Northeast's Economic Challenges: Insights from New Study

In September 2024, the Economic Advisory Council to the Prime Minister (EAC-PM) published a working paper titled “Relative Economic Performance of Indian States: 1960-61 to 2023-24”. The study showed that the Western and Southern states of India have outperformed other regions over the years in terms of economic performance. The East and Northern states need to catch up, with the eastern part of the country remaining a concern.

Of the top 5 states, Delhi with a relative per capita income of 250.8% in 2023-24 is the topper. Haryana with a relative per capita income of 176% became 4th in this list with the Southern states – Telangana (193.6%), Karnataka (180.7%), and Tamil Nadu (171.1%) outpacing other states in terms of economic performance. Of the Bottom five large states in 2023-24, Assam with a relative per capita income of 73.7% is in 2nd position behind Madhya Pradesh (77.4%), with Bihar (32.8%) at the bottom of the list.

The authors of this paper, Sanjeev Sanyal, Member EAC-PM, and Aakanksha Arora, Joint Director EAC-PM, focused exclusively on the relative performance of states measured using two indicators: (1) Share in India’s GDP and (2) Relative per capita income. The state's share in India’s GDP is calculated by dividing the Gross State Domestic Product (GSDP) of the state by the sum of GSDP of all states. Relative per capita income is calculated as the ratio of the per capita Net State Domestic Product (NSDP) of a state as a percentage of the all-India per capita Net National Product (or Net National Income, NNI).

The Relative per capita income provides insight into how the average income of individuals in a particular state compares to the national average. The authors stated that in per capita NSDP calculation, they did not include remittances (local or overseas) which may be important for states like Kerala, Bihar, and Uttar Pradesh. And, they made adjustments where possible for state bifurcations and other factors to ensure comparability. The analysis spans 63 years from 1960-61 to 2023-24, providing insights into how individual states have performed in response to changes in national and state-specific policies.

Post economic liberalization of 1991, the Southern states emerged as the leading performers. After 1991, the per capita income of all southern states became higher than the national average. In 2023-24, Karnataka, Andhra Pradesh, Telangana, Kerala, and Tamil Nadu together accounted for approximately 30 percent of India's GDP. The relative per capita income in Telangana is now 193.6%, Karnataka 181%, Tamil Nadu 171%, and Kerala 152.5%.

In the Western region, Maharashtra and Gujarat have consistently performed well throughout the study period. Both Gujarat and Maharashtra had per capita incomes exceeding the national average since the 1960s. Initially, Gujarat lagged behind Maharashtra, with a relative per capita income of 118.3% compared to Maharashtra’s 133.7% in 1960-61. Now in 2023-24, Gujarat’s per capita income has risen to 160.7% of the national average, as compared to 152.5% of Maharashtra. Among the ‘small states’ in terms of population, Goa in the western region has always excelled with consistent above-average per capita income since 1970-71. In 2022-23, the relative per capita income of Goa was nearly three times the national average at 290.7% in 2022-23. However, Goa’s share in National GDP is 0.3% in 2022-23.

Among the northern states, despite its small geographical size, Delhi saw its share of India’s GDP increase from 1.4% in 1990-91 to 3.6% in 2023-24. Delhi continues to hold on to its number one position among all the states of India in terms of relative per capita income at 250.8%. Haryana, which is in 4th position in the toppers list, with a relative per capita income of 176.8% in 2023-24. While Punjab lags far behind with 106.7% in 2023-24. Punjab and Haryana were once part of the same state. Punjab’s GDP share in national GDP grew during the 1960s, mainly due to the Green Revolution, but then plateaued at around 4.3 percent until 1990-91. Its GDP share began to decline thereafter, reaching 2.4% in 2023-24.

The paper raises an interesting question: Did Punjab's focus on agriculture contribute to a form of 'Dutch disease', hindering its transition to industrialization?

Among the Eastern states, West Bengal, a maritime state, which held the third-largest share of national GDP at 10.5% in 1960-61, now accounts for only 5.6% in 2023-24. West Bengal’s per capita income was above the national average in 1960-61 at 127.5%, then saw a downward trend with its relative per capita income falling to 83.7% in 2023-24. West Bengal is now behind a traditionally laggard state, Odisha, whose relative per capita income increased from 54.3% in 1990-91 to 88.5% in 2023-24. Odisha, which was seeing a consistent decline in terms of relative per capita income from the 1960s to 1990-91 (70.9% to 54.3%), has seen a significant turnaround post-Liberalization. Odisha’s share of National GDP is 2.8% in 2023-24.

The relative per capita income of undivided Bihar was 70.3% in 1960-61. It started declining thereafter and bottomed out at 31% in 2000-01 for the bifurcated state of Bihar. Now it is at the bottom of the list among all states with a relative per capita income of 32.8% in 2023-24. Bihar’s actual household incomes may be higher than what is implied in the study, as the remittances by its workers from other states and abroad are not captured. Bihar’s share of National GDP in 1960-61 was 7.8%. After the bifurcation of Jharkhand in November 2000, it slowly dropped to 4.3% share in National GDP at present.

Among the Northeastern states, Sikkim, listed as a small state in terms of population size, has performed extremely well. Sikkim became the 22nd state of India in 1975. Its relative per capita income in 1980-81 was below the national average at 85.8%. Its relative per capita income increased to 93.5% of the national average in 1990-91 and to 319.1% in 2023-24. Sikkim’s present share in National GDP is 0.2%. Arunachal Pradesh, another small state, has also increased its relative per capita income from 55.9% in 1970-71 to 118% in 2022-23. Though, its share in National GDP is 0.1% in 2022-23.

As a large state in population terms, Assam initially had a per capita income slightly above the national average at 103% in 1960-61. Then experienced a decline in its relative per capita income and bottomed out at 61.2% in 2010-11. Obviously, decades of political unrest, agitations along with lack of industrialization and poor growth in the agriculture sector, influx of illegal immigrants led to this poor condition. The Assam state’s boundaries have changed since 1960-61, but the working paper is not clear whether data of bifurcation and creation of new states were taken into consideration or not, like it has done for Bihar, UP, MP, and Andhra Pradesh.

Since 2010-11 Assam's relative per capita income has been on the rise, reaching 73.7% in 2023-24. Though this is not a happy position, being listed among the bottom five ‘large states’ of India in relative per capita terms, two positions ahead of Bihar (32.8%) at the bottom and ahead of Uttar Pradesh (50.8%) and Jharkhand (57.2%). Assam’s share to national GDP was 2.6% in 1960-61 and has decreased to 1.9% in 2023-24.

The condition of Manipur, listed as ‘small state’, remains pathetic with the relative per capita income in 1960-61 being 50.3% increasing to 66% in 2022-23. The other two laggard North Eastern ‘small states’ in relative per capita income terms are: Meghalaya (74% in 2023-24) and Nagaland (85.9% 2022-23). Another, ‘small state’ Tripura’s relative per capita income is 96.6% in 2023-24

Overall, the western and southern regions of the country has outperformed the others regions. East and North-East India’s relative economic performance remains a concern for the policy makers. The income disparities are growing with the rich states becoming richer and also attracting domestic and foreign investors. Seems money attracts money. While the citizens of the poorer performing Northeast states languishing with income 30% to 40% lower than an average Indian. What diseases, obviously not Dutch disease, have infected the land-locked North-Eastern states having international borders with Bhutan, Bangladesh and Myanmar? Maybe a performance appraisal of the Ministry of Development of N.E. Region, established in 2001, of its key performance area of socio-economic development of the eight states should be conducted by the EAC-PM. Along with a relook of the ‘Look East’ and the ‘Act East’ policies.