India, a flurry of global and Indian studies informs us, is in the Goldilocks moment. In 2023, India is the fastest-growing large economy ranked fifth globally. As this column has observed, India is also driving the domino effect of cost competitiveness. Demography and demand are expected to propel growth, and its middle class is estimated to touch 61 per cent of the population with an average income of Rs 20 lakh. By 2031, India is forecast to be the third largest economy, its GDP rising from $3.5 trillion to cross the $10 trillion mark.
The path to prosperity rests on the efficacy of the sum of pieces thesis. Momentum, the laws of physics stipulate, is mass into velocity. Effectively India’s GDP is the sum total of the growth of all the states. Growth is and has been uneven, temporally and spatially. Ergo, it will be instructive to assess the potential upside for improvement and which states are dragging the national average lower.
One measure of improved economic condition is per capita income. In rupee terms, India’s per capita income as of April 2023 is Rs 196,983 – up from Rs 90,688 in 2013. Averages are just as close to the bottom as to the top. And as Nobel laureate Angus Deaton observed in his seminal work The Great Escape, “Averages are no consolation to those who have been left behind.” History, geography and politics influence outcomes. So how are states across India’s political geography doing?
There are two ways to illuminate the picture. One is the distance between the national average and the state average, and another is the gap between states. In July 2023, of the 33 States and UTs, only 16 have shared data for 2022-23; data for the others might trickle in! Telangana at Rs 308,732, Karnataka at Rs 301,673 and Haryana at Rs 296,685 top the rankings.
Consider the wide chasm between the toppers and the laggards. The per capita GSDP of Bihar is Rs 54,383; that of Uttar Pradesh is Rs 79,396, and that of Jharkhand is Rs 86,060. The per capita income of Bihar is less than roughly a sixth of Telangana and one-fourth of the national average. Per capita incomes in Uttar Pradesh and Jharkhand hover at 26 per cent of Telangana and 40 per cent of the national average.
What about the pace of transition, and is there a correlation between the nature of politics and outcomes? Bihar has had a flip-flop series of regimes. As per the RBI and the state economic survey, between 2013 and 2023, Bihar’s per capita income rose from Rs 26,948 to Rs 54383. Uttar Pradesh, with a double-engine sarkar since 2017, rose from Rs 40,124 to Rs 79,396 and Jharkhand, which has had BJP and JMM-led regimes, from Rs 50,006 to Rs 80,060.
How would these states with large populations rank globally in dollar terms? For reference, India’s per capita income at $2600 in 2023, as per the IMF, places it at 141st out of 191 countries. Arguably the size of the population drags down the average. Equally, the scale of the population – even with a low median age as is the case with the northern states -- has the potential to deliver a demographic dividend.
Bihar’s population of 126 million is roughly that of Mexico, which has a per capita income of $ 12,673. Bihar’s per capita income is roughly $680 (at USD @INR 80), ranking it 180 next to the Democratic Republic of Congo. Uttar Pradesh’s population of 220 million is comparable to Brazil, with a per capita income of $9,673. UP’s per capita income is under $1000, ranking it 170 next to Uganda.
The comparisons illuminate the gap between possibilities and reality, even if only partially. Performance rests on policy. India must shift a major chunk of its population from low-productivity segments such as agriculture to high-income domains. On August 1, the government informed Parliament that the average monthly household income of agricultural households across India is Rs 10,218 – it is Rs 4,895 in Jharkhand, Rs 7,542 in Bihar and Rs 8,061 in UP. The deficit in per capita income is located in the nature of economic engagement – nearly half of India’s workforce is dependent on agriculture which accounts for about a sixth of the national income.
India also has the lowest percentage of women employed in the workforce. In contrast, as per World Bank, the participation rate of women is 56 per cent in the United States, 61 per cent in China, 54 per cent in Japan and 56 per cent in Germany. India, in contrast, has barely 24 per cent of women in the workforce. The exact figure may be disputed, but no economy has achieved developed status, with less than half the women participating in the workforce.
The list of necessary interventions is long – investment in human infrastructure, enabling agriculture with AI for forward and backward linkages, climate resilience in energy management, liberation of productivity factors, propelling urbanisation and more. To paraphrase Keynes, the pace at which we can reach our destination of economic bliss will be determined by the ability to manage the economic consequences of short-term politics on long-term prosperity.
