both more complex, less automatic, and more urgent.

Spatial inequality

We measure spatial inequality using the share of a State’s output that comes from its top-performing district. The idea is simple: if one district accounts for a disproportionate share of the State’s Gross State Domestic Product (GSDP), development is likely concentrated, and inequality between districts is high. In States like Karnataka and Uttarakhand, the picture is stark. Bengaluru contributes nearly 38 per cent of Karnataka’s total GSDP; in Uttarakhand, Dehradun accounts for over 31 per cent. These figures underscore the emergence of what might be called “superstar districts” — urban centres that attract disproportionate investment, infrastructure, and skilled labour, leaving the rest of the State behind.

Our empirical analysis does support the Kuznets hypothesis at a broad level (see Figure 2). In early stages of development, spatial inequality is relatively low, mainly because opportunities are limited across the board. As development takes hold, often driven by industrialisation and urbanisation, economic activity becomes concentrated in a few hubs, causing spatial inequality to spike.

But as development continues and the benefits of growth start to spread, via education, health services, and better infrastructure, inequality begins to decline. Kerala, with one of the highest HDI scores in our sample, exemplifies this trajectory. Its long-standing investments in human capital and decentralised governance have resulted in relatively balanced regional development and lower spatial inequality.

However, the curve is not deterministic. States with similar HDI levels can have vastly different inequality profiles. For instance, Tamil Nadu and Karnataka both fall within the same HDI band (around 0.69), but the top district in Tamil Nadu contributes just 12.3 per cent of its GSDP, compared to 37.8 per cent in Karnataka.

Clearly, State-level policies, historical investment patterns, and institutional capacities shape how development unfolds. Tamil Nadu, for instance, has pursued a deliberate strategy of industrial decentralisation by establishing industrial estates across multiple districts, such as Hosur, Tiruppur, and Sriperumbudur, thereby ensuring that economic activity is not confined to its capital. This has been complemented by a strong emphasis on welfare schemes, including universal school meals and public health initiatives, which have helped broaden the benefits of growth.

In contrast, Karnataka’s development has been disproportionately concentrated in Bengaluru, driven by its booming tech and services sector, with comparatively limited spillovers to other districts. These divergent approaches help explain why Tamil Nadu, despite having a similar HDI level, exhibits significantly lower spatial inequality than Karnataka.

Madhya Pradesh presents a different pattern of development. Unlike States such as Karnataka, where Special Economic Zones (SEZs) focused on information technology (IT) and information technology-enabled services (ITeS) have significantly boosted economic growth, Madhya Pradesh’s SEZs are largely concentrated in processing and manufacturing industries. These sectors, while valuable, are typically more dependent on local resources and infrastructure and often do not generate the same scale of employment or economic linkages as the technology sector. As a result, only seven out of the State’s 55 districts contribute a disproportionate share of Madhya Pradesh’s economic output.

What does all this tell us? First, that economic growth is necessary, but not sufficient, for reducing inequality. The assumption that development will eventually “trickle down” to lagging regions does not hold true without deliberate policy interventions. Left to market forces, development tends to privilege regions that already have better infrastructure, human capital, or political clout. Second, it reinforces the importance of decentralised planning and governance. Kerala’s relative success is not just about higher income levels; it’s about how that income is generated and distributed. Investments in public health, rural education, and local governance have helped ensure that no single district dominates the State’s economy.

Third, this has direct implications for India’s policy priorities. The government’s focus on “aspirational districts” is a step in the right direction, but much more needs to be done to monitor and mitigate spatial disparities. Sub-State data, like district-level GDP and disaggregated HDI, must be systematically collected, standardised, and used to guide resource allocation.

Instead of a one-size-fits-all model of development, India needs region-sensitive strategies that account for the unique strengths and vulnerabilities of each district. States must be incentivised to pursue balanced growth, not just maximise output from their capital cities or IT hubs.

The writers are with Pahlé India Foundation

Published on June 28, 2025

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