What This Paper By Sanjeev Sanyal And Aakanksha Arora Reveals About The Relative Economic Performance Of Indian States

The Economic Advisory Council to the Prime Minister has come out with a paper titled ‘Relative Economic Performance of Indian States: 1960-61 to 2023-24’. The authors of this paper are Sanjeev Sanyal and Aakanksha Arora. 

In the paper, the authors study the performance of Indian states between 1960-61 and 2023-24 on two metrics:

(1) The share of the state GSDP in India’s GDP

(2) Relative per capita income (a state with the exact same per capita income as that of India is said to have 100 per cent per capita income relative to the national average). 

Remittances are not included in the study and all data is in current prices. 

Two takeaways stand out from the study above all others:

1. The stagnation and slump of Punjab 

Punjab

While Haryana and Punjab were divided in 1966, the paper claims that relevant data for the states was available from 1960 onwards. ‘This was done by states later on using some actual data and relevant indicators to come up with the estimates’. 

Punjab’s share in India’s GDP grew during the 1960s but plateaued at 4.3 per cent until 1990-91. From this point, a decline started and Punjab’s share in the national GDP was only 2.4 per cent in 2023-24. 

Similarly, Punjab’s per capita income, which peaked at 169 per cent of the national average in 1970-71, dropped to 106.7 percent in 2023-24. This was even lower than the 119.6 per cent in 1960-61. 

The uptick in Punjab’s numbers in the 1960s coincides with introduction of the ‘Green Revolution’ policies in northern India, something which the paper alludes to itself. However, the authors stop short of commenting on what brought about the plateauing and subsequent decline.  

In contrast, Haryana, initially behind Punjab, saw steady growth. Its GDP share now surpasses Punjab's, with a relative per capita income that’s 176.8 percent of the national average, compared to Punjab's 106.7 percent in 2023-24.

What led to the decline in Punjab? 

The authors themselves speculate in the piece: ‘Did Punjab's focus on agriculture contribute to a form of 'Dutch disease,' hindering its transition to industrialization?” 

A ‘Dutch disease’ in simple words is when extraordinary growth in one sector in an economy leads to a neglect and decline of the other sectors. 

In Punjab’s case, it can be interpreted to mean that with the advent of the Green Revolution, the agriculture sector performed so well that economic participants focussed on it exclusively, leading to an insufficiently diversified state economy. And when the Green Revolution boost began to wear off, the costs of putting all eggs in one basket hit home.  

Another inference from the ‘Dutch disease’ explanation in Punjab’s case can be that while the Green Revolution did bring in benefits, it skewed the income distribution in Punjab. Land ownership in the state may have been highly unequal, with agricultural gains disproportionately benefiting those who already controlled most of the land.

It’s also possible that a substantial portion of individuals from this group did not reinvest their wealth into the state and national economy but rather chose to emigrate abroad.

As per the paper, West Bengal, which held 10.5 per cent of India’s GDP in 1960-61, accounts for just 5.6 per cent in 2023-24. Its per capita income, which was 127.5 percent of the national average in 1960-61, dropped to 83.7 percent of the national average by 2023-24.

Notably, Bengal’s decline comes despite it having a significant head start at the start of the study period and inspite of being a coastal state.  

On the metric of share in national GDP, Bengal’s fall started in the 1960s itself, and continued steadily, even after the onset of economic liberalisation. 'By 2023-24, West Bengal's share had dwindled to just 5.6 percent, down from 10.5 percent in 1960-61, marking the largest decline in India's GDP share among states.' 

On the relative per capita income metric, West Bengal stood third among all states in 1960-61, at about 127.5 per cent per capita income of the national average—higher than states like Gujarat, Karnataka, Tamil Nadu, and Kerala. By 2023-24, this had dropped to 83.7. 

In fact, West Bengal’s per capita income had dropped below the national average by 1980-81 itself, reaching 82.4 percent by 1990-91. It saw a brief improvement over the next decade before continuing its downward trend.

One of the popular explanations given for the economic decline of West Bengal is its 34 years of Communist rule. However, if the current paper’s findings are to be believed, that is an insufficient account of the problem. The Communists only secured power in Bengal in 1977, and Bengal’s numbers show a decline since as early as 1960-61. 

Clearly, the paper flags what should be the topic of more focussed research: the economic decline of West Bengal. 

Other highlights

Apart from the points on Punjab and West Bengal, the paper also highlighted that: 

1. The southern states have seen a significant uptick in their numbers post the economic liberalisation of 1991

By 2023-24, Karnataka, Andhra Pradesh, Telangana, Kerala, and Tamil Nadu collectively contribute around 30 per cent of India's GDP. Additionally, since 1991, the per capita income of all southern states has surpassed the national average.

2. Western India (Maharashtra, Gujarat, Goa) continues to outperform other regions. 

Maharashtra has held the largest share of India’s GDP for most of the period. Gujarat's share remained steady until 2000-01, then rose from 6.4 percent to 8.1 percent by 2022-23. 

Gujarat demonstrating surpassing Maharashtra in per capita income in 2010-11, suggests that the state received a boost to its economy in the decade before. In fact, the curve for Gujarat’s per capita income shows a steep rise around 2001-2002. Coincidentally, 2001 was when Narendra Modi became the state’s chief minister. 

3. Lot of work left to do in Uttar Pradesh and Bihar

In the 1960s, undivided Uttar Pradesh was India's largest state economy, holding 14.4 percent of the national GDP in 1960-61. By 2020-21, UP's GDP share stabilized at 8.2 percent, rising slightly to 8.4 percent in 2023-24. 

‘Share of undivided Bihar was 7.8 percent in 1960-61. It then declined for four decades until 2000-01, before it stopped deteriorating. It has since then stabilized around 4.3-4.4 percent for undivided Bihar.’

Both states have a lot of ground to cover on the relative per capita income front as well. In 2023-24, Uttar Pradesh’s per capita was around half of the national average and Bihar’s was merely one-third. 

The one ray of hope for Uttar Pradesh is that both its GDP share and relative per capita income curves are showing slight upticks from around 2020. The next decade is crucial. 

4. Delhi and Haryana have performed well in the study and Haryana today stands ahead of Punjab on both the metrics. 

5. Madhya Pradesh has shown significant turnaround since 2010 after lagging behind for five years.

6. Eastern India continues to struggle economically even as Odisha has seen a compelling turnaround in its numbers since 1990-91.

7. Sikkim is the star of north-eastern economies. So much so, that over the last two decades, it’s per capita income has surged from 100 percent of the national average in 2000-01 to 320 percent in 2023-24. Assam on other hand, with a per capita income of 103 per cent of the national average in 1960-61, saw a decline to 61.2 per cent by 2010-11, before rising to 73.7 percent in 2023-24.

A two-item wishlist 

Given that the Economic Advisory Council is now issuing such papers, it would be advantageous and informative for future publications to include:

1. District economy 

It is likely true in some or full measure that the continued dominance of Maharashtra is in fact the continued dominance of Mumbai; the surge of Karnataka is the surge of Bengaluru; the uptick in Haryana is the uptick in Gurugram; and the decline of West Bengal is actually the decline of Kolkata. 

A district wise study would give us a clearer picture of the economic performance of states, akin to switching from watching a video in 144p to 1080p. 

If the gap between Bihar and Karnataka deserves academic interest, the gap between Bengaluru and Kalburgi does too. 

Economy mega-clusters

There are three of these in India right now: the Ahmedabad-Surat-Mumbai corridor; the Bengaluru-Chennai-Hyderabad triangle; and the National Capital Region. 

A paper tracing the trajectories of these three economic regions and how they compare with each other on various economic indicators would most likely be a valuable addition to economic literature besides being useful to policy-makers and academics.

As this Swarajya piece from 2018 shows, the clustering of economic activity in some states (or regions) is a more common phenomenon than one might think.

A paper studying this in the context of India would help send the message that our policymakers look at agglomeration not necessarily as a problem to be solved but as a feature to be leveraged.