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Natural resources which were always considered to boost the economic development in an economy, have over the past few decades, begun to be visualized as a curse for growth and development across nations. This paradoxical phenomenon worldwide referred to as the „resource curse hypothesis‟ is put to test in India at sub-national level controlling for political economy factors that is the poor quality of institutions, corruption and rent-seeking behavior. Fixed effects estimation for a panel data of Indian states over the period 2007 to 2011 reveals the existence of „resource curse‟ in India. We find that regions with higher mineral intensity have lower levels of private investment, investments in human capital and institutional quality. Besides this, the curse mainly operates through generation of perverse incentives for political parties in these mineral rich states who tend to indulge in rent-seeking and corruption leading to over extraction of these mineral resources. Therefore, the study clearly points out that „resource curse‟ in India, is merely a manifestation of the political economy going wrong. Hence, it is recommended to have transparency in distribution of mineral rights in a competitive manner so that there is fair play and mining no more remains the monopoly of few large companies.
