The recent analysis released by EAC-PM, authored by Sanjeev Sanyal and Akanksha Arora has threw some light on the relative economic performance of the Indian states from 1960-61 to 2023 -24 and showed that post 1991, southern states has emerged as leaders. This analysis has used share in India’s GDP^(A1) and relative per capita income^(A2) as the key economic indicators to measure the relative economic performance of the states.

Consistent performance has been seen in western states of Maharashtra and Gujarat. Maharashtra has maintained the highest share of India’s GDP for almost all of the period. Gujarat’s share remained at broadly the same levels until beginning to increase rapidly in 2000-01. Both Gujarat and Maharashtra have had per capita incomes exceeding the national average since the 1960s. In Contrast, the southern states, who are the “leading performers” now, did not do exceptionally before 1991. It is fascinating to know that, the undivided Uttar Pradesh was the largest economic powerhouse in the country, with a share of 14.4 percent in India’s GDP in 1960-61. However the southern states had responded well to national and state specific policies after 1991. In 2023-24, Karnataka, Andhra Pradesh, Telangana, Kerala and Tamil Nadu together accounted for approximately 30 percent of India's GDP. In addition, per capita income of all southern states became higher than the national average after 1991. Though being a top performer state before the reforms, Uttar Pradesh regressed and worsened after bifurcation. Among the eastern states, Bihar has faced similar condition after bifurcation. The per capita income levels in Chhattisgarh and Madhya Pradesh have remained consistently low.

Among the northern states, the growth of Haryana is noteworthy. This can be explained precisely by comparing it with Punjab’s economy which has deteriorated after 1991. Punjab’s GDP share grew during the 1960s, mainly due to the Green Revolution, but fluctuated around 4.3 percent until 1990-91. It began to decline thereafter, finally reaching 2.4 percent in 2023-24. Similar trends were seen in relative per capita income too. Meanwhile, Haryana initially lagged behind Punjab on both aspects yet continued to show robust performance since 1991. Haryana's share of India’s GDP and relative per capita income now exceeds that of Punjab. This economic might of Haryana has been mostly drawn from Gurugram and its adjoining areas.

Odisha is the only eastern state to experience a significant rise in relative per capita income since 1991 after going through a consistent decline form 1960s to 1990-91. West Bengal was once the third largest contributor to national GDP. It has seen a steady downfall and its growth failed to keep pace with national trends. Assam, a north eastern state which initially had a per capita income slightly above the national, experienced a decline in its relative per capita income in 2010-11. Since then, Assam's relative per capita income has been on the rise.^(A3)

Tamil Nadu Economy

Tamil Nadu has outperformed many Indian states in terms of economic growth. It is the second largest economy in India after Maharashtra and ranks fourth in per capita income (NSDP) at current prices in 2021 – 22. The long-term average growth of Tamil Nadu economy at constant prices was 6.69 percent during 1981-82 to 2014-15 as against the all India average growth of 6.28 percent. A report published by Knight Frank India in association with the Confederation of Real Estate Developers' Associations of India, Tamil Nadu stated that ‘Tamil Nadu’s nominal GSDP would grow to $2.6 trillion by Financial Year 2047-48. This aligns with the 2030 goal of Tamil Nadu to become 1 trillion dollar economy.

The 1991 reforms and the policies implemented thereafter have led to a massive structural change in Indian economy and Tamil Nadu is no exception to it. Tamil Nadu’s service sector growth rate has undergone a notable shift from 6.91 percent in 1980s to early 1990s to 10.20 percent in the later part of 1990s. The share of service sector to the state’s GDP has also seen a considerable rise during the post reform period. The share of Agriculture declined from 24.57% of the state GDP in the 1980s to 21.85% in 1990s. Creation of Special Economic Zones has accelerated industrial growth. Tamil Nadu has been ranked first among Indian states in terms of quantum of exports from Special Economic Zones. Now, services contribute 54% to the GSDP followed by manufacturing at 33% and agriculture at 13%. (Tamil Nadu Budget, 2024-25) Tamil Nadu’s credit-deposit ratio^(A4) has remained above 100% at the end of the 2023-24 financial year. This reflects economic boom and indicates the potential of the banks to lend more. Further, Tamil Nadu is known for managing its finances in a prudent manner. Its revenue deficit, fiscal deficit and debt are kept within the norms prescribed in its FRBM act.^(A5)

The growth pattern of Tamil Nadu is almost consistent with all India growth pattern. Post 1991, the long term growth rate of both India and Tamil Nadu has reached 6.05 percent (1996-97). However, between 2005-06 and 2011-12, Tamil Nadu’s long-term average gowth rate ranged between 8.24 percent and 8.79 percent, which is above than the all India rate. Besides the COVID-19 pandemic, Tamil Nadu economy has ran into recession as the GSDP growth rate has dipped down to 7.25 percent in 2014-15 which is 6 percentage points less than the preceding peak growth of 13.1 percent in 2010-11. During this period, Tamil Nadu growth rate has gone to a very low level as compared to all India as well as other two top economies. (Gujarat and Maharshatra)^(A6) This may be due to increased globalisation. Tamil Nadu’s growth is highly volatile and vulnerable to external shocks as it is highly dependent on India and foreign nations. Yet, Tamil Nadu economy has emerged out of the recession in 2017-18 and has seen a double digit growth in the medium term. Tamil Nadu has also nullified the effect of COVID-19 pandemic on the economy by achieving 8 percent growth post pandemic. The inflation index of the state has also steadily declined from 7.29 percent in 2021-22 to 5.91 percent in 2022-23 against the national values of 9.31 percent and 8.82 percent during the corresponding period. Tamil Nadu’s per capita income has also improved from Rs. 1.54 lakh in 2021-22 to Rs 1.66 lakh in 2022-23, compared to India's figures of Rs 92,583 and Rs 98,174 in 2021-22 and 2022-23, respectively. It is evident from the past experiences that Tamil Nadu is successful in reviving from minor and major economic shocks. This can be attributed to the fact that the political economic model of the state has efficiently adapted to the New Economic Policy, 1991 and the changes came about thereafter. This in turn led Tamil Nadu to the path of sustainable economic growth.

Appendix:

1. The state's share in India’s GDP is calculated by dividing the Gross State Domestic Product (GSDP) of the state by the sum of GSDP of all states.

2. Relative per capita income is calculated as the ratio of the per capita Net State Domestic Product (NSDP) of the state as a percentage of the all-India per capita Net National Product (or Net National Income in some years).

3. The report does not consider Goa, Himachal Pradesh, north eastern states other than Assam and Union Territories other than Delhi as major states.

4. The CD ratio is a measure of the proportion of funds raised by banks through deposits that are used for lending.

5. Norms prescribed by The Fiscal Responsibility and Budget Management (FRBM) Act of 2003 are,

   a) The government is required to limit the fiscal deficit to 3% of GDP by March 31, 2021. 

   b) The government is required to limit the central government debt to 40% of GDP by 2024-25.

6. Gujarat's long-term growth rate from 1981-82 to 2014-15 was 7.46%, which was slightly higher than Maharashtra's 6.9% and Tamil Nadu's 6.7%.

References:

1. Policy Note of Industries Department (2017-18), Government of Tamil Nadu.

2. R. Srinivasan and M.S. Elayaraja (2022), “Regional Growth Pattern in Tamil Nadu”, State Planning Commission, GOTN.

3. Kripa Anantpur et al. (2022), “Impact of the COVID-19 Waves on Tamil Nadu’s Economy and Society”, MIDS Working Paper No. 241, Madras Institute of Development Studies.

4. Economic Survey of India, 2023-24

5. Policy Note of Agriculture (2023-24), Government of Tamil Nadu.

6. K.R. Shanmugam (2018), “Growth Dynamics of Tamil Nadu Economy”, Monograph 39/2018, Madras School of Economics.

7. C. Rangarajan and K.R. Shanmugam (2024), “Economic Overview of Tamil Nadu (2023-24)”, working paper 260/2024, Center for Public Finance, Madras School of Economics.

8. Sanjeev Sanyal and Akanksha Arora (2024), “Relative Economic Performance of Indian States: 1960-61 to 2023-24, Economic Advisory Council – PM, WP/31/2024.

9. Business Standard - 28 August, 2023.

About the author:

Dr.A.Duraisamy has over 30 years of teaching experience in Economics and Econometrics. He is currently Dean of SRM Faculty of Science and Humanities at SRM Institute of Science and Technology. Visit SRM College of Science and Humanities at https://www.srmist.edu.in/college/college-of-science-and-humanities/

Disclaimer: The above is a contributor post, the views expressed are those of the contributor and do not represent the stand and views of Outlook Editorial.