Our previous report in January 2018 focussed on gross domestic product (GDP) growth, inflation and fiscal health of states between fiscals 2013 and 2017.
In States of growth 2.0, we focus on how macroeconomic performance evolved in fiscal 2018, and offer insights on expenditure patterns, quality of spending, and fiscal sustainability.
States are also benchmarked against national trends in key metrics, which have yielded interesting contrasts.
Defying the national trend of slowdown in GDP growth in fiscal 2018, 12 out of 17 non-special states1 saw faster growth in fiscal 2018 compared with the previous five years.
But this growth hasn’t been equitable. Low-income states have not sustained high growth long enough to meaningfully bridge the per capita income gap with the high-income states. In fact, the chasm has widened.
Growth has also not quite been beneficial for job creation for the majority of states. Eleven of 17 states recorded lower than all-India growth in ‘employment-intensive’ sectors (namely manufacturing, construction and trade, hotels transport and communication services).
As for inflation, it fell across all states in fiscal 2018, compared with five years ago. However, significant inter-state differences persist with the highest consumer inflation in Kerala at 6% and the lowest in Odisha at 2.2%.
But on the fiscal front, most veered off the Fiscal Responsibility and Budget Management Act (FRBM) line.
With little fiscal legroom for the Centre, states are now the new engines of government spending (over 65% in total government spending).
Rajasthan, Jharkhand and Uttar Pradesh topped the tally in proportion of capex in state spending in the past three years.
But most states are not spending as they ought to, in areas such as health, irrigation, and education.
Finally, while the FRBM Act had helped states recover their fiscal health considerably, recent trends show they are slipping. Debt ratios (debt/GDP) have risen in many states – with the assimilation of Ujwal Discom Assurance Yojana (UDAY), farm loan waivers, and Pay Commission hikes.