A plan for states to propel the economy
Five Indian states account for around 40% of GDP. Other states can emulate their high-performance trajectory by announcing aspirational targets, and focusing on import, industrialisation, pro-business reforms and urbanisation
The locus of India’s development is at the state level. Almost two-thirds of the expenditure is by state governments, which covers the most critical aspects of development. While many chief ministers (CMs) are now focused on welfare and service delivery, they also need to prioritise economic growth. Apart from being the engine of prosperity, rapid economic growth also creates resources that the government can redistribute.
Five states — Maharashtra, Tamil Nadu, Gujarat, Uttar Pradesh (UP) and Karnataka — account for around 40% of India’s Gross Domestic Product (GDP). Other than UP, all of them have a per capita Gross State Domestic Product (GSDP) above the national average. UP wants to catch up with others as CM Yogi Adityanath has recognised that with accelerated economic growth, he can create jobs and fulfil people’s aspirations. I call these five states the Five Horsemen as I see them pulling away from the rest. The competition is fierce, with several states such as Delhi, Haryana, Madhya Pradesh, Odisha, and Telangana being well poised to keep pace. However, this is also an opportunity for states such as West Bengal, Rajasthan, Kerala and Punjab to emulate other states, and return to a high-growth path.
China’s example is instructive: Five Chinese provinces — Guangdong, Jiangsu, Shandong, Zhejiang and Henan — account for 40% of China’s GDP. These provinces on the eastern seaboard (Henan is a bit inland) have led the nation’s miraculous economic growth over the past four decades. Guangdong and Jiangsu are each within 15% of the $2-trillion GDP mark. Shandong and Zhejiang crossed the $1-trillion threshold in the past few years and Henan will do so in the next year or two. Eight other provinces/municipalities are at the $0.5-1-trillion mark, and with aspirations to enter the trillion-dollar club.
What can we learn from the Five Horsemen and the Chinese miracle?
Aspirations and Targets:Four of the Five Horsemen have announced an aspirational target of a $1-trillion GSDP, and the fifth one (Gujarat) has a medium-term goal of achieving $0.5 trillion. Maharashtra is projected to achieve a $450 billion GSDP this fiscal year and can reach the trillion-dollar goal the earliest. The other four states are at $250-300 billion GSDP and even though the trillion-dollar target may seem distant, these states are determined to accelerate growth and get there sooner. India’s structural transformation has been slow, so these states must reduce the percentage of the labour force in agriculture by 10 points by 2030, and consequently increase the share of services and industry by five percentage points each.
Chinese provincial leaders are fiercely competitive, and their key performance indicator (KPI) is economic growth. Lower-level officials at the 3,000-odd county divisions are held accountable for economic growth and job creation. Every state must follow this path and set aspirational targets following their current baseline.
Exports: Four of the Five Horsemen (other than UP) are coastal states that have prioritised exports — collectively, they account for almost 65% of India’s exports. They will continue to dominate and three other states (Haryana, UP, Telangana) each account for almost 5% of total exports. These states must supercharge exports (three-four times the current level by 2030) with a particular focus on labour-intensive exports. Four Chinese provinces account for 64% and another three account for around 15% of their national exports. All, but one, are coastal states, and the same strategy can be taken up by the Five Horsemen.
Industrialisation and pro-business reforms: States must be pro-business and investment. Some states such as Gujarat, Tamil Nadu and Maharashtra (especially the western region) have industrialised rapidly. UP and Bihar have diverged with the former making capital outlays that are 4-5x the latter’s to create the enabling infrastructure for industrialisation (roads and industrial parks). UP plans to spend over 20% of its net expenditure in FY23 on capital outlays while Bihar and West Bengal linger around 12-13%. India can grow at over 10% if all our CMs spend a larger percentage of the budget on targeted and effective capital expenditure, create the enabling conditions for business, and have the right attitude to attract private investment.
Urbanisation: States must proactively increase the level of urbanisation by five percentage points by 2030. Cities are the engine of growth for services and innovation, which, in turn, leads to improved productivity and higher wages. Investment in urban transport (particularly metro lines), higher floor area ratio, and affordable housing will increase the size and density of cities. States should follow the National Capital Region (NCR) model to create mega clusters — e.g., Greater Lucknow, the State Capital Region, which is already work in progress — with a 100km radius around the core centre. Services are the largest share of GSDP and must grow at 10+ % real growth rates per year.
If India wants to catch up during Amrit Kaal (the run-up to 2047), then every CM must make economic growth their top priority, set aspirational 2030 targets, develop a strategic and implementation plan, appoint the best officials in key posts, prioritise enabling infrastructure, drive better outcomes in social sectors, and usher in real ease of doing business. This is the surest way to reduce poverty.
My personal dream is that the Five Horsemen will all cross the trillion-dollar mark by 2035, and many others will be galloping swiftly behind them.
Ashish Dhawan is the founder-CEO of The Convergence Foundation (TCF) and founding chairperson, Ashoka University The views expressed are personal
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