Income disparities are growing among states

By N Chandra Mohan

The relative income performance of various states broadly suggests a pattern of widening disparities as the richer ones have steadily pulled apart from the poorer ones. In 1960-61, the most prosperous state in the country was Delhi whose per capita income was more than double the national average at 218.3%, and it rose further to 250.8% in 2023-24. The poorest state of Bihar’s relative per capita income deteriorated from 70.3% to 32.8% over this period although this stems also from its bifurcation. The implications of this are indeed dismal as it implies that an average person in Bihar still has an income level 77% lower than an average Indian, although this number does not include remittances.

The latest working paper of the Economic Advisory Council to the Prime Minister (EAC-PM) highlights the persisting decline of West Bengal — which had a head start in industrialisation along with Maharashtra and Tamil Nadu at the time of Independence — whose relative per capita income declined from 127.5% to 83.7% to now trail even Odisha. The worsening relative performance of the vanguard agrarian state of Punjab — in comparison with neighbouring Haryana — too, is a source of concern, leading working paper authors to speculate whether its focus on only agriculture has contributed to a form of Dutch disease hindering its transition to industrialisation. But the fact is that agricultural surpluses did not flow into industry in Haryana either. Gurugram’s success largely stems from Maruti Suzuki and lots of foreign investments.

The question naturally is whether there is a narrative of regional disparities: notably, whether states with a higher per capita income than the national average are concentrated in one part of India, as the stereotypes suggest of a go-go south versus the overpopulated, impoverished Bimaru states of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh (UP)? In its survey of mid-90s India, The Economist argued one had to draw a line from Kanpur in UP to the tip of the sub-continent: “On the western side are bits of India that work; on the east, the bits that don’t.”

The EAC-PM working paper does indicate that the southern states of Andhra Pradesh, Telangana, Karnataka, Kerala, and Tamil Nadu have emerged as top performers in terms of their relative income levels. Kerala’s relative gains could be an underestimate as it does not take into account remittances, which are the mainstay of its economy. In the western region, Maharashtra and Gujarat have demonstrated strong economic performance as both these rich states compete for domestic and foreign investments and corner a lion’s share. Their tendency to attract investments only reinforces the Biblical axiom, for whosoever hath, to him shall be given! The south and west clearly have done better than the rest as have the maritime states, barring West Bengal.

That said, there is no neat south-north or west-east divide as Rajasthan and Madhya Pradesh’s relative income has shown considerable improvement over the last decade and half. Bihar and Uttar Pradesh, however, still languish as the poorest states. The latter’s relative income in 2023-24 was lower than what it was in 2000-01. The big takeaway is the emergence of new geographies of income growth in the east and Northeast. Odisha has traditionally been a laggard state but of late it has registered vastly improved economic performance by attracting big-ticket investments in steel, for instance, that exploit its iron ore resources.

In the Northeast, too, there are signs of prosperity. Sikkim’s relative per capita income was 86% in 1980-81 but subsequently surged to 319.1% in 2023-24. Sikkim currently has the highest per capita income in the country. Mizoram and Tripura have also done well. Income growth thus is observed in more than one region of the country. But it remains true that the rich states have become richer while the poorer ones remain impoverished relative to the national average.

The author is an economics and business commentator based in New Delhi.

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