The drumbeats and rhetoric are fading. The melodrama is dissipating. The raucous rhetoric leaves in its wake questions about the gap between the promise of potential and reality to ruminate upon.
India's GDP is essentially the sum of sub-national growth. However state governments enjoy a free pass on the onus to enable and deliver growth in their domain. It is true there are historical and geographical reasons for divergence in output and incomes. What demands attention is the systemic apathy detaining expansion of employment led growth. The result is recent poll campaigns resemble Black Friday deals more than political contests. Effectively, sops are the political flyover bridging the gap between promise and performance.
The India Story is riveted by the potential of demographic dividend -- essentially the process through which a changing age structure can spur economic growth. India’s median age is just above 28 years. The promise of a young working age cohort is well established globally.
The saga of China harvesting demography is well documented. Success came via the sequence of policy measures. It opened up agriculture, moved the workforce to factories, invested in human capital and urbanised to average nine-plus percent GDP growth between 1991 and 2012. The template is visible in smaller economies. Vietnam leveraged doi moi -- reforms for a socialist-oriented market economy -- to register 6-plus % GDP growth between 1990 and 2015.
S&P Global, in its August 2023 report, lists the opportunity and the challenge. It states that "India’s abundant labor force makes it well placed to achieve domestic growth goals and to capitalize on global efforts to diversify supply chains". It also points out, "However, there is a clear need to accelerate labor upskilling and to strengthen women's participation in the workforce if India is to achieve its economic potential."
Moving beyond the babel for the ballot the big question which merits a debate is how well the states are harnessing the demographic advantage to harvest dividends. A good place to start would be the states which went to polls. To illustrate the upside of opportunity and the steep challenge, let's align the states in terms of area, population and GDP in current dollars.
Consider Rajasthan. India’s largest state is 3.4 lakh sq km in area with a population of 80 million with a median age of 25.6 years. In terms of area and population, it is comparable to Germany which boasts of a GDP of $4.4 trillion. Rajasthan’s GDP however, at $170 billion is closer to Ukraine and its per capita income at around $1,872 is comparable to Laos.
Madhya Pradesh has a population of 84 million with a median age of 25.9 years and is 3.08 lakh sq km in area. In terms of size, it compares with Poland which has a GDP of $842 billion and in population with Turkey with a GDP of $1.15 trillion. The GDP of Madhya Pradesh, at $150 billion, it is closer to Ethiopia and its per capita income in dollar terms at $1,686 places it closer to Senegal.
Chhattisgarh is spread across 1.35 lakh sq km and has a population of just over 29 million with a median age of 26 years. In terms of size it is comparable to Greece which has a GDP of $ 242 billion and in population with Cote d’Ivoire with a GDP of $ 79 billion. In terms of economic output, Chhattisgarh’s GDP projected to touch Rs 5.09 lakh crore or $62 billion places it alongside Serbia and its per capita income at $1,827 is comparable to that of Kyrgyz Republic.
Telangana is 1.12 lakh sq km in size and the population of 37 million is a tad older with a median age of 31 years. In area it is a bit larger than South Korea which is spread over 100.4 sq km with a GDP of $ 1.17 trillion. In population Telangana is comparable to Poland. Its GDP at under $170 billion places it between Ukraine and Kuwait and its per capita income at $3,800 is comparable to that of Bolivia.
Take Bihar and Uttar Pradesh, India’s most populous states. Bihar boasts of the lowest median age at 21.9 years, is 94,163 sq km in area and has a population of around 130 million as per the recent caste survey. In terms of size, Bihar is comparable to Hungary with a GDP of $203 billion and in population like Mexico with a GDP of $ 1.8 trillion. In terms of economic output Bihar’s GDP of $103 billion ranks with Guatemala and its per capita income of $652 just above Mozambique.
Uttar Pradesh boasts of a median age of 24.7 years, is spread over 2.4 lakh sq km and has a population of 230 million. In area UP is comparable to the United Kingdom which has a GDP of $ 3.3 trillion and in population with Brazil with a GDP of $2.13 trillion. UP’s GDP projected to touch Rs 24.39 lakh crore or $293 billion ranks it alongside Czech Republic and in per capita income at $ 952 below Togo.
One could also compare the states with states in a federal polity such as the US of A. For sure, there are wide variations in area and population besides granular economic and geographic characteristics. Income levels for instance are incomparable – the lowest per capita income in the US is $4,6300 in Mississippi -- given the size of the US economy. That said, comparisons do illustrate the potential for economic expansion -- and indeed present possibilities for aspirational models.
For instance, Rajasthan’s economy – driven by tourism, mining, petro exploration and agriculture – in many facets mirrors the economic character of Arizona. In a sense Rajasthan is where Arizona was prior to the 1950s when copper was its mainstay, when the focus was mineral extraction, lumber, cattle and crops. Today, Arizona has a big manufacturing sector with a focus on aerospace and advanced tech and boasts of a GDP of $475 billion. Rajasthan could leverage land resources, its lux advantage, stature as a leader in renewables and demography to lure advanced tech and sustainable manufacturing for global markets.
Madhya Pradesh in many ways could be compared to Minnesota of the 1960s and 1970s. Like Madhya Pradesh, Minnesota thrives on agriculture, dairying, food processing with an emerging manufacturing sector and has a GDP of $448 billion. Chhattisgarh resembles West Virginia which similarly depends on mining and agriculture and has a GDP of $97 billion. Odisha is comparable to Louisiana with a GDP of $291 billion given the similarities in economic character. The aspiration model for Telangana could be Georgia with a GDP of $767 billion. Georgia, like Telangana, has an agri base, is known for educational institutions and a destination for manufacturing.
The promise of change is located in the potential of a young population. The need to unlock demographic dividend is not just an aspiration. It is now a compulsion. The need for employment tops every opinion poll and survey conducted by platforms in the past few years. India annually adds around 8 million persons to the job market. For sure India is the fastest growing large economy but it must grow at a higher rate for it to deliver growth across the political economy.
Growth must be catalysed at ground zero and that obligation is effectively on the states. Consider agriculture. Nearly 45% of the working age populace is engaged in farming, living off a sixth of national income. There is no dearth of policy instruments. The rush to offer waivers, income support and higher MSP underline the need to install backward-forward linkages, leverage FPOs to enable commercial farming. The PM-KUSUM Yojana for solar pumps can make farming sustainable, wider adoption of agrivoltaics can raise returns on land holdings; bringing farm produce on ONDC platform can deliver access to markets.
States need to capitalise on emerging opportunities for shifting the workforce from low-income farms to high productivity sectors. Success demands states reform labour laws, enable land acquisition and unclog regulatory cholesterol.
Companies and countries are migrating from just-in-time to just-in-case economic models. India is a preferred destination for nearshoring or friend-shorting plants. Climate change is driving energy transition. India is ideally placed to ramp up capacity in renewables and leverage the potential of green hydrogen. Transnationals are looking to set up global capacity centres. The mechanism of productivity linked incentives offers states to map need and competitiveness to woo investments.
Urbanisation is a well-documented force multiplier for growth. State governments must end the perpetuation of unplanned urbanisation and plan for demand which will follow growth. There are over 3,900 Census Towns awaiting liberation. This affords states the opening to create new urban habitats and create jobs, demand, consumption, investment and growth in the process.
There is a misplaced belief that the power of propelling the virtuous cycle of growth rests on the union government. The promise of India’s potential is located in the domain of states and awaits awakening and deliverance.
Shankkar Aiyar, political-economy analyst, is the author of ‘Accidental India - A History of the Nation’s Passage through Crisis and Change , ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’ and The Gated Republic: India’s Public Policy Failures and Private Solutions. He posts on X (formerly Twitter) @ShankkarAiyar
The views expressed here are those of the author and do not necessarily represent the views of BQ Prime or its editorial team.
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