Big states turn aggressive in pursuit of $1-trn GSDP goal

Rush to hire consultants, prepare strategy papers to achieve the aim

Five states — Maharashtra, Tamil Nadu, Karnataka, Uttar Pradesh and Gujarat — constituted approximately 40% of the country’s nominal GDP in FY22.
Five states — Maharashtra, Tamil Nadu, Karnataka, Uttar Pradesh and Gujarat — constituted approximately 40% of the country’s nominal GDP in FY22.

Some large states are recalibrating strategies to realise unprecedented economic expansion, as each of them aims to far exceed the growth rate targeted by the Centre for the national gross domestic product (GDP) and emerge as a $1-trillion economy over the next 5-8 years.

Uttar Pradesh has lined up the most aggressive target, as it aims to raise its gross state domestic product (GSDP) four-fold to $1 trillion by FY27. While Karnataka aims to push up its GSDP to $1 trillion by FY27 from $275 billion in FY22, Tamil Nadu wants to do so by 2030 from $277 billion in FY22. Maharashtra, despite having the largest GSDP among states of $429 billion, is eyeing the $1-trillion milestone by FY30. Gujarat wants to raise its GSDP to $0.5 trillion by FY27 from $260 billion in the last fiscal.

In contrast, India’s aim of achieving a $5-trillion economy by FY27 (delayed by two years due to the pandemic) from $3.1 trillion in FY22 requires a compounded annual growth rate (CAGR) of a little over 10%, an average trend growth rate seen in the last decade.

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Several states have sought requests for proposals (RFPs) with a wide scope from consultants willing to help realise their aggressive targets. Uttar Pradesh and Tamil Nadu are looking for comprehensive multi-year plans, including sector-specific strategies, to realise their goals. The consultants will also be required to help implement those plans. Odisha and Uttarakhand are among those set to undertake comprehensive reviews of plans to accelerate economic growth.

Five states — Maharashtra, Tamil Nadu, Karnataka, Uttar Pradesh and Gujarat — constituted approximately 40% of the country’s nominal GDP in FY22.

Tamil Nadu will open the bids on August 29 to select a consultancy firm that will prepare a road map for the state to become a $1-trillion economy by 2030. The state, with a strong manufacturing base, particularly in automobiles and services, needs to grow at a CAGR of 17.4% (in dollar terms) in the eight years to FY30, compared with 13.5% seen in FY22.

Uttar Pradesh awarded a Rs 120-crore contract to Deloitte Touche Tohmatsu India last month to prepare a five-year strategy. The state may also engage sectoral consultants for rapid urbanisation, which may lead to a construction boom in cities like Ayodhya. The country’s most populous state will have to grow at a CAGR of a mammoth 32% to reach the desired GSDP by FY27 from about 13% in FY22.

Maharashtra requires a nominal growth rate of a little over 11% in its GSDP to turn into a $1-trillion economy by 2030. “To attain this feat, we have to ensure 360-degree development. Infrastructure is an important aspect,” its deputy chief minister Devendra Fadnavis said, a week after the present state government was formed. State officials reckon that a new strategy would be in place soon.

Gujarat has brought out a strategy paper to achieve the GSDP of $500 billion by FY27, by growing at a CAGR of 14.5% in nominal terms, against the actual average of 12.3% in the last decade. With traditional manufacturing sectors of Gujarat saturated, it will now focus on newer areas of smart manufacturing, green manufacturing and services sector mainly IT/ ITES, fintech and tourism, including medical value travel.

“These efforts augur well for accelerated growth in India where capacity at the state level has frequently been a limiting factor. It marks a significant shift towards improving competitiveness of state economies,” said Ajit Pai, strategy lead partner (government and public sector), EY India.

“For a $5-trillion Indian economy, states’ role is going to be vital. If larger states can do a status check of their economies and identify areas from where growth will come from, it’s a welcome step,” said NR Bhanumurthy, vice-chancellor of Bengaluru’s BASE University.

Odisha will open financial bids on September 7 to appoint a consultant for five years to prepare a growth strategy and help prepare an annual state economic survey. It would suggest a reasonable GSDP target over the next five fiscal years. Uttarakhand is planning to significantly expand the chief minister’s office with the capacity to drive higher performance within the state.

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