As the world’s most populous country, India’s economy looks large in the aggregate even as its average incomes stay modest.
IMAGE: People gather at a railway station in Patna to board a train during the Bihar Police Constable (Operator) examination. Photograph: ANI Photo
Key Points
- India is now the world’s sixth-largest economy, but per capita income remains modest compared with over 140 nations.
- Bihar and Uttar Pradesh have consistently remained among India’s poorest states since the 1990-1991 reform period began.
- Maharashtra has slipped from the top five despite its economic strength and status as home to Mumbai.
- GST-linked consumption estimates may explain recent improvements, but experts say they do not prove regional disparities are narrowing.
Much has changed since India began its reform journey in 1991. It is now the world’s sixth-largest economy in nominal terms, behind only five advanced economies — the United States, China, Germany, Japan and the United Kingdom.
It is the third-largest in purchasing power parity terms.
India’s per capita income has risen more than 40 times in three-and-a-half decades. Yet, on a per capita income basis, India trails more than 140 nations, according to the International Monetary Fund.
The reason is largely demographic: As the world’s most populous country now, with more than 1.4 billion people, India’s economy looks large in the aggregate even as its average incomes stay modest.
Despite the expansion of its middle class, India is still classified by the World Bank as a lower-middle-income economy.
India’s demographic challenge becomes apparent when one looks at the state-wise data. The reforms were expected to lead to a broad-based improvement in growth.
However, while the ranks of the rich states have often changed over the past 35 years, the poor states have fallen further behind the national average.
Bihar and Uttar Pradesh have remained laggards in per capita income terms consistently over these years.
Pronab Sen, former chief statistician, says economic activity tends to cluster where it is already flourishing.
“Infrastructure spending can enable growth, but getting production to move to underdeveloped regions is a separate challenge; a factory gains little by relocating if its suppliers remain a thousand kilometres away,” he notes.
Since the reforms, only two states have been consistently among the top five throughout: Delhi (Union Territory with an assembly since 1992) and Goa.
Every other else has moved in or out. Karnataka is the latest arrival, entering the top five in 2024-2025.
Maharashtra, by contrast, was among the top five in 1990-1991, but has since dropped out despite being home to India’s financial capital, Mumbai.
Experts point to two related explanations for Maharashtra’s slide. Devendra Kumar Pant, chief economist at India Ratings and Research, says there is a broader pattern: The law of large numbers.
“Once a state reaches a certain size, its growth tends to slow relative to smaller states still catching up,” he says.
N R Bhanumurthy, director, Madras School of Economics, attributes part of the slide to Maharashtra’s faster population growth.
“If you set population aside, Maharashtra is among the fastest-growing states in the country,” he notes.
Punjab, whose income had surged after the Green Revolution of the 1960s, has also slipped out of the top five since 2010-2011.
Sen attributes the decline to Punjab’s heavy reliance on agriculture, compounded by the insecurity created by the insurgency of the 1980s and ’90s among businesses, along with recurring floods.
More recently, its small and medium enterprises, a mainstay of the state’s economy, were hit hard by successive shocks, including demonetisation and the pandemic.
At the bottom, Bihar and UP have featured among the five poorest states every year on record since 1990-1991; Jharkhand joined them in 2000-2001, the year it was carved out of Bihar.
In fact, Bihar’s income has seen a steep fall relative to the national average, dropping from 53 per cent to about 34 per cent.
UP held three-fourths of the national average in 1990-1991; that share has since slipped to about half.
Regional Income Gaps Persist
However, between 2020-2021 and 2024-2025, there was a slight improvement in Bihar, Jharkhand, and UP’s per capita income relative to the national average, while that of Manipur saw an almost eight-percentage-point increase.
One probable reason could be the introduction of the goods and services tax from July 2017, since this tax is supposed to correct regional imbalance because of its destination-based structure.
Bhanumurthy says there may be a correlation between the improvement in these states and higher consumption captured through GST-linked estimates.
“But that is not evidence that GST is structurally narrowing regional income disparities,” he says.
Madhya Pradesh is an exception: Absent from the bottom five in earlier years, it now appears there in 2024-2025. The state, Bhanumurthy notes, has always ranked among India’s poorer economies, having featured in the ‘BIMARU’ group as far back as the 1980s.
Demographer Asish Bose coined the term ‘BIMARU’ in the 1980s to categorise poor states. These included Bihar, MP, Rajasthan, and UP and later Odisha (then Orissa).
Correcting some of this imbalance gains urgency considering NITI Aayog Vice-Chairman Ashok Lahiri’s recent statement.
To make India a developed economy by 2047, he said, per capita income in dollar terms would need to increase more than sixfold over the next two decades.
The state-level record is a caution worth heeding alongside that target: Growth so far has changed who leads far more often than it has lifted those who lag.
Feature Presentation: Aslam Hunani/Rediff
