A picture of a growing economic divide in India
Context
Recently, the Economic Advisory Council to the Prime Minister (EAC-PM) released a report titled Relative Economic Performance of Indian States: 1960-61 to 2023-24. The report highlighted the disparities in state contributions to India’s economy and citizens’ per capita income. The report sheds light on the widening regional economic divide in India, with wealthier states like Maharashtra significantly outpacing poorer regions in per capita income and infrastructure. These disparities raise concerns about federal unity and bring attention to both private and public investment patterns that deepen inequality across regions.
Relevance:
GS-02 (Growth and development)
Dimensions of the Article
- Key Findings of the EAC-PM Report on State Economic Performance
- Regional Disparities and Growth Patterns
- Threats to Federalism
- A Path Forward for Balanced Growth
Key Findings of the EAC-PM Report on State Economic Performance
Economic Performance Trends:
- Southern Growth: Southern states (Karnataka, Andhra Pradesh, Telangana, Kerala, Tamil Nadu) contribute about 30% to India’s GDP as of March 2024, largely due to post-liberalisation growth in tech and industry.
- West Bengal’s Decline: West Bengal’s share of GDP dropped from 10.5% in 1960-61 to 5.6% in 2024, with per capita income falling to 83.7% of the national average, trailing states like Rajasthan and Odisha. Key issues include policy stagnation, industrial decline, and talent migration.
- Maharashtra’s Leadership: Maharashtra remains the top GDP contributor at 13.3%, though down from over 15%.
Per capita income insights:
- Top Earners: Delhi, Telangana, Karnataka, and Haryana have the highest per capita incomes, with Delhi at 250.8% of the national average.
- Consistent Leaders: Gujarat and Maharashtra continue to maintain above-average incomes.
- Rising States: Odisha’s per capita income rose from 55.8% in 2000-01 to 88.5% in 2023-24.
- Punjab vs. Haryana: Punjab’s growth has slowed, with per capita income now at 106% of the national average, while Haryana’s surged to 176.8%.
- Richest Small States: Sikkim and Goa, with respective per capita incomes of 319% and 290% of the national average, lead the country.
Challenges in Poorer States:
- Struggling Economies: Uttar Pradesh and Bihar lag in GDP contributions at 9.5% and 4.3%, respectively, with Bihar facing slower growth despite some improvements in Odisha.
- Policy Review Needs: The report stresses examining policy influences and state-specific factors to understand and address economic disparities across India.
Regional Disparities and Growth Patterns
- The EAC-PM report reveals stark differences in regional performance, especially between the economically robust western and southern regions of India and the lagging eastern and northern states (with some exceptions).
- Liberalisation in 1991 marked a shift, with southern states advancing due to more private investments thanks to improved infrastructure and governance. Urban conglomerates like Mumbai, Delhi, and Bengaluru attract investments, while poorer states receive less funding due to limited market access, weaker governance, and poor infrastructure. The presence of a strong organised sector in wealthier regions further propels their growth, while poorer states rely on the low-paying unorganised sector.
Threats to Federalism
- The growing regional inequality is raising questions about India’s federal system.
- Wealthier states argue they are not receiving their fair share of federal resources, contributing more to national revenue than what they receive in return.
- Some states are also wary of political influences on public investment, which, they claim, results in less support for opposition-led states.
- Furthermore, the concentration of wealth in certain areas exacerbates social tensions, as economically underperforming states struggle with low investment, inadequate infrastructure, and poor governance, which only widens the gap.
A Path Forward for Balanced Growth
- To tackle the growing economic divide, policy changes are essential. Both the central and state governments must focus on improving governance, infrastructure, and investment climates in underdeveloped regions.
- States should focus on reducing corruption and increasing social sector spending, while the Centre must balance support for the organised and unorganised sectors. Strengthening the unorganised sector would improve incomes, boost demand and attract more investments to these poorer regions.