States's growth and finances

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1. Lack of convergence of State per capita GDP: Growth in FY13-18 (5.8%pa growth) shows distinct groups of states: low growth, low income group and a high growth, high income group, suggesting the low per capita income states are being left behind. It has become more pronounced, from earlier FY08-13 (5%pa growth), as high income states have increased growth to above average, while high performing poorer states have cooled to average or less.

LOW INCOME  FY08-13 ->   FY13-18    HIGH INCOME    FY08-13 ->  FY13-18

1. Bihar              9.7%            5.1%         1. Telangana           7.4%             7.7%

2. MP                 7.2%            6.1%         2. Gujarat               6.9%             8.1% 

3. Rajasthan       7.2%            5.4%         3. Haryana             6.4%             6.4%

4. W. Bengal      4.8%            4.5%         4. AP                       3.6%             9.1%
5. Odisha           3.1%            5.9%         5. TN                      7.2%             5.4%
6. Chhattisg.      4.2%            4.8%         6. Maha.                 5.4%             6.3%
7. UP                  4.6%            4.4%         7. Kerala                 6.1%             5.6%

8. Jharkhand      5.4%            3.0%         8. Karnataka           4.0%             7.3%

                                                               9. Punjab               3.9%             4.4% 

2. States & narrative on fiscal deficit, growth:

HIGH INCOME - low FD is preferred
Gujarat : Very good growth and very low FD

Maharashtra : Very good growth and very low FD

Karnataka: Very good growth and low FD

Haryana : Good growth but high FD that has become acceptable

Telangana: Very good growth but high FD

Andhra Pradesh : Very good growth and high FD

Tamil Nadu : Moderate growth and acceptable FD

Kerala : Low growth and high FD

Punjab : Low growth and sky-high FD

LOW INCOME - growth more important

Madhya Pradesh : Very good growth and raised FD

Odisha: Good growth and very low FD, except for FY18

Bihar : High growth returns at expense of FD rising from acceptable to very high

West Bengal : Rising growth and enters low FD

Chhattisgarh : Low growth and low FD, though raised in FY18

Rajasthan : Moderate growth and very high FD, though falling

Uttar Pradesh : Low growth and high FD but improving

Jharkhand : Low growth but enters low FD. High growth with high FD in FY17

3. Impact of high inflation in some states

— i) Fiscal deficit as % of GSDP shrinks as relatively higher inflation increases nominal GSDP, reduces the value of carry-forward loans and brings higher govt revenues. 

— ii) Govts should shift monies to investments to rein in surplus monies & target capacity constraints

4. Fiscal deficit, growth: Most states breached FRBM's threshold of 3% FD in 2016 (3.1%) & 2017 (3.5%) as they took over discom debts under UDAY. 2018 levels remained elevated at 3.1% vs ~2.6% (in 2015). WHY?
— i)  Stimulus for growth has worked for Bihar and AP
— ii) States are collecting less tax  
— iii) States' share of public capex has risen sharply from 30-34% to 44-48%. Low growth states like Rajasthan, Jharkhand, UP, Bihar, Odisha, MP (also Punjab, Telangana, Gujarat) spent most. (NB. Low growth states with historically high FD sharply reduced FDs, eg Rajasthan, Jharkhand, UP, Punjab).
June 22nd, 2019

States's growth 2.0: Status and how each state got to where it has