Income originating within geographical boundaries of urban and rural areas of Gujarat is estimated for three benchmark years-1993-94, 1999-00 and 2004-05 - at current prices following the broad methodology and data sources prescribed by the CSO. This is the first such effort made at the state level. It considers all sub-sectors and sources used for the state income to point out data gaps and suggest minor modifications in the methodology to improve such estimation for replication in other states.

The study finds that urban-rural income inequality in Gujarat (2.3) was almost the same as at the national level (2.4) in 1993-94, but declined substantially to 2.0 by 2004-05, while it increased to 2.7 for the nation. Thus, rural areas grew faster than urban areas in Gujarat, but grew slower than urban areas in the nation. In private consumption, the urban-rural inequality, though lower than in income, increased both in Gujarat and the country over the same period. While at the national level rural population seriously lagged behind its urban counterpart in income, consumption and savings; in Gujarat rural population is fast catching up with urban population in income and savings.

There are considerable structural changes in the urban and rural economies over time in Gujarat. Urban areas are becoming more service oriented, whereas rural areas are becoming more industrialized. Contrary to the general perception, large-scale industries are predominantly rural activities and small-scale industries are largely urban activities. Implications of these findings on the local resource generation through different saving behaviour and natural trends in economic integration and linkages of the two areas for planning are important. Undue concerns about rural employment generation at artificially high wages and about allocating land for industries in rural areas need to be viewed in the context of the findings here. After all, urban areas account for only 2.8% of geographical area, 43% of the population, and 56% of the income of the state. Rural areas account for 97.2% geographical area, 57% of population, and 44% of the income of the state.