AUSTRAL AFFAIRS: The South’s GSDP rankings tell a developmental story

Despite getting short-changed in terms of allocation of a lower share of Central tax revenues, the South stands its own on growth parameters

ByV V P Sharma

Published Nov 22, 2023 | 6:42 PMUpdatedNov 22, 2023 | 6:42 PM

<span style="color:#ce2525;">AUSTRAL AFFAIRS:</span> The South’s GSDP rankings tell a developmental story

The time for next year’s budget preparations is closing in, and the projections of Gross State Domestic Product (GSDP) and per capita GDP for 2023-2024 show four of the five states in South India figuring in the top 10 states ranked for financial health and prosperity.

The fifth state, Kerala, is ranked eleventh.

That the five southern states figure at the top is indicative of the region’s economic sagacity despite facing the brunt of selective devolution of Union government funds, thanks to a highly politicised definition of federalism.

The data is based on a 12 September report of Forbes India with an introduction saying: “While the GDP of India in 2023 has reached $3.75 trillion in 2023, the respective GDP of Indian states showcases a vibrant picture of growth and development across regions. By examining the GDP and per capita GDP of Indian states, we can gauge each state and territory’s economic performance and growth rate.”

GDP, or the gross domestic product, is a parameter to measure the value of all goods and services produced in a particular region. GDP per capita is a measure that represents the average economic output, or GDP per person, in a country. It is estimated by dividing the total GDP of a country by its population. Both these parameters gave an excellent notion of how much wealth the population holds in a particular region.

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How the states stack up

Maharashtra tops the list with a projected GSDP of ₹38.79 lakh crore in the financial year 2023-2024 and a per capita GDP of ₹2.24 lakh.

States ranked by GDP.

States ranked by GDP.

Tamil Nadu comes second overall and first among the southern states. It has a projected GSDP of ₹28.3 lakh crore and a per capita GDP of 2.73 lakh.

Karnataka comes fourth after Gujarat and has a projected GSDP of ₹25 lakh crore and a per capita GDP of ₹3.01 lakh.

Andhra Pradesh is eighth, preceded by Uttar Pradesh, West Bengal and Rajasthan. Its projected GSDP is ₹14.49 lakh crore and a per capita of ₹2.19 lakh.

Next, at the ninth spot, is Telangana, with ₹14 lakh crore as the projected GSDP figure and a per capita of ₹3.08 lakh.

Madhya Pradesh comes tenth, followed by Kerala at the eleventh rank with a projected GSDP of ₹11.3 lakh crore and per capita GDP of ₹2.33 lakh.

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Governance mantra

Renowned data scientist and author RS Nilakantan told South First the reasons for the South’s collectively rich performance are not far to seek.

“The reason for southern states doing well is simple: Governance. Human potential is what drives growth in the 21st century. The first step to achieving human potential is a healthy and well-educated population. That necessary condition of human potential is what the South has achieved.”

A closer look at the southern states reveals the developmental foci.

In culturally vibrant Tamil Nadu with a solid industrial base, the Foreign Direct Investment (FDI) inflows between 2019 and 2023 totalled $8.5 billion. The automotive, textiles, and information technology (IT) sectors drive the state’s economy. Chennai, the capital city, is a central hub for IT and manufacturing.

With FDI numbers at $44.46 billion, Karnataka ranks second in South India and next only to Maharashtra at the national level. Driven by the technology industry, it boasts the fourth-largest technology cluster in the world. Its strategic location, business-friendly policies, and innovation drive its economy.

Andhra Pradesh fares much lower on the FDI front; its total FDI in the given period is just $796 million. However, it significantly contributes to the national GDP thanks to agriculture, textiles, pharmaceuticals, and IT.

Telangana is a notch higher with $4.74 billion in FDI inflows, and the nascent state has seen remarkable industrial growth with a heavy focus on IT, biotechnology, and manufacturing.

The Confederation of Indian Industries (CII), in a report this October, summarised the South story: “Within the services sector, the Southern region accounts for a substantial 31 percent share, with Karnataka and Tamil Nadu emerging as the primary contributors. In the industrial sector, the region contributes 28 percent to the nation’s industrial output, with Tamil Nadu taking the lead. In agriculture and allied sectors, it contributes 28.5 percent to the national agricultural output, with Andhra Pradesh playing a pivotal role.”

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Unequal devolution

Before a closer inspection of the issues with South India, here is something about the Union government’s role in the economic growth of each of the five states.

The Union government has just released ₹72,961 crore in tax devolution to all states for November. The ruling BJP has described it as a “Diwali gift”. The share of the five South Indian states hardly compares with the latter’s substantial contribution in taxes.

Tamil Nadu received ₹2,976.10 crore. Karnataka’s share came to ₹2,660.88 crore. Andhra Pradesh and Telangana merited a share of ₹2,952.74 crore and ₹1,533.64 crore, respectively. Kerala got ₹1,404.50 crore.

Collectively, the South’s share came to ₹11,527.86. Compare this with the share of India’s most populous state, Uttar Pradesh, which stood at a whopping ₹13,088.51 crore. Bihar, also densely populated, got ₹7,338.44 crore.
The devolution announcement got a hot reception on social media, with many calling the allocations unfair.

Abinesh Nagendran, an X user who “loves economic data” posted, “Ridiculous devolution formulae by Union Government. The South is getting punished by the Union Government both politically & financially. Before setting up the next Finance Commission (16th), Southern states must unite together & ask for their rightful share of money through devolution.”

Data scientist Nilakantan agreed that the Southern states must raise their voice. “State governments in south India are constrained by a profligate Union. States should ask the Union these questions on fiscal discipline because they are asking themselves that. After all, the Union runs its budget for a large part on the back of money from these southern states!”

He told South First the South faces several “threats”. “Overt centralisation is probably the biggest. The threat of delimitation and the threat of usurpation of state’s rights in areas where state governments have delivered, which has resulted in this environment, is real. Finally, the skewed horizontal devolution of union finances is another threat.”

Skewed devolution has its impact, though other factors also contribute to heavy borrowing by the southern states. In the second quarter of 2023-2024, Telangana, Tamil Nadu, Kerala and Andhra Pradesh borrowed quite higher than they planned to, with some states raising money from the market and at least one state not even doing that. The higher a state’s capital expenditure, the higher the borrowing.

Still, per capita incomes in South India have gone up fast. Poverty levels are decreasing thanks to political stability and, to an extent, quality governance. This is quite in contrast to around five decades ago when poverty figures were gruesomely high, and people were migrating to the north looking for jobs. Reverse migration is the characteristic of the South today.

Nilakantan said: “Investments from elsewhere aren’t the only drivers of growth. In fact, FDI in India doesn’t correlate to high wages or job growth. What states should look for is broad-based growth, which generates jobs. That happens when a virtuous cycle of a well-educated population in a well-governed state seeks to improve itself and creates a market and industry in the process.”