States need to nearly double growth to achieve $1-trillion economy goal in time

States set to miss $1 trillion target

India’s states will need to grow nearly double their long-run average pace if they want to achieve their $1-trillion economy target, according to a Moneycontrol analysis.

Uttar Pradesh, which earlier this week announced that it will embrace the public private partnership model to achieve $1-trillion economy goal by FY28, will have to expand by nearly 50 percent over the next four years to achieve its goal.

In this year’s Budget (2024-25), the government has kept a modest expectation of 5.8 percent growth of FY25 from 4.6 percent in FY24.

The UP economy is expected be a shade below $300 million in FY25 in current dollar terms (Rs 83.5). It grew at a compounded annual growth rate of 9.9 percent over the last decade and 12.6 percent post-pandemic (FY22-24).

If it does continue at the post-pandemic pace, it will still take another eight years from its goal to become a trillion dollar economy. At the long-run average, UP won’t be a trillion-dollar state until FY38.

If the last 10 year’s growth rates are any measure, all states are set to miss their $1-trillion economy target.

Maharashtra would become a trillion-dollar economy in FY33 instead of FY28. Tamil Nadu would hit the goal by FY35, five years later than the 2030 target set by the state. Karnataka will miss the goal by three years instead of 2032 target it set and Gujarat will achieve its goal six years late in FY36.

Maharashtra, which is expected to be $0.5 trillion in FY25 is expecting a tepid 5.5 percent growth compared with 10-year CAGR of 9.6 percent. It grew 13.4 percent post pandemic.

Gujarat and Tamil Nadu are the only Rs 2 lakh crore+ economies expected to grow faster in FY25, compared with the long-run average.

If post-pandemic growth rates are considered, then all five states are expected to hit the target by FY36.

Karnataka and Maharashtra will cross the trillion-dollar target by FY31, with Karnataka outpacing Maharashtra to become the third largest economy.

Karnataka grew 22.1 percent between FY22 and FY24. But growth is now tapering off.

Its government expects 9.4 percent growth in FY25, compared with 10-year average annual growth of 12.2 percent.