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‘Relative Economic Performance of Indian States’
Why in the News?
The Economic Advisory Council to the Prime Minister (EAC-PM) released a working paper titled ‘Relative Economic Performance of Indian States: 1960-61 to 2023-24’. The report analyses state-level economic performance, focusing on GDP contributions and variations in per capita income across Indian states.
Indicators Used for Analysis:
- Share in India’s GDP: The state’s share in India’s GDP is determined by dividing the Gross State Domestic Product (GSDP) of a state by the total GSDP of all states, indicating its economic significance.
- Relative Per Capita Income: Relative per capita income is measured by comparing the per capita Net State Domestic Product (NSDP) of a state to the all-India per capita Net National Product (or Net National Income in some years).
- However, since NSDP excludes remittances, this measure may understate the income for states like Kerala, Bihar, and Uttar Pradesh, where remittances are significant.
What is the EAC-PM?
- Nature: Non-constitutional, non-permanent, independent body.
- Purpose: Provides economic advice to the Prime Minister.
- History: Reconstituted several times; revived in 2017 with Bibek Debroy as the chairman.
- Function: Highlights critical economic issues, including inflation, industrial output, and more.
Key Highlights of the Report:
Southern India:
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- Southern states (Karnataka, Andhra Pradesh, Telangana, Kerala, Tamil Nadu) account for 30% of India’s GDP in 2023-24.
- Post-1991, these states saw accelerated growth in technology and industry sectors.
- These states have consistently outperformed in per capita income and GDP share over the past six decades.
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Western India:
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- Maharashtra and Gujarat have shown remarkable economic growth.
- Gujarat’s share increased from 6.4% in 2000-01 to 8.1% in 2022-23.
- Their per capita incomes have remained above the national average since the 1960s.
- Gujarat’s per capita income in 2023-24 is 160.7% of the national average, while Maharashtra’s is at 150.7%.
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Eastern India:
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- States like West Bengal, Bihar, Assam, and Uttar Pradesh have seen a decline in their relative per capita income since 1960-61.
- West Bengal: Once a top performer, its per capita income dropped to 83.7% of the national average by 2023-24.
- Bihar: Per capita income decreased drastically from 70.3% in 1960-61 to just 32.8% in 2023-24.
- However, Odisha has demonstrated positive economic trends.
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Northern India:
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- Uttar Pradesh: After a long decline, its per capita income reached only 50.8% of the national average in 2023-24.
- Punjab and Haryana: After the Green Revolution, Haryana outpaced Punjab.
- Punjab’s per capita income stood at 106.7% of the national average in 2023-24, while Haryana’s was at 176.8%.
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Smaller States:
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- Sikkim: Per capita income soared to 319% of the national average in 2023-24.
- Goa also demonstrated exceptional growth.
- Madhya Pradesh: Improved significantly from 60.1% in 2010-11 to 80.2% in 2020-21, stabilising at 77.4% in 2023-24.
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Regional Analysis and Challenges:
- Western and southern states outperform others.
- Eastern states like Bihar and West Bengal lag behind and require faster growth to catch up.
- Maritime states like Gujarat and Tamil Nadu have seen better economic performance compared to inland regions.
Reasons for Steady Growth in Western and Southern States:
- Industrial Base: Investment-friendly policies and diverse manufacturing sectors.
- Service Sector: Focus on IT and urbanisation.
- Agricultural Advancements: Sustainable practices supported by the government.
- Regional Connectivity: Efficient transport and logistics.
Addressing Economic Inequality:
- Governance: Strong institutions and industrialisation are key to prosperity.
- Focus on Lagging States: Targeted interventions and improved human capital are necessary for balanced regional growth.
Recommendations for Enhancing State Economic Performance:
- Decentralised Planning: Empower local governments for tailored development.
- Infrastructure Development: Invest in transport and digital connectivity.
- Sectoral Focus: Boost agricultural productivity and diversify industries.
- Skill Development: Improve vocational training and education.
- Innovation and Entrepreneurship: Support startups and research initiatives.
- Digital Transformation: Enhance governance efficiency and digital literacy.
- Collaborative Governance: Share best practices between states and the central government.
Way Forward:
- Targeted Interventions: Focused policies, such as Finance Commission devolution, are necessary to uplift lagging states.
- Human Capital Development: Improving education and skills is crucial for balanced growth.
- Eastern State Focus: Industrialisation, skill training, and business-friendly environments can help replicate the success of southern states.