By N Chandra Mohan
The latest official data on the per capita income of states indicates that the richer ones—with higher incomes than the national average—are becoming richer much faster than the rest. In 2011-12, Gujarat’s real per capita income was 138% of the national average, which rose to 180% in 2023-24. The relative per capita income of Bihar, the poorest state, deteriorated from 34% to 29.6% over this period. Gujarat is becoming more prosperous while an average person in Bihar has an income level 70% lower than an average Indian. Many of the richer states are south of the Vindhyas—Karnataka, Tamil Nadu, Telangana, Kerala, and Andhra Pradesh—and in the west, like Gujarat and Maharashtra.
Richer states race ahead, poorer states lose ground
A caveat on per capita income estimates is in order. As pointed by economists like NR Bhanumurthy, director of the Madras School of Economics—who wrote on the topic in Financial Express—per capita income at the national level estimated for the base year 2011-12 is the net national income divided by the population based on the 2011 Census. While population projections at an all-India level are possible, estimates at the state-level are weak as they don’t capture migration and falling fertility rates. The net state domestic product estimates that are used for state per capita income are as per allocations from the all-India level based on ratios fixed for 2011-12.
These richer states have, in fact, grown faster than the all-India average annual growth rate of 4.75% from 2011-12 to 2024-25. For some of the larger states like Bihar, Gujarat, Jharkhand, Kerala, and Uttar Pradesh information is available only till 2023-24. Gujarat is the leader with a stellar growth rate of 7%, followed by Karnataka (6.6%), Tamil Nadu (5.9%), Telangana (5.8%), and Andhra (5.7%). Maharashtra and Kerala are close to the national average. Gujarat, Karnataka, Tamil Nadu, Telangana, and Andhra Pradesh have also more than doubled their real per capita income over this period. So too has Odisha, which points to new geographies of growth.
Manufacturing and policy edge fuel southern and western gains
A proximate factor for the growth dynamism of these richer states is the expansion of manufacturing activities. Some have had a head start in industrialisation and attract most of the foreign and domestic investments in India. The tendency of investments to be concentrated in such states, which make them more prosperous, only reinforces the Biblical axiom, for whosoever hath, to him shall be given! This reflects the agglomeration factor as these states offer significant advantages to investors with their manufacturing ecosystem in terms of availability of skilled labour, supplier base, and prospect of knowledge spillovers to collocate near existing units.
The disproportionate share of these richer states in investments does not imply that they do not compete among themselves. Despite being a bastion of industrialisation, Maharashtra steadily lost out to the more business-friendly Gujarat, which overtook it in real per capita income and gross value added in manufacturing since 2017-18. There was angst in Maharashtra over Gujarat securing a big-ticket semiconductor facility and the Tata-Airbus project as investors rued the “lack of conducive” atmosphere in the state. Karnataka, Tamil Nadu, and Telangana have aggressively wooed Foxconn. There was a recent face-off between Karnataka and Andhra Pradesh to attract aerospace companies.
Andhra Pradesh has an advantage over rivals like Karnataka and Tamil Nadu as its policies are in alignment with those at the Centre. It has unveiled a vision document for 2047 to become a developed state with a focus on stimulating agriculture as well as building a robust high-tech manufacturing sector. Its reforms-friendly chief minister has unveiled ambitions for the state to become a quantum computing hub that can rival the tech cluster in Hyderabad (now in Telangana) that he created when he was the head of undivided Andhra. An MoU has been inked with Google to set up an artificial intelligence data centre.
The richer states offer lessons to the others who want to catch up. For starters, they are attracting investments for labour-intensive manufacturing which the populous poorer states cannot. Tamil Nadu’s example deserves emulation as factories employing tens of thousands are able to tap pools of lower-wage workers such as migrants from other states and women. A striking factoid is that 40% of all women employed in factories in India are in Tamil Nadu, which is a big advantage for the likes of Foxconn to assemble smartphones as a contract manufacturer for Apple.
These states in the south and west also offer a more business-friendly environment to attract investments. Potential investors in poorer states would be deterred if there are concerns over law and order, poor infrastructure, and extractive political institutions. Expansion of manufacturing is the way forward. Odisha’s example deserves mention as it had been a laggard state but of late has registered vastly improved economic performance by attracting big-ticket investments in steel, for instance, that exploit its iron ore resources. The policy imperative at the national level must be to create appropriate incentives for a dispersal of investments to the poorer states so that they catch up.
The writer is an economics and business commentator based in New Delhi.
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