Crisil Report on GSDP growth

Why in news?

Crisil recently released a report, comparing economic growth of the states in India.

What does the report reveal?

Bihar has been ranked the top stateamong the 17 non-special category Statesin terms of GSDP (Gross State Domestic Product) growth in financial year 2017-18.
The state has topped the list by clocking 11.3% GSDP growth in fiscal 2018, which was followed by Andhra Pradesh and Gujarat.
States like Jharkhand, Kerala and Punjab were at the bottom in terms of GSDP growth.

It further highlighted that 12 out of 17 states saw faster growth in fiscal 2018 compared with the previous 5 years.
However, the growth did not translate into job creation, as GSDP expansion has come in from sectors which are less job-intensive.
It noted that growth was not equitable, as theper capital income between low-income states and high income states widened over the last five years.
Since there is pressure on fiscal deficit for the Centre, the states have become the engines of government spending, accounting for a bulk 65% of the total money spent.
However, most states were found to have breached their targets under the fiscal responsibility and budget management act.

What is the status of inter-state disparities as revealed by the report?

The inter-State disparities have widened in recent years even as the larger economy grows in size and influence on the global stage.
Many low-income States have experienced isolated years of strong economic growth above the national average.
But economic convergence within the country remains a distant dream as poorer States continue to lag behind the richer ones in economic growth.
Though Bihar was the fastest-growing State this year, they have still failed to bridge their widening gap with the richer States.
This is because they have simply not been able to maintain a healthy growth rate over a sustained period of time.
Richer States like Gujarat, for instance, have been able to achieve sustained economic growth and increase their gap over other States.
The report found that there was a slight convergence in the per capita income levels of the poorer and richer States between fiscal years 2008 and 2013.
But the trend was reversed in the subsequent years.
Between fiscal years 2013 and 2018, there has been a significant divergence rather than convergence in the economic fortunes of the poorer and richer States.
This was the result of richer States continuing to show strong growth while the poorer States fell behind.
In fact, only two of the eight low-income States in 2013 had growth rates above the national average over the next five years.
On the other hand, six out of the nine high-income States recorded rates higher than the national average during 2013-18.

What explains the divergence in the economic fortunes of States?

The report suggests that government spending boosted GSDP growth in the top-performing States, particularly in Bihar and Andhra Pradesh.
But their double-digit growth rates have come along with a burgeoning fiscal deficit.
The impact of greater spending was that 10 of the 17 States breached the 3% fiscal deficit limit set by the Fiscal Responsibility and Budget Management Act.
Many other big-spending States, however, have not managed to achieve growth above the national average.
Punjab and Kerala, which are at the bottom of the growth table, are ranked as profligates by the report.
This suggests that the size of public spending is probably not what differentiates the richer States from the poorer ones.
Thus, apart from public spending, states should strengthen their state-level institutions in terms of –

These factors could be crucial determinants of the long-run growth prospects of States.

Source: The Hindu