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l What is the current estimates for different states?
AS PER A written reply by the government in Lok Sabha recently, PCI, at constant prices, has increased from Rs 72,805 in 2014-15 to Rs 1,14,710 in 2024-25 with an average annual growth of 5.8%. Real PCI estimates for states for 2023-24, show a wide divergence with Gujarat (at Rs 1,95,617) and Bihar (at Rs 32,227), being the highest and the lowest, respectively, among the bigger states. Following Gujarat, are Karnataka, Haryana, Tamil Nadu, and Telangana, in that order. Among the bottom five are Uttar Pradesh, Jharkhand, Madhya Pradesh, and Assam. In terms of growth rates, post-Covid, states such as Tamil Nadu, Maharashtra, and Gujarat have been registering higher growth rates. Bihar, although at the bottom of the table in terms of real PCI, with an average annual growth of 7.9% is trying to catch up.
l How states performed over the years
A LOOK AT real PCI growth across the states since 2011-12 shows that states such as Gujarat, Karnataka, Tamil Nadu, Odisha, Andhra Pradesh, and Telangana have more than doubled their real PCI. Gujarat and Karnataka have witnessed an average annual growth of over 9% during this period.
But there are concerns about the larger states such as Bihar, Chhattisgarh, Jharkhand, Rajasthan, Uttar Pradesh, Uttarakhand, and West Bengal that are lagging in PCI growth. Indeed, based on the current growth rates, these states might take a much longer time to double their real PCI. For instance, going by the present growth trends, Bihar, Uttar Pradesh and West Bengal could take twice the time that of Gujarat to double the real PCI.
l Disparity in real PCI growth
THERE ARE DIVERGENCES in terms of real PCI (or its growth rate) across the states. But it is important to understand whether over the period is there any convergence across the states or not. A simple coefficient of variation estimate suggests that over the years, the variation among the states have declined in terms of real PCI and also in its growth rate. (Coefficient of variation for real PCI growth has declined much sharply, from 0.91 in 2013-14 to 0.24 in 2023-24). This is also witnessed in states’ average real PCI growth increasing from 4.7% in 2013-14 to 7.2% in 2023-24.
A bigger concern is that, among the states, a few of them experienced more variation over time. High real PCI states appear to have less variation compared to lower income states. While resource rich states such as Odisha, Goa, and Jharkhand are expected to have higher variation due to royalty incomes, it is important to understand why other states such as Kerala, Maharashtra, Uttarakhand, and West Bengal experience higher variation in their income growth.
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l Why some states are doing better
STUDIES SUGGEST A number of reasons — initial conditions to differential impact of economic reforms. While it is a fact that post-reforms growth has benefited all the regions, some regions have benefitted much more than other regions as a number of studies have shown. This led to India adopting an inclusive growth strategy. A look at the trends do suggest that, with a few exceptions, the states that have expanded their share of manufacturing and services are the ones that have benefitted most in terms of growth. For this lot, more factor market reforms are necessary that will lead to a structural shift away from agriculture to manufacturing and services. The good news is that variation among states since 2014-15 is declining and this could be due to efficient implementation of various welfare schemes. Here, as some of our studies have shown, effective governance and ease of doing business at the states becomes utmost important.
The writer is director, Madras School of Economics. Views are personal.