Rising Income Disparity Among Indian States 2025
Recent data shows growing income inequality among Indian states. Richer states are advancing rapidly, while poorer states lag further behind. Southern and western states dominate the prosperity map, driven by manufacturing and investment-friendly policies.
Income Growth Trends Across States
- Richer states such as Gujarat, Karnataka, Tamil Nadu, Telangana, Kerala, and Maharashtra have grown faster than the national average annual growth rate of 4.75%.
- Gujarat leads with 7% growth, followed by Karnataka (6.6%) and Tamil Nadu (5.9%). Bihar, Jharkhand, and Uttar Pradesh show slower or negative relative growth. Some states like Odisha have recently improved by attracting major investments.
- Gujarat’s per capita income surged from 138% to 180% of the national average between 2011-12 and 2023-24. Bihar’s share fell from 34% to 29.6%, deepening the divide.
Data Estimation Challenges
State per capita income estimates rely on net state domestic product and population data from 2011 Census. These figures do not fully account for migration and changing fertility rates. This causes inaccuracies in state-level income comparisons. Despite this, the broad pattern of widening income gaps remains clear.
Role of Manufacturing and Investment
Manufacturing expansion fuels growth in richer states. These states benefit from skilled labour, supplier networks, and knowledge spillovers. Gujarat surpassed Maharashtra in manufacturing output since 2017-18 due to a more business-friendly climate. Southern states aggressively attract global firms like Foxconn and aerospace companies. Andhra Pradesh’s alignment with central policies and focus on high-tech sectors enhance its investment appeal.
Policy and Business Environment
Richer states offer better infrastructure, law and order, and governance. Tamil Nadu’s success in employing women and migrant workers in factories is a key factor in attracting labour-intensive manufacturing. Poorer states face challenges like weak institutions and infrastructure deficits. Odisha’s recent gains show the impact of targeted investment in resource-based industries.
Lessons for Inclusive Growth
To reduce disparities, national policies must encourage investment dispersal to poorer states. Creating incentives and improving business climates are essential. Labour-intensive manufacturing can absorb large populations in poorer regions. Southern and western states demonstrate how policy reforms and industrial focus drive sustained economic growth.
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