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The inequality in economic development among Indian states is a striking feature in the country’s economic history. Such disparities are not unique to India; they are often inherent in the development process itself. Across the world, uneven regional development is a common phenomenon, as observed in countries like the UK, the USA, and China. In India, this regional disparity has been evident since independence. Some states have surged ahead economically, while others have lagged behind or remained stagnant.

Economic disparities at the time of independence

One of the most notable early examples of regional economic strength was West Bengal. In 1947, the state accounted for around 27% of India’s gross industrial output. While Maharashtra was dominant in cotton textiles, West Bengal led in jute textiles. Most of India’s pharmaceutical industries were concentrated in Greater Calcutta. The state also boasted a robust engineering and metalworking sector. Howrah, in particular, earned the nickname “the Sheffield of India” due to its engineering prowess during World War II.

At that time, West Bengal had the highest per capita income, Calcutta was India’s largest port, and the state was well-equipped with raw materials like coal and steel, skilled manpower, and communication infrastructure. Only Maharashtra (including present-day Gujarat) slightly outpaced West Bengal in terms of industrial GDP.

However, with the beginning of economic planning, West Bengal’s prominence began to wane. Other states such as Maharashtra, Madras (now Tamil Nadu), and Punjab began to advance more rapidly. Over time, West Bengal slipped to the lower end of the top 10 states in various economic metrics. This widening gap among states became more pronounced during the liberalization era that began in 1991.

Present-Day scenario: Southern states take the lead

A recent study by Sanjeev Sanyal and Ankush Arora, published by the Economic Advisory Council to the Prime Minister and titled “Relative Economic Performance of Indian States: 1960-61 to 2023-24”, highlights the growing economic dominance of India’s southern states—Karnataka, Andhra Pradesh, Telangana, Kerala, and Tamil Nadu. In 2023–24, these five states together contributed over 30% to India’s GDP. Their accelerated growth began with the economic reforms of 1991, although they were not top economic performers before that.

Among them, Karnataka and Telangana have emerged as economic powerhouses. Although Kerala’s economic growth has been relatively slower, the per capita income of all five states now exceeds the national average, the study notes.

Eastern States struggle to keep pace

In contrast, eastern states, particularly West Bengal, have experienced economic stagnation. Once the third-largest contributor to national GDP at 10.5% in 1960–61, West Bengal’s share fell to just 5.6% by 2023–24 — the sharpest decline among all Indian states. Its per capita income, which was 27% above the national average in 1960–61, declined to just 83.7% of the national average by 2023–24.

This long-term downward trend began as early as the 1960s and continued even after liberalization. The study also points out that while most maritime states have outperformed inland regions, West Bengal remains an exception despite its access to the sea.

The overall situation in eastern India is similarly concerning. States like Bihar, Odisha, Jharkhand, and Chhattisgarh continue to rank among the poorest in the country. Bihar maintains the lowest per capita income, although Odisha has shown some improvement—from 55.8% of the national average in 2000–01 to 88.5% in 2023–24.

Smaller States with big gains

Despite their size, states like Sikkim and Goa have made remarkable economic progress. Sikkim’s per capita income rose from 93% of the national average to 319% in 2023–24, while Goa’s increased from 144% in 1970–71 to 290% in 2023–24. These two states now enjoy the highest per capita incomes in the country.

Other high-performing states include Delhi (250.8% of the national average), Haryana (176.8%), Maharashtra (150.7%), Gujarat (160.7%), Telangana, and Karnataka.

Explaining the growing income disparities

In general economic terms, income inequality among states is not surprising. Investors naturally prefer regions offering higher returns. During the era of centralized planning under the Planning Commission, political considerations often influenced investment allocation. States with more political clout received greater support, which partly explains the relative decline of West Bengal and the limited growth of other states.

Since liberalization, states have assumed a greater role in attracting investments and competing for both domestic and foreign capital. This competitive federalism has led to uneven development, with some states significantly outpacing others.

Economists continue to analyze the root causes of this rising disparity. A recent study by Taniya Ghosh Kaustubh, published in Economic and Political Weekly (February 8, 2025), examines the issue using data from 20 states between 2000 and 2019. The study identifies differences in productivity growth and “steady states” as key drivers of growing per capita gross state domestic product (GSDP) inequality. Other contributing factors include population growth rates, the ratio of bank credit to GSDP, and the relative shares of agriculture and industry in each state’s GSDP.