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GDP by state: Will the North and the South ever meet?

TV Mohandas Pai

By TV Mohandas Pai & Nisha Holla

India’s economy has grown at a breathtaking pace, from a nominal GDP of Rs 87 lakh crore in FY12 to an estimated Rs 190 lakh crore in FY19. Compound annual growth rate (CAGR) of 11.74% in nominal terms and 7.05% in real terms is remarkable, making India the fastest growing major economy in the world. In 2014-19, the NDA-I government grew the economy by Rs 78 lakh crore at a CAGR of 10.88%. While the Q4FY19 recorded lower growth and the forecast for the next two quarters is also lower, India is expected to retain its status going forward.

While overall growth is impressive, a detailed look shows growth has been uneven across states. GDP data published by RBI of representative states (see graphic) indicates significant variance between the northern and southern states. Southern and Western states from Tamil Nadu till Gujarat are thriving with robust CAGR and impressive per-capita GSDP. In FY18, the population-weighted average of per-capita GSDP for the south was Rs 1.93 lakh, 2.5 times that of the north at Rs 0.77 lakh. Even with improved CAGR of over 10% in Madhya Pradesh, Bihar and West Bengal, states in the north are recording low per-capita GSDP. It is clear that growth across India is variant and continues to diverge.

For study purposes, we projected the per-capita GSDP of states for ten years using GDP and population CAGR calculated from 2011-2018 data (see graphic). Of course, these projections could change on several factors. Projections indicate that if development and population growth rates of states are equivalent to the last six years, the variance between states could diverge even more. Per-capita GSDP in southern states will have consistently multiplied, contributing massively to India’s growth and GDP. It could be well over Rs 5.6 lakh 2.75 times that of the north s average at Rs 2.06 lakh. This is up from a factor of 2.5 in FY18, clearly indicating a divergence in growth if special measures to boost these state economies are not taken soon.

Northern states have larger populations and higher population growth rates of 1.42% on average, compared to 1.06% in the south (see graphic). This correlation implies that a large swath of India’s population has insufficient income, low contribution to GDP and high population growth rate, while a smaller group has very high income, proportionally high contribution to GDP and low population growth rates. This population-weighted inequality is unsustainable.

Further, a major difference between the southern and northern states are the youth populations. Fertility data from NFHS-4 shows the population in the southern states is ageing, whereas the youth bulge in the north and east is still substantial. As discussed in our previous FE article (bit.ly/2JM6u4f) the fertility rates in southern states are all under 1.8. Notable contributors to lower fertility are shown to be better education infrastructure and employment prospects in the south, especially for women. Southern states have significantly larger enrolment ratios in higher education, as discussed in our FE article (bit.ly/2WSFKWq). The variance in Gross Enrollment Ratio (GER) (see graphic) in higher education between southern and northern states on average is a significant 13.2 points in 2017-18. Among the more prosperous south-west states, Gujarat trails with a GER of 20.1 while Tamil Nadu leads with GER of 48.6 in 2017-18.

GER is lower in the north; but in absolute numbers, there is still a significant number of higher education graduates due to the large populations. AISHE data shows that from the representative states discussed in the north, there have been a five-year total of 1.92 crore graduates from 2013-18 92 lakh are women (see graphic). Unfortunately, these are in regions where jobs for educated people are the least most of the specialised jobs requiring graduates are in the south. Without quality employment prospects, educated youth in the north either opt out of the workforce or take up lower level jobs. The PLFS 2017-18 survey shows this is one of the reasons for low workforce participation among women unemployment among urban women with secondary education or above is at 19.8%. States must prioritise providing educated youth quality employment prospects in their home states.

Above data and trends indicate that growth has been uneven across India. The centralised planning strategy which the Planning Commission has applied all these years before NITI-AAYOG has not worked. One development strategy deployed across India cannot address the inherent differences between states. In Modi 2.0, a well-defined state-wise strategy supported by data is required to bring special attention to development in states that are below the national average, especially in the North and East India.

One of the critical investments to accelerate the development of lagging states is to focus on implementing education infrastructure, for both school and higher education, and then provide the educated youth quality employment prospects in their own states. In particular, instituting labour-intensive industries with intensive skills training in the populous states will provide employment on a large-scale. Madhya Pradesh has already started building labour-intensive industries with positive results. Apart from this, the need of the hour is to build infrastructure, improve governance and deliver services faster in these states.

Strategy must also focus on the strengths of each state and implement policy accordingly. For example, West Bengal can leverage its coastline and industrial legacy to develop into an industrial and trade superpower. Bihar, with abundant fertile land and labour, can focus on becoming a major producer of food and labour-intensive industries. With careful planning and implementation, each state in India can be specially developed. In the next five years, it is essential for Modi 2.0 to create specialised programs with centralised funding to take care of the needs of the underdeveloped states in the North and East, so they quickly rise up to the current all-India average in terms of human capital.

Variation also exists within each state. In Uttar Pradesh, the planned city of Noida is one of India’s most prosperous cities, whereas several eastern districts like Chandrauli and Fatehpur have been identified as backward by NITI-AAYOG. Even within more affluent states like Karnataka, there is considerable variance between districts the Economic Survey of Karnataka 2018-19, shows that Bengaluru district alone accounts for nearly two-thirds of Karnataka’s GDP. As the Centre under PM Modi’s able leadership brings focus to each state’s development, a closer look at districts can direct policy and allocation decisions.

Accelerating development in lagging states and districts, can develop every state as a superpower in its own right. All of India’s population can then participate in India’s rise as a global superpower. The goal is to take each and every Indian along on our fast-paced journey towards becoming a $10 trillion economy.