The investment divide across states

Low income or lack of industries alone doesn’t explain why some states struggle to attract investment

- R KAVITA RAO

While the Indian economy has been resilient in its growth even through uncertain times, a persistent concern both globally and locally is the significant variation in economic performance across states.

Per capita income varies widely alongside the nature and composition of economic activity. Many studies have pointed out the lack of convergence in growth observed among Indian states. For India to achieve its aspiration of becoming a developed nation by 2047, it is critical for growth to be broad-based, with the gains from economic growth accruing to a larger range of economic actors.

A crucial driver of growth in a developing economy is investment. By creating capacity and supporting employment, it can support both demand as well as supply. While, there are no officially published series of investment at the state level, the capital expenditure database of the Centre for Monitoring Indian Economy provides some insights. It tracks projects across states, excluding the northeastern and hilly states.

A project in capex represents an intention to set up an additional productive capacity in India. This database covers both government and private sector projects, with economic activities spanning manufacturing, services and infrastructure. However, since the database relies on formal announcements regarding the intention, initiation, and completion of projects, it focuses on larger projects undertaken in the economy. Yet, factors that support large-scale investment could create forward and backward linkages, encouraging the micro, small and medium enterprises (MSME) sector. This piece, therefore, focuses on available information on investments in larger projects.