The states are together growing faster than the Indian Union!

Economists are busy revising downwards their growth forecasts for the Indian economy. Nomura Financial Advisory and Securities (India) Pvt. Ltd economists recently downgraded their estimates for gross domestic product (GDP) growth dramatically from 6.7% to 5.8%. Other brokerages will probably follow. And if we have a weak monsoon, that’ll be the last straw. It’s all rather depressing.

For consolation, it’s worth looking instead at the states’ economies. We’ve heard glowing accounts of the high growth rates of states such as Bihar, Uttar Pradesh and Chhattisgarh. How badly have these state champions been affected by the slow growth of the economy in 2011-12, when GDP growth fell to 6.5%?

What about the previous fiscal year, 2010-11? The Indian economy as a whole grew by 8.4% that year. Bihar’s miracle economy grew by an extraordinary 14.77% that year. Chhattisgarh’s growth was 11.16%.

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So which were the states that pulled the average down? Well, Punjab hasn’t been doing too well for quite some time and it grew a comparatively lukewarm 7.04% in 2010-11. But Gujarat, Maharashtra and Rajasthan grew in double digits and even Uttar Pradesh’s economy expanded by 7.86%. Andhra Pradesh’s growth was almost 10%. In fact, out of the 32 states and union territories, only 13 had rates of growth lower than 8.4%, the national average.

Take a closer look and you’ll find that if you added up the state domestic products of all the states and union territories (UTs), the growth rate of their totals does not match the all-India growth rate computed on the same basis (at factor cost and constant 2004-05 prices). This column had mentioned a couple of years ago (“The missing state of Lost Pradesh”) that the sum totals of the state domestic products of the states and UTs do not agree with the all-India number. The difference between the two varies from year to year, which is why the growth rate differs from the all-India growth rate.

So what’s the growth rate if we take the totals of all the states and UTs over the years? The chart alongside says it all. In 2010-11, when the all-India GDP growth rate was 8.4%, the growth of the sum total of state and UT GDPs was much higher at 9.6%. In 2009-10 too, they grew faster than the all-India total. If the numbers are to be believed, the states and UTs are together growing faster than the Indian Union! Small wonder then that a footnote to the table at the CSO website pointedly says that state GDPs have been compiled by the directorate of economics and statistics of the respective state governments.

Rather surprisingly, the growth rates by the two methods were the same in 2007-08 and 2008-09. But in 2006-07, their combined growth rate was much higher than for the Indian Union as a whole, while states were more modest about their growth in 2005-06.

At present, 7 states and UTs haven’t yet given their state GDP numbers for 2011-12. The growth rate of the sum total of the rest of the states and UTs, the ones that have already furnished the data, was 7.9%, much higher than the all-India growth of 6.5%. Gujarat, Maharashtra, Madhya Pradesh, Mizoram, Rajasthan, Sikkim and Chandigarh haven’t yet given their GDP data, or at least it isn’t reflected on the CSO website. For the sum totals of the state GDPs to grow by 6.5%, which is the all-India figure, these states will have to show a growth rate, on average, of a mere 3.6%.

All this doesn’t mean that some of the states are not doing much better than the country as a whole. But it shows once again that we should take the macro data with large doses of salt.

Manas Chakravarty looks at trends and issues in the financial markets. Comment at capitalaccount@livemint.com

Graphic by Ahmed Raza Khan/Mint

Also Read | Manas Charavarty’s earlier columns