Feasibility check of four Indian states in pursuit of a $1 trn economy

Uttar Pradesh and Maharashtra aim to achieve this milestone by 2027-28, while Tamil Nadu targets 2030-31 and Karnataka aims for 2031-32

Four Indian states have set an ambitious target to become a $1 trillion economy each, though their timeline to achieve this differ a bit. While Uttar Pradesh and Maharashtra have stated to achieve the feat by 2027-28, Tamil Nadu wants to do so by 2030-31 and Karnataka by 2031-32.

The states presented their Budget this year for 2024-25 where they presented assumptions of the respective economies for the year. Based on that assumption and their past performance, we attempt to analyse how feasible is their ambition on this front. It should be noted that $1 trillion in rupee-terms would require the assumption of the exchange rate which is a difficult task.

For the sake of uniformity, we have considered 80 as the exchange rate for the rupee against the dollar, though the rupee has plunged much more than that (83.43 at Friday close).

Uttar Pradesh

After taking a cue from Prime Minister Narendra Modi’s appeal way back in 2018, the state has set this ambition of $1 trillion economy. “Can Maharashtra and Uttar Pradesh compete to become a trillion-dollar economy? Will the Uttar Pradesh government compete with other states? The more the competition, the more will be the investment. This will result in the creation of more jobs and strengthen the concept of cooperative federalism,” Modi had said at the Uttar Pradesh Investors Summit-2018 in Lucknow in February, 2018.

The state signed a memorandum of understanding (MoU) with consultant Deloitte India to suggest a roadmap to achieve the goal. Deloitte in its turn submitted a report in January last year and then revised the report in May that year after taking suggestions from stakeholders.

State chief minister Yogi Adityanath earlier this year exuded confidence the state will achieve the $1 trillion target with the right policy and precise implementation as its goals are well defined.

However, the task seems aspirational rather than feasible, given the size of the state economy. The state has assumed that its gross state domestic product (GSDP) would grow 5.8 per cent in nominal terms to Rs 24.9 trillion during 2024-25 Y-o-Y. At Rs 80 a dollar exchange rate, the economy needs to become Rs 80 trillion by 2027-28 or in three years after 2024-25. This would require the economy to register a compounded annual growth rate (CAGR) of 47.4 per cent in those three years.

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This is a massive task, given a CAGR of around 6.8 per cent recorded by the state during six years, ending 2024-25. At this CAGR, the state could aim to become a Rs 28.4 trillion economy by the target date or $355 billion (at Rs 80 against the dollar), leaving a whopping gap of 645 billion for achieving the task.

Maharashtra

Last month, governor of Maharashtra Ramesh Bais said in the assembly that the target of becoming a $1 trillion economy by 2027-28 is in line with the country’s goal of becoming a five trillion dollar economy. State Deputy Chief Minister and Finance Minister Ajit Pawar too had said the government

is committed to making Maharashtra’s economy $1 trillion.

“The state has been a favoured investment destination and the government has been at the forefront of providing necessary push to attract more investments, which will generate more jobs and boost growth rate. The government is capable of taking bold and necessary decisions weathering all challenges so that the state economy becomes $1 trillion,” he had said in reply to the debate on the interim Budget for 2024-25 in the assembly.

In November last year, the Maharashtra Institution of Transformation (MITRA) said the state would require a cumulative investment of $1.53 trillion to become a $1 trillion economy.

MITRA, an economic advisory council of the state, in its vision statement indicated achieving 17 per cent GSDP growth a year. This task has risen to 23 per cent GSDP growth for 2025-26, 2026-27 and 2027-after the state economy was projected to expand by ten per cent each during 2023-24 and 2024-25.

However, if the state’s GSDP grows by the CAGR of the past six years – 9.7 per cent – the economy could become Rs 51.3 trillion or around $641 billion (at Rs 80 exchange rate). It should be noted that the GSDP growth rates projected for FY24 and FY25 are also close to this growth rate. This would require $359 billion more in GSDP to meet the target.

Tamil Nadu

State chief minister MK Stalin has set a target to achieve this milestone by 2030. According to a paper by Tamil Nadu Infrastructure Development Board (TNIDB) along with knowledge partner BCG, a comprehensive ‘Growth Framework’ has been designed to act as a blueprint to achieve this goal.

The blueprint says at the heart of the growth framework are growth vectors in agriculture, industry and services sectors. To ensure the success of these growth drivers, a robust foundation is required, which is provided by the ‘Enablers’ such as infrastructure, human capital, innovation, and governance, it says.

Further, seven key tenets have been laid out as guiding principles for formulating detailed strategies and an implementation roadmap. These include driving investments, enhancing human capital, pioneering innovation, developing best-in-class infrastructure, driving market efficiency,

and ensuring efficient governance, while ensuring climate sensitive, regionally holistic, and socially

inclusive growth, the blueprint further says.

The blueprint also talks of making the state the ‘go-to destination’ for foreign direct investment (FDI). However, the state was sixth in drawing FDI equity inflows at $2.2 billion during 2022-23, behind Maharashtra, Karnataka, Gujarat, Delhi and Haryana. Its position remained the same during the first nine months of the current financial year when it attracted $1.8 billion. The only difference was that Telangana replaced Haryana as the fifth state to attract the highest FDI equity inflows.

The state will need a GSDP growth rate of 16.5 per cent to achieve the task by 2030-31 whereas its CAGR was just 12.2 per cent for the six years, ending 2024-25. However, finance minister of the state Thangam Thenarasu in his budget speech stated that in the years after 2024-25, the nominal GSDP is estimated at 16 per cent per annum.

In case the state does so, it would be Rs 76.6 trillion or $957.5 billion, which is close to $1 trillion.

Karnataka

Like the previous BJP government, the new Congress regime also wants to make the state a $1 trillion economy by 2032 (2031-32). However, state chief minister Siddaramaiah in January this year regretted that the state does not have adequate resources to become a $1 trillion economy by 2032, while arguing for the state to get a fair deal in the tax devolution.

Earlier this month, large and medium industries minister MB Patil had said the state has set its eyes on achieving this task by 2032, by growing at a sustained rate of 18 per cent.

A report, titled the ‘Vision for 2030, Karnataka’, emphasises on the need for a cumulative investment of Rs 152.87 trillion over the next ten years, to make the state $500 billion by 2026-27 and $1 trillion by 2031-32. Of this, Rs 22.93 trillion is expected from the government and Rs 107.01 trillion from the private sector.

Karnataka would require its GSDP to grow at a CAGR of 16.2 per cent to become $1 trillion over seven years after 2024-25. The state economy grew by 9.8 per cent during six years (that would end on 31st March, 2025). If it continues to grow at this rate, it will be Rs 59.2 trillion or $740 billion by 2031-32. This would still require $260 billion to meet the target. Or else it will have to accelerate its SGDP growth rate by the CAGR of 6.4 percentage points over seven years.