Connecting the Dots: The Curious Case of India's Economic Winners and Losers

"Data isn't just about numbers; it's about stories. And in India, those stories often reveal a complex interplay of history, policy, and the relentless pursuit of prosperity."

While the headlines often focus on India’s overall economic performance, understanding the vastly different trajectories of individual states offers a far richer and more insightful picture. After all, policy decisions don't just impact abstract macroeconomic figures; they shape the everyday realities of people living in those diverse regions.

This week's "Connecting the Dots " dives deep into a working paper by the Economic Advisory Council to the Prime Minister (EAC-PM) titled "Relative Economic Performance of Indian States: 1960-61 to 2023-24 ."

The study offers a unique perspective: it analyzes the relative economic performance of states over six decades, using two key metrics:

• Share of National GDP: This captures a state’s economic weight and contribution to the overall national economy.
• Relative Per Capita Income: This measures the average income of individuals in a state compared to the national average, offering insights into living standards of an average Indian and regional disparities.

By tracking these metrics over time, we can begin to understand how different states have fared in response to national policy shifts, from the Green Revolution to economic liberalization, and identify the factors driving their economic successes and challenges.

From Post-Independence Promise to Diverging Paths:

Picture India in the 1960s – a newly independent nation brimming with hope and the desire to build a prosperous future for all. The three "presidency towns" – Bombay, Calcutta, and Madras – stood as beacons of industrial progress, naturally positioning their respective states (Maharashtra, West Bengal, and Tamil Nadu) as early economic powerhouses.

But, as the study reveals, those early trajectories didn't always hold true. Some states took off, while others faltered, their paths diverging over the decades, exploring these contrasting fortunes…

The Rise of the South: A Liberalization Success Story

The economic liberalization of 1991 proved to be a watershed moment, especially for southern India. Karnataka and Andhra Pradesh, previously middling performers, emerged as economic powerhouses, their growth outpacing most other states. By 2023-24, they accounted for nearly 10% of India's GDP combined, with Karnataka alone boasting the third-largest share among all states. Its robust tech sector, driven by policy support for IT development and skilled labor, plays a pivotal role. ?

This southern surge isn’t just about GDP. Per capita incomes in these states have soared, exceeding the national average by significant margins. In Telangana, for instance, a newcomer following its separation from Andhra Pradesh in 2014, Telangana boasts the highest relative per capita income (193.6% of the national average), the average person earns almost twice as much as the national average. The state has attracted investments in pharmaceuticals and life sciences through targeted industrial policies, and benefited from a robust agricultural sector thanks to investment in irrigation and pro-farmer schemes – a testament to the power of embracing a more open and globally connected economy.

The Western Stalwarts: Maharashtra and Gujarat’s Consistent Climb

While the south boomed post-liberalization, Maharashtra and Gujarat quietly maintained their position as top performers throughout the entire period. Maharashtra, home to Mumbai – India’s financial capital – has consistently held the largest share of India's GDP, however, it faces challenges of ensuring equitable distribution of its wealth.

Gujarat, despite its relatively small size, has seen its economic contribution rise rapidly, particularly after 2000, even surpassing Maharashtra in per capita income. Gujarat's rise can be attributed to several factors: its proactive business-friendly environment, heavy investments in infrastructure, and consistent focus on attracting both domestic and foreign investment through investor-friendly policies. ?

These two states offer a lesson in adapting to change while staying true to their strengths. Maharashtra’s diversified economy – from finance, manufacturing to a vibrant entertainment industry – and Gujarat’s focus on industry and infrastructure development have fuelled their consistent growth, proving that a solid foundation matters even amidst changing economic tides.

The Eastern Struggle: A Tale of Missed Opportunities

The eastern region presents a stark contrast, a story of unfulfilled potential and, in some cases, outright decline. West Bengal, once a formidable economic force, has experienced a consistent decline, its share of India's GDP falling by almost half since the 1960s. Has the political climate in West Bengal stifled investment and hindered its economic potential? A once industrial powerhouse, West Bengal’s post-independence economic trajectory highlights the dangers of clinging to outdated economic models, inadequate infrastructure investment, and a less business-friendly environment in the post-liberalization era.

Bihar, despite some recent signs of stabilization, remains trapped at the bottom, with a per capita income just one-third of the national average – a disturbing indicator of the deep inequalities that persist within India's growth story. Bihar underscores the deeply complex and interconnected challenges of poverty, low human capital, and inadequate investment in education, health, and infrastructure. Despite recent signs of modest improvement, Bihar serves as a cautionary tale of how prolonged underdevelopment can create seemingly intractable poverty traps. ?

These eastern states offer a cautionary tale, raising uncomfortable questions: Did a focus on agriculture, particularly in Punjab, create a "Dutch disease" effect, hindering industrialization? Despite early gains from the Green Revolution, Punjab has fallen behind Haryana, its neighbour and former co-state. This divergence reflects policy choices – Punjab's heavy focus on a single crop (rice) has led to groundwater depletion and environmental degradation, while its economic growth has been less diversified compared to Haryana’s more dynamic approach. ?

Assam, known for its lush tea gardens and rich biodiversity, offers a classic case of an economy that started strong but then faltered, only to find its footing again in recent times. In the early decades after Independence, Assam's per capita income was slightly above the national average. But over time, a lack of diversified industrial development, insufficient infrastructure investment, and the challenges posed by insurgency hindered its progress. By 2010, Assam’s per capita income had fallen to a dismal 61% of the national average. But here’s where the story takes a turn. Recent years have seen Assam experience a resurgence, driven by a significant infra push, focus on tourism and hospitality & targeted policies focusing on skilling, entrepreneurship, and attracting investments in sectors like tea processing and handlooms have started to pay dividends.

The Rise and Fall (and Rise?) of UP: Uttar Pradesh (including Uttarakhand) witnessed a significant decline in both its economic share and per capita income over the past decades. Recent signs of a slight resurgence need further analysis to understand their sustainability. The reasons are complex, including poor infrastructure, caste politics, low literacy rates, weak healthcare systems, and persistent issues of corruption and governance – underscoring that policy successes in a large and populous state are only possible through holistic long-term interventions, not short-term quick fixes.

For decades, Madhya Pradesh and Rajasthan were often seen as laggards. However, the past decade and a half have witnessed remarkable changes, particularly in MP, which reversed a five-decade-long decline in relative per capita income, jumping from 60% to 80% of the national average within a decade! So, what sparked these improvements?

MP focused on both boosting agricultural productivity through better irrigation and supporting industrial growth through special economic zones and investment incentives.

Rajasthan capitalized on its rich tourism potential and embraced renewable energy – becoming a leading producer of solar power.

The stories of Sikkim and Goa highlight how even small states can achieve remarkable success by strategically leveraging their unique strengths. Embracing sustainable development and becoming India’s first fully organic state, Sikkim has not only preserved its pristine environment but also boosted tourism and premium-priced agricultural products, leading to an impressive rise in per capita income. While, Goa's beautiful beaches and vibrant culture continue to attract tourists, fueling a thriving service-based economy that has consistently kept its per capita income well above the national average.

These small state success stories offer inspiration – by building on their strengths and making bold policy choices, even states with limited resources can create opportunities for their citizens and become models for others to emulate.

Coastal Advantage, But a Bengal Exception: Unveiling the Spatial Dynamics

A key observation by the authors sheds further light on how geography and policy intertwine to shape economic realities:

“An interesting overall observation is that the maritime states have clearly outperformed the other states, with the exception of West Bengal. Even the coastal state of Odisha, which was traditionally a laggard state, has seen improved performance in the last two decades.”

Access to sea trade, global connections, and natural resources appear to have played a significant role. But West Bengal’s poor performance despite being a coastal state underlines how governance, industrial policy, and investment climate can trump even advantageous geographical conditions.

The Challenge: Uneven Growth and Persistent Inequality

These diverging economic trajectories expose a fundamental challenge: India's growth, while impressive, has been unevenly distributed. The gap between prosperous states and those left behind continues to widen, threatening to undermine social cohesion and create fault lines within the nation’s fabric.

The data highlights the urgency of addressing this issue. A national average, especially in a country as diverse as India, can mask stark realities.

The data reveals a clear geographical pattern: the western and southern regions are pulling ahead, while the east, particularly the states of Bihar and West Bengal, are lagging significantly. This unevenness is further compounded by social inequalities – lower consumption expenditure among marginalized groups like Scheduled Castes and Tribes underscores the need for targeted interventions that prioritize inclusivity.

Facing the Future: Beyond GDP, Towards Shared Prosperity

Recognizing this challenge presents an opportunity. While GDP growth is important, it's not the only measure of progress. India needs a development model that prioritizes:

• Targeted Investments in Lagging Regions: Eastern states, particularly Bihar, need specialized strategies that address their unique constraints and leverage their inherent strengths. Diversifying their economies beyond agriculture, fostering skilled labor, and creating a favorable investment climate are crucial steps.
• Policies That Foster Diversification: The divergent trajectories of Haryana and Punjab, the stark contrast between West Bengal and Odisha, and the southern states’ success all point to the need for policies that support a diversified economy, fostering innovation, human capital development, and strong linkages between agriculture, industry, and services.

Connecting the Dots: Beyond GDP, Towards Shared Prosperity

While GDP growth is important, it's not the only measure of progress. India needs a development model that prioritizes. These divergent trajectories offer invaluable lessons for anyone engaged in policymaking:

• Policy Choices Matter: State-level policies, from industrial and agricultural policies to investments in education, infrastructure, and public health, have profoundly shaped each state’s economic and social development path. The examples of Karnataka and Telangana post-liberalization highlight the benefits of targeted and responsive policy strategies.
• Bridging the Urban-Rural Divide: Urban areas consistently outspend rural ones. Investing in rural infrastructure, education, and healthcare can create opportunities, reduce migration pressures, and unleash the vast untapped potential of rural India.
• Embrace Dynamic Learning: There are no "silver bullets" in the policy world. What worked yesterday might not work today, especially in rapidly changing economic environments. Policymakers must be prepared to constantly reassess, learn from successes and failures – even those of other states – and adapt to new realities.
• Long-Term Vision Trumps Short-Term Gains: Punjab's story, contrasted with Haryana, demonstrates that policies with short-term gains can have long-term unintended consequences. A focus on sustained growth demands prioritizing environmental sustainability, human capital development, and the long-term viability of key economic sectors.
• Address Inequality for Inclusive Growth: Ignoring disparities, whether across social groups or across regions, is a recipe for social unrest and long-term economic instability. Investing in basic social services, promoting education and skills development, and addressing persistent poverty are not merely acts of charity but strategic investments in future national growth and stability.
• Don't Rely on Geography Alone: Coastal advantage alone isn’t a guarantee of success. Creating a favorable business environment, improving infrastructure, attracting diverse investments, and nurturing human capital are crucial ingredients, as both West Bengal and Odisha’s stories remind us.

The Bigger Lesson: The Power of Policy in Shaping Destinies

This isn’t just a story about numbers, it’s a story about people – millions of Indians whose lives are shaped by the economic realities of the states they live in.

The EAC-PM study compels us to ask hard questions: How can we bridge the gap between the haves and the have-nots? How can we ensure that India's economic growth lifts all citizens, not just a select few?

The answers lie in smart policy choices, focused investments, and a relentless pursuit of sabka vikas - development for all. This requires a shift from a one-size-fits-all approach to tailored solutions that address the unique challenges and strengths of each state.

We need to bridge those gaps between states, make sure everyone gets a fair chance, and create an India where prosperity reaches every corner, every gali and mohalla.

Kyunki ek ke karne se kya farak padta hai? But ek ek ke karne se farak padta hai!