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November 28, 2018

Indian Economy: States of growth 2.0

Growth in Indian states does not always tango with the nation’s. Fiscal 2018 illustrates  this. India’s gross domestic product (GDP) growth slipped 40 basis points (bps) to 6.7%  that year. But growth in all, save three major states, picked up to surpass the nationalaverage.


An annual check on the macroeconomic pulse of 18 key states in fiscal 2018 throws upinteresting insights on how their rankings have shuffled since our last report, titled“States of growth”, in January 2018. We analysed the states based on three parameters –gross state domestic product (GSDP) growth, fiscal deficit and Consumer Price Index(CPI)-based inflation. Based on their overall macroeconomic performance Gujarat,Karnataka and West Bengal ranked at the top.


Significantly, no state now ranks poorly on all three parameters. All these states haveimproved on at least one out of the three parameters in fiscal 2018. Also, despite theweaker national GDP growth in fiscal 2018 on-year, some states, including Bihar, AndhraPradesh, Telangana, Karnataka, West Bengal, and Tamil Nadu, improved and grew fasterthan the national average.


Growth: India’s growth slowed in fiscal 2018 partly owing to demonetisation and glitchesin Goods and Services Tax (GST) implementation. In contrast, GDP growth for a majority ofthe states picked up. Among 18 states, only three (Uttar Pradesh, Chhattisgarh, andJharkhand) recorded GDP growth below the national average and a slowdown from theprevious year. Bihar and Andhra Pradesh leapt ahead at double digits, emerging as thefastest growing states.


Fiscal deficit: The Centre’s fiscal deficit breached the budgetary target of 3.2% of GDP infiscal 2018 and many states fared no better. 10 of them had fiscal deficit over the FiscalResponsibility and Budgetary Management (FRBM) Act limit of 3% of GDP. Bihar, Punjab,and Goa were the most fiscally stressed, while Gujarat, Maharashtra, and West Bengalwere the least.


Inflation: CPI inflation softened across most states in fiscal 2018. While inflation was thelowest in Odisha, it was the highest in Kerala. Interestingly, in most states, inflation felldespite GSDP growth rising – signalling an improving growth-inflation mix.