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All states have lost economic momentum over the past year, but richer states have seen a sharper slowdown (Photo: Mint)
All states have lost economic momentum over the past year, but richer states have seen a sharper slowdown (Photo: Mint)

Rich states hit hard by slowdown

Rich  states  have  seen  sharper  slowdown  compared  to  poorer ones,  shows  Mint’s  new  State  Economy  Tracker,  based  on  a  wide range  of  high-frequency  indicators

Mumbai: How have different states of the country fared in the ongoing slowdown? Have laggard states been hit harder than prosperous ones?

Given the paucity of reliable and timely state-level data, it is very hard to answer these questions accurately. And yet it is important to get a sense of what the answers might be, given the increasing importance of states in driving investments and growth.

In a first-of-its-kind attempt to measure the pace of economic activity at the state level, Mint’s new monthly State Economy Tracker will capture data on seven high-frequency indicators across major state economies of the country.

Given that gross state domestic product (GSDP) figures are typically released after a lag of more than a year and have come under increasing criticism because of the methodological changes under the new GSDP series, it is important to track high-frequency indicators to gauge the real-time health of state economies.

The seven high-frequency indicators in Mint’s State Economy Tracker encompass consumer demand indicators (vehicle sales, air passenger growth), financial metrics (inflation and credit growth), a barometer of industrial activity (power demand), and public finance metrics (public investments and tax receipts). The final state rankings are based on a composite score, which gives equal weights to each of the seven indicators. Most indicators reflect monthly growth over the year-ago period. In case of vehicle sales and credit growth, the latest quarterly year-on-year growth figures have been considered. The public finance indicators reflect provisional year-to-date numbers, as reported by the Comptroller and Auditor General (CAG).

As with most things in India, the ongoing economic slowdown has hit different parts of the country differently, the Mint State Economy Tracker shows. While all states have lost economic momentum over the past year, richer state economies have seen a sharper slowdown.

Mint state economy tracker
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Mint state economy tracker

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The 10 largest state economies in the country, all of which exceeded 5 trillion in GSDP as of 2017-18, find a place in the state tracker. Other state economies have been clubbed into two broad categories: mid-sized state economies (GSDP between 3-5 trillion) and small-sized state economies (GSDP less than 2 trillion).

As of November, small-sized state economies showed greater momentum compared to most other states, the high-frequency indicators show. This outperformance is not driven by exceptional gains in any sector but simply because their average performance outshone that of richer states, which have witnessed a loss of momentum in recent months. One of the least prosperous states, Uttar Pradesh, is now at the top of the state rankings, the latest numbers (as of November) show.

Even a year ago, things were very different, with the smallest states at the middle of the league tables. Some of India’s relatively prosperous states (by per capita income) such as Andhra Pradesh and Gujarat found themselves in the top half of the league tables at that time. They find themselves in the bottom half now. Among the relatively prosperous states, only Tamil Nadu now finds itself in the top half of the league tables.

The prosperous states have a larger share of the formal sector and are better integrated with global markets. These characteristics have likely made them more vulnerable to the slowdown and made their economies more volatile. The latest goods and services tax (GST) data also suggest that larger prosperous states have struggled to raise tax collections as compared to smaller and relatively poorer state economies.

It is the lacklustre performance of the richer states that have driven relatively poorer but large state economies such as Uttar Pradesh and West Bengal to the top of the charts in November. Positive growth in power demand in Uttar Pradesh at a time when other states have witnessed degrowth in demand has helped the northern state move up the league tables in the latest rankings. For West Bengal, a better show in vehicle sales at a time vehicle sales have been lacklustre across the country has helped its cause in recent months.

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