How are India's Lower-Income States Surpassing Richer Ones?
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Synopsis
India's lower-income states are exhibiting promising signs of recovery and growth convergence in the aftermath of the pandemic, thanks to increased public capital expenditure. This trend could reshape the economic landscape, as highlighted in a recent HSBC report. What does this mean for the nation's overall growth?
Key Takeaways
- Lower-income states are showing signs of growth convergence post-pandemic.
- Increased public capital expenditure is driving growth in states like Assam and Uttar Pradesh.
- HSBC report highlights the potential for substantial catch-up growth.
- Central government resource transfers have increased, aiding state finances.
- Future GDP growth is projected at 6.5 percent in FY 2027–28.
New Delhi, Nov 26 (NationPress) Recent analysis reveals that India's lower-income states are beginning to demonstrate significant signs of "growth convergence" post-pandemic. This trend is highlighted by an increase in state public capital expenditure, enabling some previously lagging regions to outpace their wealthier counterparts, according to a report released on Wednesday.
States such as Assam, Uttar Pradesh, Rajasthan, and Bihar have emerged as notable examples, showcasing higher public capex and robust growth, as detailed in the report from HSBC Global Investment Research.
The report elaborates, "Regions with lower GDP per capita can experience substantial catch-up growth over several years, provided the conditions are favorable. This phenomenon is termed 'growth convergence' in the realm of economics and can significantly contribute to national growth."
HSBC analysts observed that states tend to boost their capex when they are financially stable, particularly among developing states. Additionally, the central government's resource transfers to states have increased following the pandemic.
However, the report cautions that a slowdown in tax revenue growth at the central level could potentially impede automatic transfers to states. Many states, especially those approaching elections, are unveiling new cash transfer initiatives, which presently do not seem to hinder capex but warrant attention.
Furthermore, the research group proposed that the central government should consider expanding the parameters of its capex loans to state programs.
They noted, "The central government can enhance the scale, diversify the application, increase flexibility, and improve predictability of these loans. This may provide clarity for the upcoming years, enabling states to embark on larger capex initiatives that require multi-year funding."
States also have the opportunity to contribute by simplifying regulations and implementing labor law reforms. Earlier this month, Morgan Stanley indicated that macroeconomic indicators remain stable, allowing policymakers to support growth through both monetary and fiscal strategies.
With expectations of growth in both rural and urban consumption, GDP is forecasted to rise by 6.5 percent in the fiscal year 2027–28, according to the report.
Point of View
It is crucial to recognize the positive trajectory of India's lower-income states. This shift towards growth convergence is a promising development that may lead to a more balanced national economy. It highlights the importance of strategic investments and resource allocation by the government. Ultimately, supporting these regions can pave the way for a stronger, more equitable India.
NationPress
26/11/2025
Frequently Asked Questions
What is growth convergence?
Growth convergence refers to the phenomenon where poorer regions or states experience faster economic growth than their wealthier counterparts, eventually narrowing the income gap.
Which states are experiencing growth convergence in India?
States like Assam, Uttar Pradesh, Rajasthan, and Bihar are currently showing signs of growth convergence, fueled by increased public capital expenditure.
What role does public capital expenditure play in economic growth?
Public capital expenditure is crucial as it provides the necessary infrastructure and investment needed to stimulate economic activity and growth in lagging regions.
How is the central government supporting these states?
The central government has increased resource transfers to states post-pandemic, which helps improve their fiscal situation and encourages higher public capital expenditure.
What are the future projections for India's GDP growth?
According to forecasts, India's GDP is expected to grow by 6.5 percent in the fiscal year 2027–28, driven by an increase in both rural and urban consumption.
