South versus North: What government data shows

A meme has been doing the rounds of social media recently. It has a photo of a news report that says Uttar Pradesh has now metros in several cities. The photograph is captioned with something to the effect of ‘thank you to the taxpayers of Bangalore, Chennai & Hyderabad. 

It’s easy to dismiss it as just a meme, but it has more than a grain of truth. There is a constant refrain, which is only getting amplified, about “our tax money” and “their poor development” – “our” and “their” meaning south and north India. It is not merely a social media trend but a politically amplified one. 

Chief ministers of southern states recently met in Kerala’s capital to talk about the money their states send to the Centre and what they get back in return. The other part of the country which also gets kind of included in this is the west, Maharashtra and Gujarat. The first has had a BJP government for most of the past few years and Gujarat for decades, so neither make too much noise about it, but the underlying sense at least in Maharashtra is quite close to what the southern states say. 

Now a new paper by the Prime Minister’s Economic Advisory Committee (PM-EAC) pretty much re-confirms the economic truth about which the southern states have been carping about (and also for the two large western states).

The paper looks at two key things: the relative performance of states in their share of the country’s GDP and the relative per capita income. The authors, Sanjeev Sanyal and Aakanksha Arora who are members of the PM-EAC, have studied dates from 1960-61 to 2023-24. 

The results are along expected lines but with a twist. But first, let’s see what the authors have found. 

This was not how the states fared to begin with

Beginning with contribution to GDP, the paper finds that in 1961, Uttar Pradesh was at the top of the list. Followed by Maharashtra, West Bengal, Tamil Nadu and – wait for this – Bihar. 

Much of this is understandable, given that this was still very soon after independence and a lot of commercial and industrial activity was concentrated around Bombay, Calcutta and Madras, as they were all known then. UP's top place most likely was because of its sheer size (it was undivided then) and agriculture. 

Now look at how that changes over time, in this graph. The authors have made their calculations using government statistics.

There are three things that these three lines show. First, Maharashtra has maintained its position over time. The second, West Bengal plummeted to around half its contribution over the same period. And Tamil Nadu, despite a fairly steep dip, caught up and then kept up its rise. But here is the twist: notice where the rise happens for Tamil Nadu: around 1991 onward. That is exactly the period where the country took a very decisive change in its economic direction and also its fortunes, with liberalization and freeing the economy of socialist pretensions of the 1960s and 70s. 

The decline of North

A similar worm chart of UP and Bihar tells a story akin to WB’s: a steady decline, that for Bihar has continued. Both states were divided but that hasn’t changed the numbers much. It is only now in the last couple of years that UP’s worm has started looking up a bit (Though it must be added that Noida as an urban hub has a disproportionate contribution to UP’s GDP, around 10 per cent. The next is Lucknow, which is only about 4 per cent). 

Let’s now look at the rest of the southern states. According to this paper, Andhra Pradesh has consistently held its own, hovering around seven and eight per cent contribution, despite getting split into two parts. Kerala too, has kept itself between 3.5 to four per cent. Tamil Nadu also picked up pace after 1991, the figures show. But the story of change is in Karnataka and Telangana (which is relatively younger). Karnataka kept itself floating around the 5.5 percentage mark for most of the 30 years between 1960 and 1990. Then came the 1991 change, which grew from 6.2 percent in 2001 to 8.2 percent in 2023-24. The real change though for the newly formed state of Telangana, which is already at 4.9% in the 14 years of its existence. 

But what does all this mean for the man on the street? The authors have dealt with that by looking at the per capita income – the money in the pocket of that man in the street, so to speak. Delhi was the top region by way of relative per capita income. Maharashtra keeps up here as well, with Gujarat and Punjab. West Bengal is at number three, but it loses out pretty quickly. No southern states here. 

In fact, till the 1990s, the paper shows, the southern states were lagging well behind the national average. It was again in after the 1990s that their numbers started showing a sharp rise, again coinciding with the period following liberalization. This set of figures is very revelatory about the whole set of southern states (Kerala’s remittance economy has not been included, so its number could be higher).

Compare this to a big northern state like Uttar Pradesh or Bihar. Bihar in the 1960s when this paper’s data begins, was at 70.3, falling to around 47 in the 1990s and continued to decline after Jharkhand was carved out, it s currently at 32.8 (which is a slight improvement from the previous decade). Uttar Pradesh similarly was above 82 in the 1960s, fell to 55.3 when it was split to form Uttarakhand and then fell to below 50 in 2020-21. It has also shown a slight uptick in 2023-24. By contrast, Haryana has almost doubled its relative per capita, its rise again coinciding with the 1990s.

This trend of the South doing economically better is also anecdotally pretty clear. Just in the last few months, look at the number of large corporations and multi-nationals, especially in the technology space which have set up shop in these states, building on top of the strong manufacturing that has already been created over the last three decades. Bangalore has been the hub for software and services for long. Hyderabad has also now joined that line, with some of the biggest players in the world setting up offices there. Tamil Nadu has long been the auto and textiles-making centre. Now capital Chennai is also attracting MNCs. In Kerala, often derided as a ‘communist state’ (with some truth), one of the world’s largest white-label baby clothes makes and supplies garments globally and is now expanding to Telangana as well. 

Why investors prefer South

Ask anyone looking to invest in the south, their reasons are almost always the same: available infrastructure, good connectivity, relative safety for women employees (in Telangana for example, more than 40% of the workforce is female) and trained employees. 

This increasing gap between the South and the North is at the root of the renewed politics of ‘us v them’. There are very vocal demands now from the top of the government and political hierarchy that these states don’t get returns proportional to what they contribute to the national kitty. The results of the 2024 elections and the washout in the states of the BJP, which rules at the Centre, have sharpened this debate. 

While the demand sounds okay on the face of it, ultimately this is political rhetoric. It is kind of similar to the time in Assam when separatists said that the mainland must ‘buy’ oil that was being mined there. Or the demand that comes very often out of frustration in Mumbai that the megapolis contributes the most to the state by taxes so it must get special treatment. None of these demands can be fulfilled, or even entertained, in a federal structure like India. 

But what this paper does show, and this is something that should both worry and dismay, is that some states continue to lag while others have taken off. And the point of inflexion is more or less the same: the period before and after liberalisation.