The FINANCIAL — Thinking of India as one vast country ignores the significant differences within its borders in terms of culture, languages, religion, climate and topography. The 29 states, six union territories and the National Capital Territory also differ greatly in geography, size, demographics and development, as well as economic sophistication and structure.
India is the world’s seventh largest country but some states are giants in their own right. Rajasthan, the largest state, is almost as large as Germany while Uttar Pradesh’s 200 million population matches Brazil.
In terms of development, India has made significant strides, but progress varies between states.
Reforms since the early 1990s have had a major effect on both the growth and the structure of India’s economy, giving it one of the fastest growth rates in the world. However, the near double-digit GDP growth of 2004-2008 fell to 4.7 per cent in 2013-2014, inflation remains high and the government has only recently reignited the reform agenda.
But as central government in Delhi dragged its feet, some states and union territories have taken the initiative, opening up their economies, cutting red tape and introducing reforms that attract manufacturing and service industries – both domestic and from overseas.
The richer states are reaping the benefits of making it considerably easier to do business, with several still recording double-digit growth. But they are leaving poorer states behind. Poverty rates of 40-50 per cent in Bihar and Orissa are similar to some African countries while Jammu and Kashmir, Punjab and Himachal Pradesh compare favourably with Asian countries such as Indonesia and the Philippines.
The western state of Gujarat has been held up as an example of how to get things done. Narendra Modi, now India’s Prime Minister, was Gujarat’s chief minister for 11 years while the state’s growth averaged around 10 per cent. The largest state economy, Maharastra – known for its Mumbai billionaires, Bollywood movie stars and its thriving services sector – would be the world’s 10th most populous country if it was a nation in its own right.
But there are success stories among the poorer states too. Bihar has experienced economic revival as law and order has been established and more business-friendly policies introduced.
The speed of reform at national and state level over the coming decade will have dramatic implications for the growth of individual states and India as a whole. Reforms will be rolled out and in an optimistic scenario, some poorer states could reduce the income gap, but it will likely take many more decades for it to close completely.
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