Economist Sanjeev Sanyal’s big reveal on Indian states: Who is delivering what

State-wise performance in India is as diverse as its geography. While some states overperform, some are on a steady downward spiral. In a paper released recently by Economist and Member of, the Economic Advisory Council to the Prime Minister, Sanjeev Sanyal has revealed data to show exactly how each Indian state has performed since 1960. In an exclusive interview with Republic Business, Sanjeev Sanyal shared key insights. Edited excerpts:

Republic Business: India’s GDP numbers look promising. What do you think will drive the stability?

Sanjeev Sanyal: It's quite clear that we are now the fastest-growing economy in the world and have been for some time. Indications are that that momentum has continued into this year. Something in the range of seven percent give or take a little bit on either side is probably what we will get. That is our assessment right now. That is also the assessment of the IMF and other agencies. So yes, the RBI assessment is broadly in line with what we also think.

Republic Business: Is employment a concern for India? What according to you are currently its major growth drivers?

Sanjeev Sanyal: There are many growth drivers for India. The services sector has been a particularly strong sector for us. We have been investing in industrialisation and not all of it has succeeded. But certainly, areas like electronics are doing well as you all know about the story of Apple and how it is converting India as one of their hubs. But there are other areas as pharmaceuticals and others where we can see that there is a momentum in industrialization as well. But I think if you're taking a broader perspective, in the end, we must do two things. One is we must move up the value chain, particularly in emerging areas like artificial intelligence or drones or whatever it is, and this requires us to invest in research and development at our end, as we have become a larger economy, and we must upgrade as we are becoming the world's third-largest economy. We can't do this just by being a service centre or backend of some other economy. We are reaching the scale where we must create our products. We must create our intellectual property. All of this requires that we can do our patents. This means that we invest in our products and our brands. So, I think we are now crossing that threshold, and I think this is the area that we need to begin to work on – whether we are creating the National Research Foundation or other things, these are the areas we need to work on. Similarly, there are other new areas of industrialisation that we have identified, one of them being maritime – whether it's building new ports or shipbuilding, we are now trying to push as many ways as possible to generate growth.

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Republic Business: You recently brought out a paper where you have done a deep study of the States and their economies since 1960s. It has some surprising revelations about Eastern India. What according to you is ailing Bengal?

Sanjeev Sanyal: Eastern India is obviously doing worse than the rest of the country. If you look at the paper, there are high-growth areas in southern India, for example, Telangana and Karnataka. There are high growth zones in Western India like Gujarat. There are even high-growth areas in northern India like Haryana. But Eastern India is unique in having performed much below par. In the 1960s, till now the two states that have done particularly badly are Bihar and West Bengal. Even in 1960-61, Bengal was the third largest economy in the country, it was still one of the largest industrial hubs. The average Bengali had a per capita income that was 28 percent higher than that of the rest of the country. Since then, Bengal has lost its share in the Indian economy. In 1960-61, it was 10.6 percent of the Indian economy. Today, it is 35 point, a half percent.

Republic Business: What are the factors contributing to Bengal’s consistent decline? 

Sanjeev Sanyal: Some of the surrounding states also have done poorly, and Bihar also has done quite poorly through these six to seven decades. Initially, there were certain things that central government policies like freight equalisation for example weighed down on Eastern India. I think Eastern India was unfairly treated in the 1960s and 70s even into the 80s by freight equalization and those kinds of policies. So, we must take the obvious thing into account, which is that there were poor state-level policies, especially in Bengal where during the communist era policies changed away, the business almost deliberately did so and has subsequently never quite invited risk-taking entrepreneurship and so on back.  The cultural hub too began to dissolve and now we have a law and order situation, and the same thing happened in Bihar.  Bihar was never an industrial hub, but it was still the fifth largest economy based just in agriculture in the 1960-61 period and since then it has been on continuous decline. But today, an average person just earns 33 percent of the national average in per capita income. This is of course excluding remittances, so maybe this is exaggerating it a bit. But still 33 percent is the largest deviation away from the national average. And this deterioration particularly happened in the 1970s, 80s, and 90s. Till about 2010 or so, it has stabilised at that low equilibrium. 

Two small states do particularly well in this one is Sikkim and the other is Goa and, in both cases, it shows that small states can take up niches like tourism and do spectacularly well. So both Sikkim and Goa are big in into tourism. Very often economists tend not to take tourism seriously. They'd like some industry or some software or some heavy-looking thing, but in fact, tourism and things like breweries and so on have done spectacularly well. Both of these states now have significant education establishments. So, they have got into the fun industries, and they have done well. So, you don't have to always invest in very heavy drudgery-like industries to do well. Entertainment, tourism – these things can be just as good. Many South Asian countries are completely based on tourism, look at Thailand. So, the point is anything and everything can work for growing an economy. It requires you to be friendly to that industry and to have a broader mind about how to generate wealth. All these narrow-minded social justice and redistribution types of thinking, in the end, don't help because those people who can generate innovation and entrepreneurship simply drift away.

Republic Business: Flexibility and adaptability are two great qualities when it comes to growth and we have seen Gujarat and Maharashtra being investment-friendly in that way?
Sanjeev Sanyal: Let's look at these two high-growth areas – West and South. In 1960, Bombay state included both Gujarat and Maharashtra. They separated for some time. Maharashtra did better than Gujrat. So, Gujarat began to outperform Maharashtra relatively recently since about 2002, and coinciding with the time that Prime Minister Modi then took over at that time as Chief Minister you can clearly see the improved performance in Gujarat and now Gujarat has a per capita income that is significantly higher than that of Maharashtra. Maharashtra is also above the national average, but Gujarat is even higher, and much of this outperformance has happened really in the last 25-odd years and that is very clear from the data. Similarly, if we look at South India – on average, Southern India was slightly poorer than the rest of India till as recently as the 1990s, and then they just took off. Here also the real performer is Telangana. Being friendly to industry and having a dynamic urban hub, all these things matter. 

Andhra hasn't done badly, but Telangana is the better-performing part of the country. Here again, you can see two states, nothing very different between them. Same language, same everything, and one state just takes off because it is more industry and friendly. It puts in the urban amenities and so on and drives growth. So, say the same thing happens with Gujrat, it becomes much more friendly. It's also interesting – the contrast between the two. High-performance state. Gujarat uses a combination of four urban hubs to grow. It is a little bit skewed in the sense that Delhi comes off having a per capita income which is two and a half times the national average. That would be true of many urban hubs. It may even be true of Mumbai. We don't have good data on this, and that study is for another time. But yes, in general, Delhi NCR has for the last 30 years outperformed Mumbai. Many reasons for this but Delhi NCR is now spread into Noida. 

Republic Business: As an economist doesn't it bother you that a lot of the tier three population continues to come to the metropolis for employment and is it sustainable the way people turn up in Delhi, Bombay or even Bangalore?

Sanjeev Sanyal: Yes, it causes an amount of stress to those cities. Even at some point begins threatening the dynamics of that city. I mean Bangalore being continuous. gridlocked by traffic jams. Now you can keep building more infrastructure but there is a limit to how much you can do in one area and anyway, it causes imbalance. So, I think we do need to look at second-tier cities and begin investing in them. Gujarat provides a very good model of somewhat more dispersed growth. As I told you there are four separate hubs of growth. Maybe some of the most successful states need to begin thinking about having other hubs becoming kind of growth engines. I think eastern India is where you need to create other engines including a large engine, not just a small one. You need to create a large engine. Kolkata needs to be revived as an engine of growth. It's not just for Bengal but for the entire region to get it going and look at what Delhi does for the entire area.