Karnataka And Uttar Pradesh At The Forefront Of Growth – The Pandemic Effect

As the financial year 2021-22 came to an end, one saw a lot of jousting between ministers of different states, about where economic growth of India is coming from. Triggers for such one-upmanship may be political; however, it is extremely critical for businesses to understand geographical distribution of income in the country to as granular a level as possible.

Towards this end, we decided to examine the budgets and economic surveys of various state governments to understand which areas are growing rapidly.

In this essay, state-level data is reviewed to look at geographical spread of growth. In a subsequent write-up, data from key cities and districts will be dwelt on to understand growth dynamics. Most states have already published GSDP estimates for 2021-22.

For a few states, where GSDP data is missing, their last GSDP estimate has been multiplied by the national average growth to arrive at estimated GSDP. Fortunately, these estimates are very few.

Impact of pandemic at state-level

As with any country, there is economic concentration in a few states:

What is remarkable is the incremental growth is not coming in the same order as the size of the economy, with UP and Karnataka delivering a two-year Compounded Annual Growth Rate (CAGR) in excess of 12 per cent. These rates are significantly higher than the India growth. Maharashtra, in this two-year period, lags the India growth rate, slightly.

Such sharp re-location of growth in a two-year period, has huge implications for businesses, whether their order management is driven from physical stores or from virtual ones. One can venture to suggest two possible hypotheses for the re-location of growth, driven primarily by the pandemic:

- Massively services driven economy like Karnataka (66 per cent), has been able to take advantage of the Work-From-Home (WFH) environment to grow at similar pace as past years.

- A state like Uttar Pradesh has been able to utilise workers who migrated back, in productive work, especially in infrastructure build-out.

The famous $4,000

Experts in consumer behaviour mention that once the GDP per capita (GNI) crosses $4,000 (about Rs 3 lakh) consumption basket changes significantly. One can keep that in mind, while looking at GSDP Per Capita or Gross State Income (GSI).

- 9 states/Union Territories (UTs) have GSI in excess of Rs 3 lakhs.

Here is a look at the large five states comprising about half of Indian economy:

Economic growth coupled with more disposable income (as seen in GSI) is clearly seen in Karnataka, closely followed by Gujarat. Tamil Nadu and Maharashtra have very close GSI, with the slower growth in the last two years hampering GSI in Maharashtra. While the absolute incremental amount of growth in Uttar Pradesh has been the highest in the last two years, the vast population of the state keeps the GSI quite low.

Analysis summary

- Pandemic has caused significant re-location of growth over the last two years. This is clearly seen in the GSDP and GSI data for the last two years.

- Perhaps, it was an underlying trend going back to earlier years, which was exacerbated by the pandemic related migrations and economic activity. This will be known over the next few years, as more economic activity confirms and rejects this hypothesis.

- Credit growth data provides some corroboration of re-location of economic growth. I had commented about this last year. In this light of the GSDP growth and last year’s credit growth, practitioners could start paying serious attention to RBI’s credit and deposit growth data, which is available at good granularity and frequency, for leading indicators of growth in different parts of the country.

- Uttar Pradesh and Karnataka have emerged as drivers of Indian economy.

A Practitioner’s view

This was done by mapping every single village (across the country) and its desirability for an immediate merchant location, using Aaloka extensively for this purpose. This kind of structured approach to distribution network has delivered sustainable, profitable growth to the newly listed entity.

In summary, the emergence of Karnataka’s economy with its size and disposable income is quite evident. It is quite poetic that a Kannada movie, the Yash-starrer KGF2 (with all its dubbed avatars), is setting box-office records in India.

In the next part of this blog, we will examine data at more granular level – district and city level, by considering some of the states discussed in this essay.

The entire analysis for this blog has been done using Aaloka, a unique location-analytics platform, with external data benchmarks. Users can try out the platform for free at beta.aaloka.in.

This post was first published on latlong.ai

Also Read: What Are The Factors That Can Derail India's Growth Story This Year?