Economic divide among Indian states: A recent working paper on the economic performance of Indian states published by the Economic Advisory Council to the Prime Minister reveals certain regions have experienced significant growth from 1960-61 to 2023-24. Notably, states in the southern region have performed better, while others, such as West Bengal, have lagged behind. Western states, including Maharashtra and Gujarat, have consistently shown strong economic performance, according to the PMEAC paper released on Tuesday.
The paper, titled “Relative Economic Performance of Indian States: 1960-61 to 2023-24,” reveals that five southern states—Karnataka, Andhra Pradesh, Telangana, Kerala, and Tamil Nadu—contributed over 30% to India’s Gross Domestic Product (GDP) in 2023-24. The southern states have excelled in GDP growth since economic liberalisation in 1991. Prior to this, these states did not demonstrate exceptional economic performance, the paper notes. Karnataka and Telangana have emerged as economic powerhouses, while Kerala is the only southern state that saw its share of GDP decline. Despite this, the per capita income of all southern states surpassed the national average after 1991.
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The East Puzzle
The economic decline of West Bengal has been particularly concerning for policymakers. Once the third-largest contributor to GDP at 10.5% in 1960-61, its share shrank to just 5.6% by 2023-24—the largest decline among all Indian states. This is especially striking given that most maritime states have outperformed inland regions, with the exception of West Bengal. The state’s economic struggles are reflected in its declining per capita income, which fell to 83.7% of the national average in 2023-24, down from 27% above the national average in 1960-61. West Bengal began losing its share in GDP as early as the 1960s, and this downward trend persisted even after economic liberalisation.
The situation across eastern India is equally troubling. States such as Bihar, Odisha, Jharkhand, and Chhattisgarh remain among the poorest in the country. While Bihar’s relative economic position has stabilised in the past two decades, it still lags significantly behind other states and requires rapid growth to catch up. Bihar continues to have the lowest per capita income in the country. Odisha’s per capita income improved from 55.8% of the national average in 2000-01 to 88.5% in 2023-24 but remains below the national average.
To replicate the economic success seen in states like Tamil Nadu and Maharashtra, eastern states need to prioritise economic growth in their political agendas. Key steps include lowering barriers to industrialisation, providing high-tech skill training for the youth, and fostering a business-friendly environment.
The Prospering States
Among smaller states, Sikkim and Goa have demonstrated exceptional economic growth. Sikkim’s per capita income surged from 93% of the national average in 1990-91 to 319% in 2023-24, while Goa’s relative per capita income doubled from 144% in 1970-71 to 290% in 2023-24, making them the highest per capita income earners in India.
Additionally, four regions—Delhi, Telangana, Karnataka, and Haryana—reported the highest relative per capita income. In 2023-24, Delhi’s per capita income was 250.8% of the national average, indicating that the average income in the capital is 2.5 times higher than the national average. Delhi has consistently had the highest per capita income since 1960-61, when it stood at 218.3% of the national average. Haryana also performed well, with a relative per capita income of 176.8% in 2023-24, up from 106.95% in 1960-61. Punjab and Haryana particularly benefitted from the rise in income levels following the Green Revolution in the 1960s.
Maharashtra and Gujarat also report higher per capita incomes compared to the national average, with Gujarat at 160.7% and Maharashtra at 150.7% in 2023-24.
Addressing Economic Divide
The PM-EAC paper adds to the ongoing debate among southern states regarding their substantial contribution to India’s GDP versus their lower share of tax revenues under the Finance Commission formula. As the government prepares for the upcoming Census, addressing spatial inequality between regions has become increasingly urgent.
The report shows how states like Maharashtra, West Bengal, and Tamil Nadu, which were home to India’s three largest industrial clusters in the 1960s, have experienced drastically different economic outcomes. While Maharashtra has maintained steady growth, West Bengal has not been able to replicate the success of its peers. Tamil Nadu, after a brief downturn, rebounded post-1991 economic reforms.
Policymakers must urgently address these regional disparities. They need to determine whether the spatial inequality stems from geography and natural resources or from political mismanagement. If the latter, voters must prioritise electing leaders with vision and stability.
These inequalities have far-reaching effects. Resource-rich states like Jharkhand may suffer from the “resource curse,” where abundant natural resources hinder overall development. Weak institutions and inadequate infrastructure in the eastern states prevent them from taking advantage of their demographic potential and creating competitive markets. Poor public services in health and education further perpetuate intergenerational poverty, impeding economic progress.
The PM-EAC paper makes it clear that states that embraced industrialisation and welcomed foreign multinational corporations have reaped the rewards of economic growth. The key to prosperity in all states lies in good governance and strong institutions. The decline of governance in states like Uttar Pradesh and Bihar has led to institutional failure, while the southern states have demonstrated the opposite—a success story of effective governance and robust institutions.