Federalism: India’s Power Unleashed

IMA IndiaJanuary 2018

Extract

Lens 1: Income and expenditure

10 states account for 70% of national GDP: this share has not changed in the past ten years

4.96 , 15.2%

2.97 , 9.1%

8.1%

7.5%7.2%

6.0%

4.7%

4.5%

4.2%

3.9%

10 largest and smallest contributors to national GDP in 2006-7 and 2016-17 18.97 , 14.1%

12.15 , 9.0%

8.2%7.3%

7.0%

6.0%

5.0%

4.6%

4.3%4.1%

MaharashtraTNUP

Karnataka

Gujarat

WB

Rajasthan

AP

Telangana

Kerala

MaharashtraUPTN

GujaratWB

Karnataka

AP

Rajasthan

KeralaMP

J&K, HP, Goa, Tripura, Meghalaya, Nagaland, Manipur, Arunachal, Mizoram,

Sikkim

Numbers denote gross state domestic product (Rs trillion, rolling average of three years) and the state’s contribution to the national GDP3%

Size of a state’s economy is more a function of its population than affluence

19.0, 134.1

12.1, 130.2

11.0, 43.9

9.7, 132.7

9.4, 124.5

8.0, 78.9

6.8, 76.9

6.1, 95.7

5.8, 129.2

5.6, 139.4

5.6, 252.0

5.6, 56.5

4.9, 150.3

4.0, 114.6

3.9, 31.4

1.7, 134.8

1.1, 124.5

0.4, 274.9

0.2, 210.4

0.1, 85.7

Y-Values

GSDP (Rs trillion)

Per c

apita

incom

e (Rs

‘000

)

Goa

Sikkim

U’khandHP

ArPMizo

Naga

Delhi

HaryanaKerala

Telangana

Karnataka

Gujarat

Tamil Nadu

MaharashtraAP

WBRajasthan

MP UP

Median GSDP – Rs 3.7 trillion

Median per capita income – Rs 91,000

High GSDP, high PCILow GSDP, high PCI

Low GSDP, low PCI High GSDP, low PCI

10 economically most powerful states

Punjab

Mani J&K

Chh’garh

Odisha Bihar

The major contributing states to the national GDP are often low in levels of affluence

The two numbers denote GSDP (Rs trillion) and per capita NSDP (Rs thousand)

Common traits: Leading states have a much smaller share of Agri-GDP and a higher share of manufacturing-GDP compared to the laggard states

19 trn/112 mn 12 trn/72 mn 10 trn/61 mn

7.5 trn/69 mn 8 trn/91 mn 0.3 trn/4 mn

406 , 2.07

161 , 2.67

51 , 2.76

143 , 2.41

279 , 1.32 519 , 1.38

494 , 1.97

409 , 2.14

504 , 4.92

105 , 2.72 117 , 2.12

253 , 1.86

259 , 1.49 78 , 1.68

316 , 1.72

70 , 3.09

54 , 2.38

145 , 2.52 86 , 1.92

548 , 1.86

179 , 1.90

630 , 1.98 184 , 2.25

104 , 1.95

384 , 4.64

125 , 1.72

HPUttarakhand

HaryanaAP

Gujarat

Goa

Punjab

TNMaharashtra

DelhiKerala

Karnataka

States have followed different trajectories for the manufacturing sector

Figures depict number of factories in 2014-15 and increase from 2004-05

Number of factories per million population in 2014-15

Incr

ease

(num

ber o

f tim

es

sinc

e 20

04-0

5)

Median number of factories - 181

Median increase – 2

times72 mn

6.8 mn 10 mn

6.1 , 17%

3.9 , 6%

4.8 , 7%

8.7 , 9%

8.0 , 14%

10.6 , 7%

11.8 , 11%

6.5 , 9%

8.6 , 12%

4.7 , 11%8.8 , 11%

6.4 , 10%

4.4 , 13%

7.3 , 10%

8.8 , 7%

0.6 , 11%

4.0 , 5%

0.9 , 7%

6.5 , 13%

4.2 , 9%

6.1 , 11%4.1 , 11%

0.6 , 3%

6.4 , 10%

6.6 , 9%

5.4 , 12%

Industrial productivity (Rs mn of gross output value per worker)

Incr

ease

(CA

GR

) sin

ce 2

004-

05

Gujarat

Jharkhand

HP

Delhi

AP

Odisha

UP

Karnataka MP

HaryanaUttarakhand

Maharashtra

Goa

Median productivity in 2014-15 – Rs 6.2 mn per worker

Median increase 10% CAGR from

2004-05

Some of the laggard states such as Odisha, Jharkhand and AP have done well in improving their industrial productivity

WB

Kerala

TN

Manipur

Nagaland

Tripura

Assam

Meghalaya

Punjab

0.03 , 6%

0.05 , 3%

0.02 , 4%

0.02 , 6%

0.14 , -12%

0.28 , 10%0.05 , 8%

0.09 , 4%

0.19 , 20%

0.06 , -1%

0.03 , 7%

0.04 , 8%

0.07 , 3%

0.06 , 14%

0.03 , 4%

0.03 , 2%

0.06 , -4%

0.12 , 2%

0.04 , 7%

0.06 , 9%0.03 , 7%

0.09 , 6%

0.05 , 7%

0.04 , 7%

0.05 , 3%

Agricultural productivity (Rs mn of gross output value per worker)

Incr

ease

(CA

GR

) sin

ce 2

004-

05

Gujarat

HP

Median productivity in 2014-15 – Rs 0.05 mn per worker

Median increase 6%

CAGR from 2004-05

Goa

MP

Sikkim

Punjab

Tripura

HaryanaKerala

J&K

Nagaland

Chhattisgarh

Jharkhand

Bihar

Assam

Manipur

WBArP

The problem with agricultural productivity: low growth and low value across states

0.47 , 7%

0.46 , 8%0.37 , 9%

0.28 , 11%

0.28 , 8%

0.27 , 9%

0.23 , 0%

0.21 , 6%

0.20 , 5%

0.20 , 8%

0.20 , 6%

0.19 , 6%

0.16 , 6%

0.16 , 0%

0.15 , 3%

0.14 , 6%

0.13 , 2%

0.13 , 5%0.12 , 5%

0.11 , 5%

0.11 , 8%

0.10 , 3%

0.10 , 3%

0.10 , 1%0.09 , 1%

0.09 , 3%

0.09 , 3%

0.08 , 2%

0.07 , -1%

Productivity in the services sector (Rs mn of gross output value per worker)

Incr

ease

(CA

GR

) sin

ce 2

004-

05

Gujarat

HP

Median productivity in 2014-15 – Rs 0.15 mn per worker

Median increase 5%

CAGR from 2004-05

DelhiMP

Sikkim

Punjab

Tripura

Haryana

Nagaland

Chhattisgarh

Jharkhand

Bihar

Assam

Manipur

WB

ArP

Services sector productivity – more states in the upper half; greater scatter indicates high level of differentiation in current levels of productivity

Goa

Maharashtra

Uttarakhand

TN

KarnatakaKerala

Meghalaya

Mizoram

UP J&K

OdishaRajasthan

AP

4,582.0 , 11%

3,939.9 , 13%

3,344.9 , 11%

2,560.7 , 11%

2,484.1 , 19%

2,328.3 , 13%

1,982.9 , 14%

1,823.1 , 13%

1,482.3 , 12%

1,479.4 , 10%

1,441.9 , 5%

1,314.3 , 11%

677.9 , 13%

641.2 , 15%

638.1 , 11%

475.8 , 10%

457.8 , 7%

455.3 , 10%

448.7 , 10%

172.9 , 13%

115.9 , 8%

87.6 , 12%

86.0 , 8%

86.0 , 10%

77.0 , 12%

51.5 , 11%

45.9 , 13%

UP

Maharashtra

WB

TN

Rajasthan

Gujarat

KeralaKarnataka

Bihar Punjab

MP

Haryana

J&K

OdishaSikkim

Nagaland

MeghalayaChhattisgarh

Total outstanding liabilities of state governments in 2016-17 (Rs bn)

Total outstanding liabilities in 2016-17 (Rs bn)

Incr

ease

from

200

7-08

(% C

AG

R)

Median outstanding, Rs 641 bn

Median increase

(% CAGR),

11%

Fiscal realities: Aiding or impeding growth

UP, 3,313.8 Maha, 3,194.4

AP, 2,125.7

WB, 1,898.7

TN, 1,886.5

Kar, 1,588.6

Raj, 1,517.1

Bihar, 1,495.1

Guj, 1,467.4 MP, 1,246.3

Kerala, 1,239.0

Haryana, 855.4 Punjab, 848.4

Delhi, 676.3

Odisha, 592.5

Assam, 516.1

J'khand, 505.4

Chh'garh, 383.4

J&K, 299.5

U'khand, 235.8

HP, 179.9

Tripura, 69.7

Megh, 60.9

Mani, 52.7 Naga, 50.7

Goa, 49.8 ArP, 33.7

Mizo, 28.6

Sikkim, 13.8

Mega market (2)

Large market (9)

Middle market (6) Small market

(13)

Huge divergence in consumption market size of states – size and population key drivers

Account for 79% of total annual consumption

expenditure in the country

Account for 15% of total consumption expenditure

in the country Account for 6% of total consumption expenditure

in the country

The consumption expenditure of UP and Maharashtra is more

than the combined expenditure of the 6 middle market states

Annual consumption expenditure of each state in 2011-12, Rs bn

3,286 , 14%

3,039 , 16%

2,815 , 13%

2,759 , 16%

2,515 , 14%

2,334 , 16%

2,157 , 14%

2,147 , 15%

2,135 , 17%

2,128 , 12%

2,127 , 10%

2,071 , 12%

1,987 , 14%1,984 , 13%

1,948 , 12%

1,914 , 15%

1,847 , 14%

1,809 , 15%

1,710 , 13%

1,668 , 12%

1,555 , 15%

1,496 , 13%

1,404 , 14%

1,357 , 12%

1,357 , 6%

1,251 , 12%

1,225 , 12%

1,170 , 10%

1,161 , 14% Delhi

Kerala

Punjab

Haryana

Karnataka

MaharashtraTN

HP

Goa

High growth big spenders

Low growth big spenders

Low growth low spenders

High growth low spenders

OdishaMP

Tripura

RajasthanUttarakhand

Monthly per capita expenditure in 2011-12 (Rs)

% I

ncre

ase

(CA

GR

) sin

ce 2

004-

05

UP

Large markets such as UP are a function of population as per capita expenditure is lower than many middle and small market states

Nagaland

MizoramAPJ&K

Meghalaya

ManipurJharkhand

Chhattisgarh

Assam

34% 5% 13% 17%

34% 6% 12% 19%

44% 7% 25% 53%

45% 8% 25% 31%

52% 15% 42% 66%

46% 7% 24% 29%

51% 14% 38% 65%

Haryana KeralaRajasthan Uttarakhand

Bihar UP AP Goa

Population

Cereal

Processed food

Textile

Entertainment

Personal care

White goods

52% 100% 42% 1%

66% 100% 58% 1%

43% 100% 73% 1%

47% 100% 62% 1%

40% 100% 138% 4%

44% 100% 82% 2%

34% 100% 77% 2%

Population

Cereal

Processed food

Textile

Entertainment

Personal care

White goods

Large population translates to large market size, but the magnitude varies strikingly according to per capita affluence of the states being compared.

For example, although Haryana’s population is just over a tenth of that of UP, the state’s spend on white goods is more than a third of UP. Similarly, although Andhra Pradesh has less than half the population of UP, its spend on processed food is nearly three-quarters of UP, and spend on entertainment (cinema, theatre, cable TV, etc) is higher.

Lens 2: Influencers: demographics & urbanisation

© IMA India, 2016 www.ima-india.com 15

More urban population wasadded in the last decade,reversing a continual past trend

Figures within brackets indicate percentage share of total population increaseSource: Census, IMA analysis

© IMA India, 2016 www.ima-india.com 16

States vary widely in population and population density

© IMA India, 2016 www.ima-india.com 17

South and West more urbanised

Urban variations -34% in Andhra Pradesh to 62% in Goa.

Mega cities are in three corridors

Migration from rural to urban areas is the second most important contributor, after natural growth, to the increase in urban population.

© IMA India, 2016 www.ima-india.com 18

Age dynamics will influence consumption choice

Between 2001 and 2011, 172 mn people were added to the age group above 15 years. In 2021, the number will be 259 mn.

The age group 5-14 - crucial – will fall but still huge 225 mn

15-59 – MASSIVE.

2011 – 2021• Largest additions to the working age group: Uttar Pradesh, followed by Bihar, Maharashtra, WB,

Rajasthan and AP. • Most aged – Also Uttar Pradesh and Maharashtra followed by AP, WB, Bihar and Tamil Nadu.

Increasing education is setting up the stage for new consumption patternsand demand for employment – 2008-09 to 2015-16

Except the two north-eastern states of Mizoram and Nagaland, all the states have registered significant improvements in the past half decade in gross enrolment ratio for higher education

Lens 3: Employment scenario: fundamental shifts

© IMA India, 2016 www.ima-india.com 22

10 states account for 75% employment…

Except the four states of Arunachal Pradesh, Punjab, Madhya Pradesh and Himachal Pradesh, number of people above 15 years age with employment as principal occupation increased in all other

states between 2004-05 and 2015-16

9.81

5.77

9.89

2.26

7.53

3.17

1.02

5.52

(0.2

0)

1.09

3.09

1.64

4.59

1.97

1.53

(0.1

8)

0.95

0.92

0.45

0.01

(0.6

1) 0.36

0.31

0.08

0.02

0.11

(0.0

1)

0.15

0.08

0.02

63.5

47.237.1 33.833.5

27.6 27 24.3 24.3 23.216.6 15.313.2 12.8

11.7

9.1 95.7 3.4 3.4 2.3

1.81.4

1.3

0.9 0.60.6 0.50.5 0.3

(10.00)

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

UP

Mah WB

TN

Bih

ar

Kar

Raj

asth

an AP

MP

Guj

arat

Odi

sha

J'kh

and

Chh

'gar

h

Ker

ala

Ass

am

Punj

ab

Har

yana

Del

hi

J&K

U'k

hand HP

Trip

ura

Man

ipur

Meg

hala

ya

N'la

nd

Miz

oram ArP

P'ch

erry

Goa

Sikk

im

Increase in employment

Total employment in 2015-16

Cha

nge

in n

umbe

r of

peop

le e

mpl

oyed

All figures in mn

© IMA India, 2016 www.ima-india.com 23

Employment not keeping pace with number of people being added to working age population

Increase in employment was slower in all states (except Tripura) than working age population growth between 2004-05 and 2015-16.

Of particular concern, however, is the slow or negative growth in the most populous states in the country, such as Maharashtra, Uttar Pradesh and Madhya Pradesh

Source: NSSO, Labour Bureau, IMA analysis

© IMA India, 2016 www.ima-india.com 24

Workers moving out of agriculture

Worryingly, number of workers in the manufacturing sector also declined in 17 states

Agriculture Manufacturing Construction Trade Other services Uttar Pradesh 10.09- 2.88- 3.79 1.19 10.43 Madhya Pradesh 7.34- 0.85- 2.56 0.05- 0.03 Karnataka 4.17- 0.60 0.67 0.69 1.47 Tamil Nadu 3.19- 0.65- 2.41 0.53 1.78 Odisha 3.05- 0.75- 1.37 0.42 1.36 Andhra Pardesh 3.05- 1.07- 1.24 0.37- 0.35 Rajasthan 2.70- 0.20- 1.64 0.96 1.61 Gujrat 2.32- 0.42- 0.18 0.10 0.80 Maharashtra 1.80- 2.05- 0.25 0.56 0.26- West Bengal 1.61- 1.50 2.36 0.11- 1.51 Himachal Pradesh 1.54- 0.05- 0.03- 0.05 0.47 Kerala 1.22- 0.36- 0.43 0.26 1.08 Uttarakhand 0.69- 0.17 0.20 0.04 0.06- Assam 0.61- 0.17 0.50 0.40 0.97 Punjab 0.23- 0.21- 0.28 0.18- 0.31 Haryana 0.17- 0.42- 0.49 0.06- 0.69 Meghalaya 0.10- 0.02- 0.08 0.00- 0.05 Goa 0.05- 0.04 0.01 0.03 0.10 Sikkim 0.04- 0.00 0.05 0.01 0.03 Tripura 0.01 0.03 0.55 0.01- 0.04- Mizoram 0.02 0.01 0.03 0.03 0.07 Arunachal Pradesh 0.05 0.03 0.01- 0.04 0.03 Manipur 0.05 0.06 0.15 0.09 0.17 Delhi 0.09 0.16- 0.05 0.30 0.71 Bihar 0.13 0.49 3.86 1.40 2.75 Jammu & Kashmir 0.16 0.15- 0.07 0.11 0.66 Chhattisgarh 0.21 0.11- 0.15 0.23 0.36 Nagaland 0.28 0.01 0.02 0.02 0.15 Jharkhand 0.95 0.06- 0.71 0.93 1.73

Change in sector-wise employment between 2004-05 and 2015-16 (mn)

Clearly, workers are finding employment in the construction sector or in other miscellaneous services, an overwhelming share of which is in the informal domain

The Informal Sector: Overwhelming

© IMA India, 2016 www.ima-india.com 25

180/30/19mn 72%/6 25 mn / 9.2 mn

Lens 4: Investment & infrastructure

GFCF and GSDP have been calculated as rolling average of three consecutive years

Capital investments show a worrying decline in most states

UP, Rajasthan, MP and Chhattisgarh have registered significant growth in installed capacity for power generation

0%50%100%150%200%250%300%350%

05000

1000015000200002500030000350004000045000

Mah

aras

htra

Guj

arat

Tam

il N

adu

Utta

r Pra

desh

And

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Prad

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Kar

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Mad

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runa

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Man

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Nag

alan

dM

izor

am

Installed capacity, March 2017Increase in capacity CAGR % (2008-17) (RHS)Increase in supply CAGR % (2008-17) (RHS)

The laggards are scaling up fast

Massive divergence among states in creating road infrastructure

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-50,000

-

50,000

100,000

150,000

200,000

250,000M

ahar

asht

ra

Mad

hya

Prad

esh

Ass

am

Utta

r Pra

desh

Biha

r

Tam

il N

adu

Odi

sha

And

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Prad

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Kar

nata

ka

Raja

stha

n

Guj

arat

Punj

ab

Jhar

khan

d

Utta

rakh

and

Jam

mu

and

Kas

hmir

Him

acha

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desh

Har

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Chh

attis

garh

Man

ipur

Wes

t Ben

gal

Aru

nach

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rade

sh

Trip

ura

Nag

alan

d

Goa

Sikk

im

Del

hi

Meg

hala

ya

Miz

oram

Ker

ala

Total road network added between 2009-15 (KM) CAGR (2009-15)(RHS)

Jharkhand, Bihar, Sikkim – low base, high growth

A number of states are set to have new airports

5 710

1

11

2

8 7 8

43

3

1

1

1

1

1 1

1 1

- 2 4 6 8

10 12 14

Kar

nata

ka

And

hra

Prad

esh

Mah

aras

htra

Goa

Guj

arat

Ker

ala

Mad

hya

Prad

esh

Pud

uche

rry

Sikk

in

Wes

t Ben

gal

Utta

r Pra

desh

No of proposed airports Existing no of airports

New politics, new policy direction?

Will political transformation bring in policy transformation?

States by governing political party, 2013

States by governing political party, 2017