Growth Gulf: Coastal States Grew Faster Than Hinterland

One reason why coastal states do better is obvious — ports, which since trade began have been the fulcrum of economic development. Factories to process goods for export of process imported raw materials have traditionally been in coastal areas. No wonder the East India Company picked Surat, Bombay, Madras and Calcutta for the start of their empire building in Asia.

Bidisha Ganguly, Principal Economist, Confederation of Indian Industry said that export-oriented investments have typically favoured port areas worldwide. “An example of this is China, where Shanghai has become an attractive investment hub globally,” she added.    

Measuring the trajectory of this complex issue of economic divergence across states has always been fraught with challenges. The socioeconomic and historical reasons behind each state's economic development story differ from the rest, however big or small.

Mere statistics often cannot capture the context and nuances of these individual stories.

A recent working paper by the Economic Advisory Council to PM (EAC-PM), published last month, has attempted to analyse Indian states’ relative economic performance between 1960-61 and 2023-24. And the results are eye-opening.

Instead of taking real or nominal values or growth rates of GSDP (Gross State Domestic Product), the paper used states’ shares in India’s GDP and relative per capita income, indicating that absolute values often conceal more than they reveal.

A particular state’s share in India’s GDP has been calculated by dividing the GSDP of that state by the sum of the GSDPs of all states.

Comparing the current top 10 states since the 1991 liberalisation throws quite a few interesting facts. The effect of liberalisation and subsequent globalisation across states varied notably during this period.

Major Findings Of The Paper

Since the 1991 liberalisation, the southern coastal states have emerged as the ‘leading performers’. Today, Karnataka, Andhra Pradesh, Telangana, Kerala and Tamil Nadu together account for roughly 30 per cent of India’s GDP. After three decades of liberalisation, the average income in all these states is also higher than the national average.

On India's western coast, Maharashtra has maintained its pre-liberalisation economic lead even after 1991. Gujarat’s post-liberalisation share of India’s GDP, however, is a remarkable story. It increased from 6.4 per cent in 2000-01 to 8.1 per cent in 2022-23.

Reversing the trend in relative per capita income till 2010-11, Gujarat overtook Maharashtra in 2023-24, when it's per capita income ballooned to 160.7 per cent of the national average, compared to Maharashtra’s 150 per cent.

“Historically coastal states have performed better than landlocked areas, naturally due to trade-led development. Coastal areas enjoy unique natural advantages compared to other states and this is a global phenomenon,” Subhomoy Bhattacharjee, Director, Centre for Regulatory Governance, Jindal Global Law School, Jindal Global University, told The Secretariat.

The star among the western states, however, is Goa. This small state doubled its relative per capita income in 2023-24, from its 1970-71 level. From 144.7 per cent of the national average in 1970-71, the state’s relative per capita income catapulted to 290.7 per cent in 2022-23. Goa now has India's second-highest per capita income after Sikkim.

Smaller States Top Average Income List

The list of the top 10 states in relative per capita income is entirely different from the top 10 states with greater shares in national income — with the exceptions of Maharashtra, Tamil Nadu, Gujarat, and Karnataka.

Sikkim occupies the top spot, with a quantum leap from 93.5 per cent of national per capita income in 1990-91 to 319.1 per cent in 2023-24. This can largely be attributed to the state starting to receive royalties on power generated by the Teesta III hydropower project, which became operational in early 2017. This has resulted in more than 2.5 times increase in Sikkim’s GSDP between FY2015 and FY2023.

In the same period, Goa’s relative per capita income almost doubled — possibly due to tourism boost, infrastructure development and relocation of sizeable high-net-worth families from other parts of the country.

Star Performers

In the north, Delhi, and to some extent Haryana, keep reaping the benefit of being part of the National Capital Region, though Punjab’s performance deteriorated after 1991.

Delhi’s per capita relative income stood at 250.8 per cent of the national average in 2023-24, while that of Haryana and Punjab were 176.8 per cent and 106.7 per cent the same year, respectively. Punjab's economy could not carry on the momentum gained during the Green Revolution in the 1960s.

Uttar Pradesh's decline continues in the country's north-central part. Even in 1990-91, the state’s share of the national GDP was a mere 12.6 per cent. But it dropped to 8.4 per cent by 2023-24. Though Uttarakhand was carved out of the state only in 2000, its share of the national GDP remains low, at 1.1 per cent in 2023-24. Implicitly, carving out Uttarakhand has not impacted the output of Uttar Pradesh significantly. 

In the context of Indian states’ economic performance, Surajit Das, Assistant Professor, Jawaharlal Nehru University, referred to the mainstream theorisation propagated by Robert Barro and Xavier Sala-i-Martin. They had pointed out that the economic growth rate tends to be higher in the country or region where per capita income is on the lower side. So, over a period of time, the regions with lower per capita income grow faster than higher per capita income, and there is a convergence of per capita income in the long run.

“However, in India’s case, the data show that instead of a convergence there is a divergence. The states with lower per capita income grew slower than the Indian states with higher per capita income. This resulted in the widening of inequality across the states,” Das said.

Among the southern states, Kerala has also doubled its relative per capita income between 1990-91 and 2023-24, while Telangana is the new entrant in the list at fourth place, with a relative per capita income that is 193.6 per cent of the national average in 2023-24.

Among the eastern states, there has been a gradual erosion of the importance of West Bengal’s economy in the last six decades. There has been a consequent steady decline in the state's relative per capita income, which has gone down to 83.7 per cent of the national average in 2023-24.

In comparison, Odisha, another coastal state, has shown a significant turnaround since 1991. The state’s relative per capita income increased from 54.3 per cent of the national average in 1990-91 to 88.5 per cent in 2023-24.

However, hinterland Bihar’s miserable performance continues in both relative share in GDP, and per capita income. Another hinterland state - Uttar Pradesh - saw its share in national GDP go down from 12.6 per cent in 1990-91 to 8.4 per cent in 2023-24. 

Similarly, another hinterland state Rajasthan which contributed 5.0 per cent to the national GDP in 1990-91, saw its share declining to 4.7 per cent by 2023-24.

All in all, most maritime states continued to power India's economic growth post-liberalisation.

Maharashtra, Gujarat, Tamil Nadu, Karnataka Surge Ahead

Though Maharashtra maintains its lead over others in 2023-24, its share in the national GDP has slightly fallen to 13.3 per cent from 14.6 per cent in 1990-91. India’s GDP has roughly increased 14 times between 1991 and 2024.

This huge rise implies incremental jumps in other states’ outputs, as well as the national output. So, the marginal reduction in Maharashtra’s share in 2023-24 reflects this statistical fall, rather than any 'real' decline in the state’s economic activities.

Tamil Nadu, Karnataka and Gujarat are the states that made the most of the post-1991 liberalised economy. While Tamil Nadu increased its share in national GDP from 7.1 per cent in 1990-91 to 8.9 per cent in 2023-24, in the same period, Karnataka's share jumped from 5.3 per cent to 8.2 per cent, and Gujarat’s from 6.4 per cent to 8.1 per cent.