States On ‘Trillion Dollar’ Mission

IN February 2023, Uttar Pradesh government’s Global Investor Summit (GIS) saw 30 MoUs signed for investments worth ₹35 lakh crore. Soon after, every district magistrate in the state was tasked with the job of making land available for manufacturing facilities committed through these MoUs. The government’s target was a ground-breaking ceremony (GBC) for projects worth at least ₹10 lakh crore during the year. Currently, the progress made by each district magistrate is being monitored and reviewed by the chief secretary and chief minister Yogi Adityanath himself. Investors were expected to receive the land parcels by December 2023.

The U.P. government’s effort is part of a bigger plan — a $1 trillion economy mission — which Adityanath announced immediately after Prime Minister Narendra Modi set a $5 trillion target for the economy by FY25, soon after taking charge for a second consecutive term in 2019. The U.P. government expects investments in the manufacturing sector to translate into higher growth in its Gross State Domestic Product (GSDP) in the coming years.

India’s economy, at $3.5 trillion in FY23, is likely to meet the $5 trillion target set by Modi in the next two years. The deadline given by the U.P. chief minister for his state is FY28. Considering that U.P.’s GSDP is less than $300 billion, the target won’t be easy. But that hasn’t prevented the state from making a commitment.

And it’s not U.P. alone. In recent years, the top five states in terms of GSDP, or the five largest state economies of the country, have set their own targets to contribute to India’s ambitious economic growth plan. Though U.P. has been the first to announce its mission, Maharashtra, Tamil Nadu, Karnataka and Gujarat also aim to double or triple their economies to meet their respective GSDP goals with their own deadlines.

Gujarat aims to be a $500 billion economy by FY27, from $271 billion currently. Maharashtra is working towards a GSDP target of $1 trillion by 2028, up from $424 billion today. Tamil Nadu has set 2030 as the target year to achieve the $1 trillion economy landmark, from $282 billion now. Karnataka had set the $1 trillion economy target for 2032, growing rapidly from $269 billion now.

All the states, except U.P., have released their vision documents. The U.P. government is considering a report prepared by consultancy firm Deloitte.

But are these targets realistic? In its Indian Economy Watch report released in March 2023, global consultancy firm EY has projected the cumulative nominal GSDP of Maharashtra ($0.5 trillion), Tamil Nadu, Karnataka, Uttar Pradesh and Gujarat ($0.3 trillion each) to be $1.81 trillion in FY24, accounting for over 47% of India’s GDP of $3.8 trillion. If the numbers hold, the $1 trillion dream may take a lot longer for these states. According to D.K. Srivastava, chief policy advisor, EY India, the closest in terms of time to achieve the $1 trillion target is Maharashtra, by FY34. “Karnataka, Uttar Pradesh and Tamil Nadu are likely to reach the target by around FY37. Individual growth rates may be accelerated in those states where advantage is taken of new technologies. They may achieve the $1 trillion target one or two years ahead, that is, by FY35,” says Srivastava. He finds Gujarat’s target of $500 billion in GSDP to be the most realistic and suggests that the state could hit it by FY29.

“Maharashtra and Uttar Pradesh may reach GDP sizes of $0.72 trillion and $0.50 trillion by FY29. Tamil Nadu may reach a level of $0.59 trillion by target year FY30 and Karnataka, a size of $0.78 trillion, by FY33. These appear to be more achievable targets,” he adds.

The Plan

Maharashtra, which tops in terms of GSDP, banks on 16 industrial sectors — metals, automotive, chemicals, food processing, pharmaceuticals, capital goods, cement and ceramics, coke and refined petroleum products, rubber and plastic, electricals, cotton ginning, textiles and apparel, electronics, gems and jewellery and furniture — to deliver its GSDP growth. Six sun-rise industries, i.e. electric vehicle manufacturing, semiconductors, healthy food, defence equipment, renewable energy equipment and telecommunication equipment have been identified. These priority manufacturing sectors, identified in the Roadmap to becoming a $1 trillion economy report of the Maharashtra Economic Advisory Council (MEAC), are expected to contribute $182 billion as gross value addition (GVA) by FY28. The council estimates the state can achieve these goals by capitalising on global trends related to global supply chain resilience and by addressing domestic demand.

The council’s report, submitted on July 12, 2023, aims to create over 15 million employment opportunities, improve quality of living across cities and accelerate economic growth across districts. “We had a broad engagement with more than 500 stakeholders across multiple districts in the state that provided us valuable on-ground insights on critical challenges and opportunities in each region. We also consulted more than 75 sector experts and industry associations,” says N. Chandrasekaran, chairman, Tata Sons, and chairperson, MEAC.

“Maharashtra needs to develop a state-level integrated infrastructure master plan, which aligns with growth of planned economic clusters and urban infrastructure plans. The state should increase the capital outlay on infrastructure to support the plan,” he adds.

Tamil Nadu, the second-biggest state economy, focuses on semiconductor, fabs & circuit boards, medical technology, pharmaceuticals & biotechnology, aerospace & defence, specialty chemicals and technical textiles to contribute towards its GSDP growth. Guidance, the state government’s nodal agency for investment promotion and single-window facilitation, is looking to achieve this goal by attracting investments worth ₹23 lakh crore in the next 10 years and creating employment opportunities for 46 lakh people. Among other perks, new industrial parks are being offered by the state to woo investors.

Palanivel Thiagarajan, minister of IT and digital services, says the state government is focused on skilling, facilitating MSME growth, and global investment promotion. “Reaping the demographic dividend by getting our large proportion of youth into jobs is the vital differentiator that can change India’s growth rate at least for the next decade. We can aspire to 10% plus real growth, like China in the 2000s, and meaningfully increase our share of the global economy. I believe the IT sector will play a major role in accelerating job creation in Tamil Nadu,” says Thiagarajan.

Karnataka’s $1 trillion GSDP vision announced in September 2022 anchors on its inherent strengths in IT and other high-tech services. A 13-point socio-economic growth agenda based on the Economic Survey of Karnataka 2021-22 prepared by former Infosys CFO T.V. Mohandas Pai seeks investments in specialised hi-tech industries such as biotechnology, semiconductors, electronics component design and materials innovation to develop future-forward manufacturing capabilities, sustain technological leadership, and expand domestic and export markets. It calls for more investments in Bengaluru to consolidate its unique potential as a global hi-tech city. Artificial intelligence, machine learning, internet-of-things, cybersecurity, agri-tech, etc., have been identified as growth drivers. It also talks of boosting the state’s start-up ecosystem to make them economic growth engines for Karnataka.

“These are all aspirations and I am sure we will work towards that. That is not impossible. One of the historic drivers of growth for Karnataka has been the IT domain, and, to take it a bit broader, the knowledge sector — IT, biotechnology (BT), aerospace, R&D…all of these. Bengaluru is benefiting from the fact that it is the hub of talent (for all such sectors). The talent keeps gravitating to Bengaluru. Since that is happening, we are finding ways to use these sectors for generating growth in other parts of the state,” says M.V. Rajeev Gowda, vice chairperson, State Institute For Transformation of Karnataka (SITK). Central to Karnataka’s growth plan is the theme “Beyond Bengaluru”.

“Bengaluru is disproportionately represented in the state’s GSDP. We are trying to see how in all these emerging sectors the government can create conditions for more action and growth in other district headquarters. There was an insight we got during Covid, which was that a large number of people went back to work from home. If we can find a way to work with educational institutions, create coworking spaces, etc., where large numbers of people across companies can continue to work from home, it will be a win-win. They will be close to family, will be in places which are less costly than Bengaluru, and from our point of view they will become the hub for development in those areas, leading to entrepreneurship and mini Bengalurus…” explains Gowda. The state is also working on increasing the contribution of agriculture in GSDP through value addition, branding, food processing, agri corridors, etc. It is also developing industrial hubs to attract investments in manufacturing.

The Gujarat government, meanwhile, plans to increase the pace of the state’s economic growth by focusing on newer areas of smart manufacturing, green manufacturing, and emerging technologies. It wants better practices related to supply chain rationalisation to boost traditional industries, including textiles, and focus on the services sector such as IT/ ITES, fintech, tourism etc. The development of five or six clusters of tourism on the line of State of Unity (SoU) clusters has been proposed. Promotion of renewables, micro grids and electric mobility in a big way and creation of urban centres such as GIFT City are other suggestions that have been mooted to take the growth plan ahead.

The state government, however, didn’t plan for $1 trillion. Instead, a task force headed by former finance secretary Hasmukh Adhia prepared a ‘strategy for the government of Gujarat to enable India to become a $5 trillion economy’. The report, submitted in May 2022, says Gujarat has to achieve a GSDP of $500 billion by FY27 and increase its share in the national GDP to 10% (from the current 8.6%) if India has to meet its $5 trillion target. A 14.5% CAGR for five years in nominal terms, against the track record of 12.3% in the last decade, was the growth template presented by the task force in its report. “The manufacturing sector in Gujarat has contributed 30% to its GSDP, the highest in the country. If we include the energy & transport sector, the share of industry is 48.4% in FY21. However, the share of services in Gujarat GSDP is 32.4%, compared with 54% in India’s GDP. The report makes a case for completely revamping the growth strategy of Gujarat, and a number of strategies and sub strategies, sector-wise, to achieve this,” says Adhia.

Uttar Pradesh, on the other hand, has not only looked at investments in manufacturing to bump up its GSDP, but also carried out a detailed exercise to improve the performance of all components of GSDP — primary (agriculture), secondary (manufacturing) and tertiary (services) sectors. The state has also embarked on a mission to capture the right data to ensure that the actual growth of the economy is reflected in the GSDP numbers.

Alok Kumar, principal secretary, planning and nodal officer for Mission Trillion, U.P., says the government is diving deep into every sector and sub-sector of the economy to find ways for faster growth.

Interestingly, UP’s planning department found out several areas where components of GSDP reporting were not done correctly. “We found there were many sectors which were not being correctly reported in the GSDP calculations, particularly agriculture. When we did our calculations there was a huge jump (in the growth of agricultural component) in 2021-22 over the previous year. This was primarily due to usage of digital tools to capture the sector’s contribution. Agriculture is currently 26% (of GSDP), and this will increase in 2022-23 because of all that the state is doing. Our focus is on accurate assessment of the economic activity across sectors so that there aren’t any leakages. The second is to do whatever we can to improve our agricultural productivity. We are trying to improve supply chains. We are diving deep into every sector and every sub sector. For instance, egg is one sub sector of animal husbandry. We are looking at how to improve production” explains Kumar.

To improve the growth figures in the secondary and tertiary sectors, the government is encouraging formalisation of the economy. “In the manufacturing sector, the methodology of calculating GSDP is different for the organised and unorganised sector. For the organised sector, the government of India, with the support of the state government, carries out the ASI (Annual Survey of Industry). We have made efforts to strengthen the system of carrying out the ASI survey. Our aim is to increase the level of formalisation in both secondary and tertiary sectors. For tourism, for instance, the calculation is done based on tourist footfall,” adds Kumar.

The Hope

If India achieves the $5 trillion GDP target set by PM Modi, credit will go not just to the five leading states, but others as well. EY had listed the next set of states in the sequence — West Bengal, Rajasthan, Andhra Pradesh, Telangana, Madhya Pradesh, and Kerala. The $1 trillion dream, however, will have to be chased by the respective states themselves, and one of the biggest hurdles will be the sluggishness of the global economy.

“The global economy is facing a slowdown which may continue in the medium term. States largely dependent on exports would find themselves highly constrained,” says EY’s Srivastava.

According to EY, conscious efforts will be needed to accelerate growth in these state economies as governments will have to raise capital expenditures relative to respective GSDPs. Also, they need to progressively increase the share of services and industry in their GSVA, compared to agriculture, since it would be useful both for output and employment growth.

Rahul Ahluwalia, founding director, Foundation for Economic Development, says exports remain the only way a country like India can grow fast. “Global merchandise exports were $25.3 trillion in 2022, but India’s share was only 1.8%. Our share of the global working age population is close to 20%. We should aim to become more competitive than other countries as a manufacturing destination so that we can increase our share of global exports. This will create a growth spurt similar to what we saw with IT and ITES in the last 20 years,” adds Ahluwalia.

B.V.R. Subrahmanyam, CEO, Niti Aayog, hinted in October that the country could be readying its strategy for the next decade. Prime Minister Modi is expected to unveil a vision document for ‘Viksit Bharat@2047’ or a vision for developed India on its 100th year of independence in the coming months. The objective is to become a $30 trillion economy by 2047, propelled by policy changes and reforms at the Central level, amply supported by states.