Relative Economic Performance of Indian States

What’s in today’s article?

• Why in News?
• What is the Economic Advisory Council to the Prime Minister (EAC-PM)?
• Indicators Used to Capture Relative Economic Performance of States
• Regional Analysis of Relative Economic Performance of States
• What may be Inferred from the States' Relative Economic Performance?

Why in News?

• The Economic Advisory Council to the Prime Minister (EAC-PM) recently released a working paper titled ‘Relative Economic Performance of Indian States: 1960-61 to 2023-24.’
• The analysis spans a long period, from 1960-61 to 2023- 24, providing insights into how individual states have performed in response to changes in national and state-specific policies.

What is the Economic Advisory Council to the Prime Minister (EAC-PM)?

• It is a non-constitutional, non-permanent and independent body constituted to give economic advice to the Government of India, specifically the Prime Minister.
• It has been constituted several times since the independence of India. In 2017, the body was revived and currently the PMEAC chairman post is held by Bibek Debroy.
• The council serves to highlight key economic issues facing the country to the government of India from a neutral viewpoint.
• It advises the PM on economic issues like inflation, microfinance, and industrial output.

Indicators Used to Capture Relative Economic Performance of States:

• Two indicators: The paper focuses exclusively on the relative performance of states, measured using two indicators- (1) Share in India’s GDP and (2) Relative per capita income.
• The state's share in India’s GDP: It is calculated by dividing the Gross State Domestic Product (GSDP) of the state by the sum of GSDP of all states. This gives an idea of the relative economic importance of states.
• Relative per capita income:
  • It is calculated as the ratio of the per capita Net State Domestic Product (NSDP) of the state as a percentage of the all-India per capita Net National Product (or Net National Income in some years).
  • However, the per capita NSDP means that it does not include remittances which may be important for states like Kerala, Bihar and UP.

Regional Analysis of Relative Economic Performance of States:

• Southern states:
  • Before 1991, southern states did not show expectational performance. However, since the economic liberalisation of 1991, the southern states have emerged as the leading performers.
  • In 2023-24, Karnataka, Andhra Pradesh, Telangana, Kerala and Tamil Nadu together accounted for approximately 30% of India's GDP.
  • The per capita income of all southern states became higher than the national average after 1991. For instance,
    • The relative per capita income in Telangana is now 193.6% of the national average.
    • While Karnataka, Tamil Nadu, and Kerala have per capita incomes 181, 171, and 152.5% of the national average, respectively.
• Western states:
  • Maharashtra has maintained the highest share of India’s GDP for almost all of the period.
  • Gujarat’s share remained at broadly the same levels until 2000-01, before beginning to increase rapidly from 6.4% in 2000-01 to 8.1% in 2022-23.
  • Both Gujarat and Maharashtra have had per capita incomes exceeding the national average since the 1960s.
  • By 2023-24, Gujarat’s per capita income has risen to 160.7% of national average, as compared to 150% for Maharashtra.
  • In 2022-23, the per capita income of Goa was nearly three times the national average. With this, it is second in terms of per capita income after Sikkim.
• Northern states:
  • Among the northern states, Delhi and Haryana have performed notably well, while Punjab's economy has deteriorated after 1991.
  • Haryana's share of India’s GDP now exceeds that of Punjab, and its relative per capita income has reached 176.8%, compared to Punjab's 106.7% in 2023-24.
• Eastern states:
  • West Bengal, which held the 3rd-largest share of national GDP at 10.5% in 1960-61, now accounts for only 5.6% in 2023-24.
  • Its per capita income was above the national average in 1960-61 at 127.5%, but its relative per capita income declined to 83.7% in 2023-24, falling below the states like Rajasthan and Odisha.
  • The relative per capita income of undivided Bihar was 70.3% in 1960- 61. It started declining and has been roughly flat at around 33% since 2000-01.
  • In Bihar, the actual household incomes may be higher as the remittances are not captured here.
• Central states:
  • In the 1960s, undivided UP was the largest economic powerhouse in the country, with a share of 14.4% in India’s GDP in 1960-61.
  • However, the share of UP (bifurcated) in national GDP was 8.4% in 2023-24.
  • MP’s relative per capita income increased from 60.1% in 2010-11 to 77.4% in 2023-24.
• North-eastern states:
  • In 1980-81, Sikkim's per capita income was below the national average. However, its per capita income surged from around 100% of the national average in 2000-01 to 320% in 2023-24.
  • Assam, which initially had a per capita income slightly above the national average, experienced a decline in its relative per capita income and reached 73.7% in 2023- 24.

What may be Inferred from the States' Relative Economic Performance?

• Overall, the western and southern regions of the country are outperforming others, with notable success also observed in parts of the north.
• The stark contrast between Haryana and Punjab raises an interesting question: Did Punjab's focus on agriculture contribute to a form of 'Dutch disease,' hindering its transition to industrialisation?
• The eastern part of the country continues to be a concern. Although Bihar's relative position has stabilised in the last two decades, it remains significantly behind other states and requires much faster growth to catch up.
• 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.

Q.1. What was the economic liberalisation of India in 1991?

The economic liberalisation of India in 1991 was a series of reforms (reducing import tariffs, deregulating markets, and lowering taxes) that opened up the economy and encouraged private sector participation.

Q.2. What is the Net National Income (NNI)?

NNI is defined as gross national income minus the depreciation of fixed capital assets (dwellings, buildings, machinery, transport equipment and physical infrastructure) through wear and tear and obsolescence.

Source: West Bengal economy performs poorly over several decades: EAC-PM paper | IE