03

The Economic Advisory Council to the Prime Minister (EAC-PM) recently released a working paper titled “Relative Economic Performance of Indian States: 1960-61 to 2023-24”. The paper analyzes the relative economic performance of Indian states using two key indicators: (1) Share in India’s GDP and (2) Relative Per Capita Income (PCI). Before delving into the findings, it’s important to understand the methodology behind these indicators.

Methodology

The working paper calculates a state’s share in India’s GDP by dividing the Gross State Domestic Product (GSDP) of the state by the total GDP of all states. The Relative PCI is determined as the ratio of the state’s per capita Net State Domestic Product (NSDP) to India’s per capita Net National Product (NNP), presented as a percentage.

One key point to note is that per capita NSDP figures do not include remittances, which can be significant for states like Kerala, Bihar, and Uttar Pradesh. The EAC made adjustments for state bifurcations and other factors to ensure the data remains comparable over time.

The analysis, conducted at current prices, spans from 1960-61 to 2023-24, providing a comprehensive view of state performances under evolving national and state-specific policies. The states are divided into larger and smaller categories for comparison.

Key Findings

Shares in India’s Economy

The EAC’s analysis reveals notable shifts in the economic performance of Indian states following the economic liberalization of 1991. States like Karnataka and the undivided Andhra Pradesh, once considered mediocre performers, have shown remarkable progress post-liberalization.

Some patterns, however, have remained consistent. West Bengal continues to experience a decline, while states like Gujarat, Haryana, Delhi, and Maharashtra have consistently performed well.

In the 1960s, Uttar Pradesh (then undivided) accounted for 14.4% of India’s GDP, making it the largest contributor. Maharashtra followed with 12.5%, West Bengal with 10.5%, and Tamil Nadu at 8.7% (Chart 1). Chart 1 – Top Five States by Share in India’s GDP in 1960-61

In the 1960s, undivided Bihar’s GDP share was larger than that of both Gujarat and Karnataka combined. The combined GDP of these five states made up 54% of India’s total GDP. However, the economic landscape has since shifted significantly.

During India’s independence, major industrial clusters were located in the presidency cities of Calcutta, Bombay, and Madras, which naturally led to West Bengal, Maharashtra, and Tamil Nadu becoming economic powerhouses by the 1960s.

The trajectory for these states has diverged significantly since liberalization. Maharashtra’s economic performance remained largely stable, although its GDP share saw a slight decline in recent years, dropping from 14.5% in 1990-91 to 13.3% in 2023-24. Meanwhile, West Bengal saw the steepest fall in GDP share, declining from 10.5% in 1960-61 to 5.6% in 2023-24.

In contrast, Tamil Nadu has experienced a resurgence. While its share dropped to 7.1% in 1990-91, it climbed back to 8.9% by 2023-24, reflecting a post-liberalization economic boost.

Rise of Southern States

A significant trend following liberalization is the rise of southern states as economic superpowers, particularly Karnataka and Telangana. Karnataka’s share in India’s GDP, which stood at 5.4% in 1960-61, remained stable until 1990-91. However, after the economic reforms, Karnataka’s GDP share grew steadily to 6.2% in 2000-01 and 8.2% by 2023-24, positioning it as the third-largest contributor to India’s GDP.

Similarly, undivided Andhra Pradesh (including Telangana) saw its share rise to 9.7% by 2023-24, an increase of 2.1% since liberalization, largely driven by Telangana’s economic growth. Andhra Pradesh’s share has remained relatively stable post-bifurcation.

Conclusion

The EAC’s working paper highlights significant shifts in the economic landscape of India’s states since the 1960s, with liberalization acting as a turning point for many regions. The study reveals that overall the Southern States share in India’s GDP accounts for 30.6% in 2023–2024. While some states like Maharashtra and Tamil Nadu have managed to maintain or boost their GDP shares, others like West Bengal have seen sharp declines. The southern states, particularly Karnataka and Telangana, have emerged as key players in the post-liberalization era, contributing significantly to India’s overall economic growth. 

—  The Author is an Independent Economic Policy Analyst based in New Delhi