Growth-rate gap clouds India's biggest states' $1 trn dream, shows data

Maharashtra is the closest to reaching the $500 billion mark. It would have to add nearly $600 billion in the next seven years to reach the $1 trillion mark

India’s biggest states will have to rise significantly above their historical growth rates to become $1 trillion economies by 2030. Recently, Tamil Nadu released its vision document intending to become a $1 trillion economy by 2030. Uttar Pradesh Chief Minister Yogi Adityanath spoke about it last week. Other states also aspire to achieve the same target. To realise this ambitious goal, most states will have to more than double in size.

Maharashtra is the closest to reaching the $500 billion mark. It will have to add nearly $600 billion in seven years to reach the $1 trillion mark. The other states closest in terms of economic size include Tamil Nadu, Uttar Pradesh, Karnataka and Gujarat. Each of them will need to add over $700 billion to their economy to hit $1 trillion (chart 1).

Karnataka has been the fastest growing state in the ten years since 2012-13 with a 12.4 per cent compound annual growth rate. Gujarat grew at 11.8 per cent. Tamil Nadu and Uttar Pradesh grew less than 11 per cent while it was 9.2 per cent for Maharashtra - the largest economy. This includes the years lost to the pandemic. But growth rates were not significantly higher before. The compound annual growth rate (CAGR) for the five years ending 2018-19 was less than 50 basis points higher on average for the five states under consideration. The pandemic began in late 2019-20.

While some states have targeted 2030 for reaching the $1 trillion mark, others may be forced to attempt a similar target. For Uttar Pradesh, Karnataka and Gujarat, this would require growth of over 20 per cent. Tamil Nadu would have to grow at 19.5 per cent while it is 12.9 per cent for Maharashtra (chart 2).

It may have an impact on regional disparities. The smallest state economies are growing slower than the largest ones, despite the difference in size (chart 3).

However, many states have crossed the mark on a purchasing power parity (PPP) basis, which takes into account the difference in cost of living across different regions, according to a March 2023 Economy Watch report from EY India authored by chief policy advisor D K Srivastava, senior managers Muralikrishna Bharadwaj and Ragini Trehan, and manager Tarrung Kapur.

“The largest state economy by FY28 would be MH, whose size is estimated at US$0.67 trillion (MX or market exchange rate terms). However, in PPP terms, each of these five economies is projected to have a size larger than $1 trillion by FY24…. TN is estimated to cross PPP$1 trillion in FY23. The remaining three state economies would reach a level very close to each other ranging from PPP$0.98 trillion to PPP$0.99 trillion in FY23. All of these are on the verge of crossing the PPP$1 trillion benchmark which, based on present trends, is estimated to happen in FY24,” it said.

Last week, Finance Minister Nirmala Sitharaman said that India will cross the $5 trillion gross domestic product (GDP) figure by 2028 and become a $30 trillion economy by 2047. Data from the International Monetary Fund (IMF) shows that India's economy has grown at a CAGR of 7.2 per cent between 1980 and 2023. It would need to grow at 9.1 per cent to achieve the target by 2047.