GDP share, per capita income: States showing no signs of convergence

Rapid economic growth in India has been marked by unbalanced development, rising inequality, and spatial concentration of growth in a few urban agglomerations. The issue has been closely examined by a new working paper titled “Relative Economic Performance of Indian States: 1960-61 to 2023-24”, published by the Economic Advisory Council to the Prime Minister. It does well to closely review the trajectory of Indian states in terms of their relative weighting in macroeconomic terms and the economic well-being of their people. It focuses on the states’ share in India’s gross domestic product (GDP) and their relative per capita income (compared to the national average).

On both parameters, the western and southern regions of the country have outperformed the other regions over six decades. In fact, Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, and Telangana — the five southern states — together account for about 30 per cent of India’s GDP. Notably, Maharashtra and Gujarat have displayed remarkable growth and a rise in per capita incomes since the 1960s. The per capita incomes of both states have remained above the national average since the 1960s, with Gujarat’s at 160.7 per cent of the national average and Maharashtra’s at 150.7 per cent in 2023-24. Odisha, Sikkim, Haryana, and the states in the south have grown significantly since the 1990s. However, at the same time, the relative per capita income of states such as West Bengal, Bihar, Assam, and Uttar Pradesh have declined since their 1960-61 levels, and are now far below the national average. West Bengal, in particular, saw a declining economic share and a drop in relative per capita income to 83.7 per cent of the national average in 2023-24 from the third-highest in 1960-61, when it was 27.5 per cent higher than the national average.

Further, Bihar has not only had a per capita income below the national average since the 1960s, but it has also declined from 70.3 per cent in 1960-61 to a meagre 32.8 per cent. Other than regional variations, the fortunes of neighbouring states also diverged over time. While Punjab and Haryana experienced a steep rise in income levels following the Green Revolution in the 1960s, Punjab could not keep pace and its economic trajectory diverged from Haryana’s. Punjab’s per capita income was 106.7 per cent of the national average in 2023-24, down from 119.6 per cent in 1960-61. On the other hand, Haryana’s relative per capita income stood at 176.8 per cent in 2023-24, up from 106.9 per cent in 1960-61. Overall, variances in infrastructure, urbanisation rates, trade and transportation costs, and state-level policy differences can explain some of the differences in regional incomes and growth rates.

The growing divergence among states poses significant policy challenges. There are existing tensions in terms of how fiscal resources are distributed among states, which is likely to exacerbate as the difference between high- and low-income states increases. Nonetheless, there is a need for targeted and focused intervention to bring the lagging states up to speed as quickly as possible through Finance-Commission devolution or other means. There is also a need for greater effort in improving human capital in such states for a more regionally balanced growth experience. None of this is easy, but there is no other way.