Tuesday, September 29, 2015

Do you think all Indians are equal (economically)?

How well do we know India? Let us check ourselves and begin with the economic growth and distribution across India. You will know that prosperity has not reached middle lands of India soon.

Here is a chart to look at which lists the states in a order by their GDP per capita. Goa is on one end and Bihar is on the other end. A person in Goa (on average) contributes little more than Rs.18,500 a month to economic output of India but an average resident in Bihar does contribute Rs.2,500 approx. a month. The gap is an astonishing difference of 8x!

True, but the toppers in the list Goa, Delhi and Sikkim could be outliers due to small geography, finite population and may have some favorable factors to manage and distribute growth. So keeping them aside, Maharashtra seems to be the ideal topper but still it is almost double of whole of India’s average. And with the bottom of the pack, the gap is a wide 4x. Do you still think all Indians are equal?

Start looking at which all states are doing better which have higher than national average. Maharashtra, Gujarat, Tamil Nadu, Kerala who are doing good have one thing in common. Sea line helps them in having higher trade. Except Odisha, those states on the geographical periphery are doing well. Does not it look similar to US, where economic activity is concentrated in East Coast and West Coast but not in the middle lands? Yes, but yet the gap is not 4x there.

India’s national average is lower than most of its states as UP, Bihar seem to be pulling it down as they have higher population concentration. You know it well, until growth picks up in these middle lands of Madhya Pradesh and surrounding geography, India’s total figures will suffer. But there is a potential too. As wages in these states tend to be lower, they can host labor intensive industries to start with. It is a matter of time before entrepreneurs figure this out and the residents in those states too realize. If Govt. does act and locals cooperate, these states will offer a higher return on investments. And the gap will shrink over a period of time. These states are already wild cards in election results but will gradually catch up with other states on the economical front in the coming decades. Expanding the base at the bottom, increasing the per capita income in UP from Rs. 19k a year to Rs.25k a year would benefit India more than few toppers doing exceptionally well.

What every household needs? Housing, Education, Health care, Transportation, Entertainment etc. all these sectors will see growth in the states at the bottom of the list at a different rate than those at the top. Income inequality is here to stay but it will not be at 4x gap across states, but much lower, probably at 2x. Then you will see a lot more homogeneous India. Until then, all Indians may not be equal, not in spiritual terms, but going by the money in their pockets and their spending power.