Karnataka May Overtake Tamil Nadu Pretty Soon As India's No 2 State; UP Is Dark Horse For 2030s

Many states have joined the race to become $1 trillion economies.

The top five states by gross state domestic product (GSDP) — Maharashtra, Tamil Nadu, Karnataka, Gujarat and Uttar Pradesh — all want to become $1 trillion economies, but the question is when can they do it?

Maharashtra, which will probably the first state to reach that milestone, is currently a $385 billion economy (2021-22), at a rupee-dollar exchange rate of 83, according to Reserve Bank of India data.

Even if it grows by 10 percent annually for the next seven years, it will be less than $800 billion by 2030. This means even the biggest state will not make it to $1 trillion in this decade.

A Business Standard calculation says that it may take Maharashtra 11 years to reach that target at the current rate of growth. Karnataka, Gujarat, Tamil Nadu and Uttar Pradesh will make it in that order over 12-16 years.

From the point of view of our competitive federalism, though, the more interesting question is not who will get to $1 trillion first — no questions, Maharashtra will be the most likely candidate, given that it is No 1 in terms of GSDP by far — but who will make it second.

Or rather, even without taking the rupee-dollar conversion rates into account, who will become the No 2 economy in India after Maharashtra?

Currently, Tamil Nadu is No 2, but both Karnataka and Gujarat are pushing it hard from below.

In 2021-22, Karnataka’s GSDP was less than $2 billion behind Tamil Nadu, and, if it continues to remain the startup capital and Silicon Valley of India, the state will become India’s No 2 state shortly.

In the four years between 2017-18 and 2021-22, Karnataka's economy grew by nearly 54 per cent against Tamil Nadu's 41 per cent. That is a huge gap in performance. 

Uttar Pradesh is clearly falling behind, and needs to buck up after the Covid blow.

It is worth noting that before Covid, Uttar Pradesh was the country’s No 3 state, ahead of Karnataka and Gujarat, but just behind Tamil Nadu (see table).

But the state’s high dependence on agriculture and migrant labour remittances wounded its economy much more than the rest.

It fell back in 2020-21 and 2021-22, both Covid years, when migrants went back to their villages and stopped earnings from urban areas.

Net result: UP is now No 5.

However, given its favourable demographics — it is the only state among the top five to have a total fertility rate above replacement levels — and ongoing heavy investments in infrastructure, not to speak of its proximity to the National Capital Region and the likely economic lift expected after the Ram Mandir comes up in Ayodhya, the state could start reversing its decline.

It could be the dark horse of the 2030s.