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November 23, 2017

Indian Economy: State of states

Macro-economic developments at the national level and central government actions usually take the center stage. But these days, a lot of action is takingplace at the state level as states are getting exposed to competition and now have the responsibility for some key reforms such as land and labor. The averagegross domestic product (GDP) growth rate for states ranged from 3% per year in Goa to 10% per year in Gujarat during fiscals 2013 to 2016. Among the 12 stateswhose data was available for fiscal 2017, 7 have grown faster than the national average, with Madhya Pradesh, Andhra Pradesh and Bihar leading the pack.


Poorer states have to grow faster to catch up. Among poorer states, Bihar and Rajasthan lost the tag of fast growing between fiscals 2013 and 2016. Thesectoral pattern of growth in states has implications for job creation. After agriculture, construction and manufacturing are the two key labor-intensivesectors. Gujarat is the top performer in construction and manufacturing growth, and among poorer states, Bihar and Chhattisgarh have witnessed fastermanufacturing growth. These states, therefore, are likely to have been more successful than others in job creation. The share of manufacturing in GDP hasgone up in Chhattisgarh, Gujarat, Goa and Bihar. Its share in Gujarat’s GDP (at 34.4% in fiscal 2016) is approaching that of China. Maharashtra, another highlyindustrialized state, is lagging here.


The pace of increase in prices varies across states. The good news is that it has fallen across states between fiscals 2013 and 2017. During this period, averageinflation in Gujarat, Madhya Pradesh and Haryana has been below the national average of 6.8%. Interestingly, these states have the highest average GDPgrowth. So, no growth inflation trade-off here.