Friday, 18 May 2012

Real GDP Forecast of Indian States

Between a Rock and a Hard Place
India is currently set on the growth path to becoming a full-fledged economic heavyweight in the global economy; despite some hiccups currently predicted along the way for her emergence: political stasis, institutional weakness, messy infrastructure, balance of payments deficit, weak capital surplus, and so forth. 

With all this in mind, I forecasted Real Indian GDP in 2009 dollar prices for each of the individual States and Territories. Giving certain, mainly Western and Southern, Indian States and Territories higher real growth of 10% and 5% in the coming years; whilst for economically weak Eastern and Northern Indian States a paltry 2% real growth. The other assumption is of a 3% annual real appreciation of the Rupee against the Dollar between 2009 and 2019; due to rampant inflation, the Indian Rupee is currently falling to a record 55 against the Dollar. However in real terms there should be some future appreciation as India further integrates into the global economy and Indian capital markets deepen in the coming years.

Interestingly, despite being by far the most populous state with a forecasted population of 223 million by 2019, Uttar Pradesh's (UP) output is at least three times smaller than Maharashtra's and many times poorer; by 2019, UP does not feature in the top five Indian States by Real GDP. The average Indian per capita income is nearly $3000 in 2019 with a wide regional dispersion. 

It is quite clear Maharashtra, Andhra Pradesh, Tamil Nadu, Gujarat and Karnataka, making up nearly 60% of total real GDP in 2019 with a third of the population, are the engines of the Indian Economy. In comparison, States like Uttar Pradesh, West Bengal, and Bihar, with respective per capita incomes in 2019 (in 2009 Dollar Prices) of  $950, $1610, and $648, will be a considerable drag; reflecting decades of continued misrule, corruption and an unwillingness to modernise whilst pandering to a populist illiterate majority. 

There is no doubt, looking at India presently, there are sub-saharan destitute living standards in some parts; whilst there exists pockets of tremendous scientific and technological prowess, which would not go amiss in Silicon Valley, in the richest Indian States. Given this, it is probable the richest states will swell in population through internal migration from rural poor states like UP to urban rich states like Maharashtra; which would come to restrain the potential of the richest states to grow further. What is then crucially required in India in the coming years is policy and institutional reforms to prevent the backsliding of India's Kam Chor States.