Relative Economic Performance of Indian States

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Context:

West Bengal has experienced a continuous decline in its relative economic performance over several decades, according to a working paper by the Economic Advisory Council to the Prime Minister (EAC-PM).

‘Relative Economic Performance of Indian States: 1960-61 to 2023-24’

• The paper was written by the Economic Advisory Council to the Prime Minister (EAC-PM).
• All data used in the study were based on current prices and the analysis spans 1960-61 to 2023- 24, providing insights into how individual States have performed in response to changes in national and State-specific policies.

Metrics used:

(1) The share of the state GSDP in India’s GDP

(2) Relative per capita income (a state with the same per capita income as that of India is said to have 100 per cent per capita income relative to the national average).

Findings about the regional performances of states:

Eastern and North Eastern regions:

The development of the eastern part of the country remains a concern.

West Bengal

• West Bengal, which held the third-largest share of national GDP at 10.5% in 1960-61, now accounts for only 5.6% in 2023-24.
• It has seen a consistent decline throughout this period.
• Maritime States have outperformed other States, except for West Bengal.
• West Bengal’s per capita income was above the national average in 1960-61 at 127.5%, but its growth failed to keep pace with national trends.
• As a result, its relative per capita income declined to 83.7% in 2023-24, falling below that of even traditionally laggard States like Rajasthan and Odisha.

Other States:

• Sikkim is the star of north-eastern economies. So much so that over the last two decades, its per capita income has surged from 100 per cent of the national average in 2000-01 to 320 per cent in 2023-24.
• Assam on the other hand, with a per capita income of 103 per cent of the national average in 1960-61, saw a decline to 61.2 percent by 2010-11, before rising to 73.7 per cent in 2023-24.
• Odisha, traditionally a laggard, has shown a marked improvement in recent years.

Western regions

• Western India (Maharashtra, Gujarat, Goa) continues to outperform other regions.
• Maharashtra has held the largest share of India’s GDP for most of the period. Both states have had per capita incomes above the national average since the 1960s.
• Gujarat's share remained steady until 2000-01, then rose from 6.4 per cent to 8.1 per cent by 2022-23.
• While Gujarat initially lagged behind Maharashtra—118.3 per cent vs. 133.7 per cent in 1960-61—it surpassed Maharashtra in 2010-11.
• By 2023-24, Gujarat’s per capita income reached 160.7 per cent of the national average, compared to Maharashtra’s 150 per cent.

Southern regions

• Southern States have significantly outpaced others after economic liberalization in 1991.
• The five States — Karnataka, Andhra Pradesh, Telangana, Kerala and Tamil Nadu — collectively account for approximately 30% of India’s GDP in 2023-24.
• Before 1991, southern States did not show exceptional performance. However, since the economic liberalisation of 1991, southern States have emerged as the leading performers.
• In addition, the per capita income of all southern States became higher than the national average after 1991.

Northern States:

• In the North States like Delhi and Haryana have better GDP.
• Delhi has one of the highest per capita incomes throughout the study period.

Punjab and Haryana

• While Haryana and Punjab were divided in 1966.
• Punjab’s share in India’s GDP grew during the 1960s but plateaued at 4.3 per cent until 1990-91.
• From this point, a decline started and Punjab’s share in the national GDP was only 2.4 per cent in 2023-24.
• Similarly, Punjab’s per capita income, which peaked at 169 per cent of the national average in 1970-71, dropped to 106.7 per cent in 2023-24. This was even lower than the 119.6 per cent in 1960-61.
• The uptick in Punjab’s numbers in the 1960s coincides with the introduction of the ‘Green Revolution’ policies in northern India.
• In contrast, Haryana, initially behind Punjab, saw steady growth.
• Its GDP share now surpasses Punjab's, with a relative per capita income that’s 176.8 per cent of the national average, compared to Punjab's 106.7 per cent in 2023-24.

Uttar Pradesh and Bihar

• In the 1960s, undivided Uttar Pradesh was India's largest state economy, holding 14.4 percent of the national GDP in 1960-61.
• By 2020-21, UP's GDP share stabilised at 8.2 per cent, rising slightly to 8.4 per cent in 2023-24.
• ‘Share of undivided Bihar was 7.8 per cent in 1960-61. It then declined for four decades until 2000-01, before it stopped deteriorating.
• It has since then stabilised around 4.3-4.4 per cent for undivided Bihar.’
• Both states have a lot of ground to cover on the relative per capita income front as well.
• In 2023-24, Uttar Pradesh’s per capita was around half of the national average and Bihar’s was merely one-third.

Madhya Pradesh

It has shown a significant turnaround since 2010 after lagging for five years.

Comparison of three Industrial cluster states of the 1960’s

• Maharashtra, West Bengal and Tamil Nadu were home to India’s 3 largest industrial clusters in the 1960s.
• Their economic development subsequently diverged- Maharashtra showed broadly steady performance throughout, and West Bengal’s share has been in continuous decline. After a decline, Tamil Nadu picked up post-199.

 

‘Dutch disease’ ●A ‘Dutch disease’ in simple words is when extraordinary growth in one sector in an economy leads to a neglect and decline of the other sectors. Punjab’s case Study ●In Punjab’s case, it can be interpreted to mean that with the advent of the Green Revolution, the agriculture sector performed so well that economic participants focussed on it exclusively, leading to an insufficiently diversified state economy. ●And when the Green Revolution boost began to wear off, the costs of putting all eggs in one basket hit home.  ●Another inference from the ‘Dutch disease’ explanation in Punjab’s case can be that while the Green Revolution did bring in benefits, it skewed the income distribution in Punjab. ●Land ownership in the state may have been highly unequal, with agricultural gains disproportionately benefiting those who already controlled most of the land.

Important articles for reference:

Gross Domestic Product

India’s Q3 2024 GDP data

Per capita income

Sources:

https://www.thehindu.com/business/Economy/west-bengal-economy-performs-poorly-over-several-decades-eac-pm-paper/article68654721.ece

https://swarajyamag.com/economy/what-this-paper-from-the-advisory-council-to-pm-reveals-about-the-relative-economic-performance-of-indian-states

 

PRACTICE QUESTION Q.Examine the trends in the economic performance of Indian states from 1960-61 to 2023-24. Also analyse the factors influencing regional disparities in GDP share and per capita income. (250 words)