PMO bats for the industrialization of northern states

The Centre is focusing on bridging the North-South divide by encouraging investments in underdeveloped northern states, promoting infrastructure development, and creating policies to foster regional equity in manufacturing, according to two people close to the matter.

The ministry of micro, small, and medium enterprises and other concerned departments would carry out a study on the industrialization of northern states to help in policymaking, said one of the two people on the condition on anonymity.

Also Read: A sombre December manufacturing PMI curbs enthusiasm

This development follows the department for promotion of industry and internal trade (DPIIT) finalizing a ₹10,037 crore programme for the Uttar Poorva Transformative Industrialization Scheme, 2024 (UNNATI—2024), for a period of 10 years.

The Union ministry of commerce and industry is already engaged in identifying regions and district-wise product lines, particularly in the SME sector.

The government is also considering incentivizing industrial areas in the north Indian states. "We have a wide range of products with significant domestic and foreign demand, although production capacity remains limited. We are exploring regions and products that can be promoted to scale up manufacturing. The government plans to incentivize the establishment of these manufacturing hubs," said the second person.

The person added that Kanpur, once regarded as the Manchester of the East for its textile and leather industries, and Jammu & Kashmir, a hub for handicrafts, handlooms, horticulture and food processing sectors, have immense potential. "There is a huge scope for industrialization in northern and eastern states like Jammu and Kashmir, Himachal Pradesh, Punjab, Haryana, Uttarakhand, Rajasthan, Uttar Pradesh, Bihar, Jharkhand, Odisha, and West Bengal.

Also Read: Time is running out to revive India’s manufacturing sector

Queries sent to the spokespeople of the PMO, the ministry of commerce and industry, and the ministry of MSME remained unanswered till press time.

The North-South divide

The region-specific focus also comes amid rising dissatisfaction among southern states over their smaller share of tax revenue despite contributing a larger share to the country's gross domestic product (GDP). In early 2024, Karnataka, Kerala, and Tamil Nadu knocked on the doors of the central government, alleging discrimination in the federal funds allocated to states.

The decision to promote industrial development in any region is welcome, said Bino Paul, professor at the School of Management and Labour Studies, Tata Institute of Social Sciences, adding that the industrial development of one state benefits the entire nation.

"Take Jharkhand, for instance. The minerals and mining-led growth in the state has benefited all states, not just Jharkhand," he said.

The growth driven by industrial development is cyclical, he added. "In the past, growth in some southern states was driven by a labour force from the North. Similarly, Bhilai's huge industrial output was possible as people from all over moved to one particular location where industrial activity was promoted by investment."

However, setting up manufacturing hubs to promote industrial growth will only work if the costs of procuring raw materials and putting finished products in buyers' hands are low, making the business competitive, said Pronab Sen, former chief statistician of India.

"We need an analysis of consumer patterns to identify crucial markets for the industries we set up. This will help strategically place the industries in regions where they will be most competitive. Unfortunately, such granular data is not available," he said, adding past policy decisions to promote industrial growth in specific backward regions have not been successful because the industries failed to be competitive.

Also Read: Indian manufacturing must adapt to constant flux in a dynamic world

Sen clarified the move to promote industrial development via small businesses has the potential to be successful. “Small businesses...MSMEs... these are industries with a local market, so the cost of putting a manufactured product into the buyer's hands is automatically low, and the industry is more competitive."

Over the years 

A report by the Economic Advisory Council to the Prime Minister in September 2024 showed that during the period from 1960-61 to 2023-24, Delhi and Haryana performed well among the northern states, while Punjab's economy started deteriorating after 1991.

Delhi saw its share of India’s GDP increase from 1.4% to 3.6% during this period. Punjab and Haryana, once part of the same state, have experienced diverging economic trajectories. Punjab’s GDP share grew during the 1960s, mainly due to the Green Revolution, but then plateaued at around 4.3% until 1990-91. It began to decline thereafter, reaching 2.4% in 2023-24.

The report showed similar trends in terms of relative per capita income. Meanwhile, Haryana, which initially lagged behind Punjab on both accounts, continued to show robust performance. Haryana's share of India’s GDP now exceeds that of Punjab.

"In the 1960s, undivided Uttar Pradesh was the largest economic powerhouse in the country, with a share of 14.4% in India’s GDP in 1960-61. However, its share started to decline thereafter, which continued even after the bifurcation. Share of UP (bifurcated) in the national GDP flattened out at around 8.2% in 2020-21, before increasing marginally to 8.4% in 2023-24," said the report titled Relative Economic Performance of Indian States: 1960-61 to 2023-24.

The report showed that southern states witnessed the highest growth rate during the period, contributing about 30% to the Indian GDP as of the last fiscal (FY24). It noted that the western and southern regions of India have performed notably better than other parts.

Also Read: Size matters: Decoding Indian manufacturing’s problem of scale

The top five industrialized states—Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh—contributed more than 54% of the total manufacturing gross value added (GVA) of the country in 2022-23.