Home / News / India /  5 charts reveal the state of state economies

After witnessing unprecedented challenges due to the covid-19 pandemic, India’s states are well on their way to recovery, according to the Reserve Bank of India’s Handbook of Statistics on Indian States released last week. Almost every state economy has already surpassed its pre-pandemic size and state finances are looking up even as concerns over elevated fiscal deficit remain. Rural wage growth, however, has failed to keep pace with average retail inflation, which may become a cause of decline in spending. Here is what data tells us about states’ growth, finances, wages, and credit, in five charts:

Recovering Losses

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After contracting 6.6% in 2020-21, the Indian economy grew 8.7% in the following year, surpassing pre-pandemic levels by 2%. Available data on gross state domestic product (GSDP) shows a similar trend, with 19 out of 21 states for which data was available having surpassed their pre-pandemic levels. Only Kerala and Uttar Pradesh had failed to recover the losses by 2021-22, and lagged their respective 2019-20 levels by 2.8% and 1.5%, respectively.

Kerala’s economic contraction of 9.2% in 2020-21 was the biggest among all states, and the 7.1% bounceback in 2021-22 was not enough. Uttar Pradesh’s GSDP decline in 2020-21 was smaller (5.5%), but its growth rate in the following year was the weakest among states (4.2%).

Andhra Pradesh’s economy grew the fastest (11.4%) in FY22 and it was also one of the four states that posted a marginal growth in the pandemic-hit FY21.

Capex Bet

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The covid-batteredeconomy needed support in the form of the governments’ capital expenditure. Along with the Centre, the states also budgeted a steep increase in their capital expenditure in FY22 to prop up the economy. Collectively, all states and Union territories budgeted an increase of 28% in their capital expenditure, with Telangana and West Bengal leading the way. However, there was a huge divergence, with six states budgeting a cut from the previous year. Among major states, Maharashtra budgeted only a 3% increase, while Bihar cut the capex by a steep 10%.

Of the budgeted amount, states largely managed to deliver. An analysis by ICRA in July showed that the combined capital spending (provisional actuals) by 26 sample states grew 27.6% in FY22 on a low base. The budgeted capex for FY23 then saw a steep rise of 35.8%, as some of trailing states such as Maharashtra and Haryana picked up pace from FY22, the analysis showed.

Fiscal Gap

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States werenotonly able to allocate high amounts to capital expenditure in FY22, but also to an extent manage their fiscal deficit, which had risen dramatically in FY21. Total fiscal deficit of states and Union territories jumped 78% to 9.32 trillion as strict lockdowns affected revenue collection and increased welfare spending in FY21.

However, in the following year, all but six states budgeted a smaller fiscal deficit, with the aggregate figure 12% lower at 8.19 trillion, but still up 56% from two years ago. In the current financial year, states have stayed on the fiscal consolidation path. A report by the National Institute of Public Finance and Policy said that the consolidated fiscal deficit of 18 major states is projected to be 3.29% of GSDP in FY23, in line with the prescribed glide path of fiscal deficit of states.

Wage Lag

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Over thepast three years, high inflation has been breaking the back of the public. Driven by lockdowns, supply-chain constraints, and the Ukraine war-led disruptions, all-India retail inflation has remained above 6% more often than not. High prices, however, have not led to higher wages, data shows. As opposed to the 5.5% all-India average retail inflation in 2021-22, the wage growth for rural male construction workers, agricultural and non-agricultural labourers were significantly slower at 3.1%, 4.3%, and 3.6%, respectively.

There was a sharp divergence across states. In Andhra Pradesh, the wage rate for construction workers grew 15.9% as opposed to 5.2% average retail inflation in the state. In contrast, Bihar and Kerala saw less than 1% rise despite inflation being 3.8% and 4.0%, respectively. High inflation often leads to the worry of a wage-price spiral, but wage growth continues to remain weak, barring in a few states.

Credit Revival

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Credit growthis a key indicator of economic progress. While credit growth has slowed dramatically from around 30% since FY05, it showed some recovery in FY22, posting double-digit growth for the first time in three years. As FY20 and FY21 were hit by economic slowdown, all-India credit growth had nearly halved to an average of 5.8% compared with an average of 11.8% in the previous two years. Despite disruptions, the central region comprising Chhattisgarh, Madhya Pradesh, Uttar Pradesh, and Uttarakhand, posted high average growth of 10% in FY20 and FY21. In FY22, the growth was even higher at 14.1%. The northern region, which includes Haryana, Punjab, and Rajasthan, was a laggard. Credit growth showed an uptick in FY22 and there is a possibility of a setback in this financial year because headwinds such as rising interest rates and slowdown in economic activity.

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