The Covid-19 pandemic put the brakes on India’s dream of becoming a $5 trillion economy by 2024–25. It now aspires to achieve it by 2026–27. But, there is one state that has taken it upon itself to become a $1 trillion economy by 2027.
Yogi Adityanath-led Uttar Pradesh recently signed a memorandum of understanding (MoU) with Deloitte India, appointing it as a consultant for spearheading the state towards its mission. “Now is the time of Uttar Pradesh, and taking full advantage of its potential, the state will become the most important base for multi-dimensional development of the country,” the chief minister said after signing the MoU.
Deloitte India now has the task of formulating an action plan for the future after conducting thorough studies across sectors. Its plan will be reviewed by two committees, one headed by the state’s chief secretary and the other by a group of ministers.
A string of promises was made before and after the chief minister and his party returned to power in the state for the second time with a thumping majority in 2022. While Uttar Pradesh has made progress on the historically infamous law and order situation, it is still among the three most poor states in the country with a per capita income that is not even half of the country’s average.
Uttar Pradesh’s road to $1 trillion will also chart Chief Minister Adityanath’s political trajectory in the next few years by becoming a blueprint of how the chief minister, often seen as a controversial figure, effectively turns around one of the BIMARU states’ fortunes. A legacy built on development could catapult Adityanath into a national role for his party.
The Number Game
Ahead of the assembly election, the Uttar Pradesh government had said that the state had become India’s second largest economy. It had to later revise its claim after the Reserve Bank of India (RBI) data showed otherwise.
According to the RBI and the National Statistical Office, Uttar Pradesh is presently the third largest economy after Maharashtra and Tamil Nadu. For 2019–20, the state’s gross state domestic product (GSDP) at current prices stood at Rs 16.87 lakh crore against Tamil Nadu’s Rs 17.97 lakh crore and leader Maharashtra’s Rs 28.18 lakh crore. Uttar Pradesh’s own revised estimate for 2019–20 had pegged the start’s GSDP at Rs 16.89 lakh crore.
In 2016–17, the state’s GSDP was at Rs 12.89 lakh crore, which went up to Rs 14.16 lakh crore in the next financial year.
For 2020–2021, its GSDP was initially estimated to be Rs 17.91 lakh crore, which was later revised to Rs 19.40 lakh crore. The state government’s Directorate of Economic and Statistics pegged the GSDP for 2021–2022 at about Rs 19.10 lakh crore in its advance estimates. For 2022–23, its nominal GSDP is estimated to touch Rs 20.48 lakh crore. To achieve the 2027 target, the state will have to get to a GSDP of around Rs 80 lakh crore, the rupee equivalent of $1 trillion as per the current exchange rate, in the next five years. This is a giant leap of about 400% from the advanced estimates of 2022–23. This, in turn, means that the state will have to grow at an annualised rate of 31%, which is a significant jump from the current growth rate of about 19%.
While experts do not rule it out, it will be a significant challenge even for the most formidable of policymakers to surmount. For example, as per the Niti Aayog’s multidimensional poverty index (MPI) baseline report based on the National Family Health Survey–4 (2015-16), Uttar Pradesh is among the three most poor states of India. With 37.79% of its population being multidimensionally poor, Uttar Pradesh is just behind Jharkhand (42.16%) and Bihar (51.91%).
Incentivising Economic Sectors
Uttar Pradesh’s ambitious target of becoming a $1 trillion economy hinges primarily on the success of the Centre’s production-linked incentives scheme. Noida is being projected as the venue of choice for developing an electronics industry. Samsung recently opened its largest manufacturing unit in Noida. The state government announced last year that it would develop an electronics park for the electronic devices and accessories industry along the Yamuna Expressway near Noida. To challenge China’s dominance in the toy market, Noida is setting up a toy manufacturing hub. The state government is also trying to revive Kanpur’s pull as a major industrial belt, as it has always had a thriving leather industry. The chief minister wants to develop a major leather hub in Kanpur spread across 235 acres.
Defence is another sector where Uttar Pradesh is seeking to bring in the most investment. Last year, the Tata Group announced that, in partnership with Airbus, it would deliver 56 C-295 military aircraft to the Indian Air Force. The likely site for the Tata and Airbus manufacturing plant was reportedly going to be in Uttar Pradesh. The Uttar Pradesh Defence Industrial Corridor (UPDIC) is an aspirational project, which is being projected to help India reduce the foreign dependency in the aerospace. The Uttar Pradesh Expressways Industrial Development Authority (UPEIDA), the nodal agency for the UPDIC, has signed 69 agreements with industry with potential investment worth Rs 10,545 crore.
“The secondary and tertiary sectors together contribute nearly 68% to the state GSDP. These sectors include manufacturing and service industry, like electronics manufacturing, handloom and textile manufacturing, food processing, IT and data centre services, etc. Uttar Pradesh is attracting investment from round the globe in these sectors,” minister for industrial development Nand Gopal Gupta told Outlook Business.
While the state government is aggressively pushing to turn around the image of Uttar Pradesh as an investment hub, persistent challenges, like human development indicators, continue to remain in the red zone. Poverty is high and per capita spending on education is one of the lowest in the state. According to the Annual Status of Education Report 2021, one out of eight students drops out at Class VIII in the state. The gross enrolment ratio (GER) at higher secondary level is 46.88% and 25.3% at the college and university level.
As far as health goes, the Niti Aayog Health Index in four rounds ending 2019-20 ranked Uttar Pradesh at the bottom in the country. “Health is an area where the chief minister is personally committed. Every district should have a medical college. In the last count, 35 to 36 medical colleges are being built. Tehsil and block-level infrastructure needs to be strengthened. … Large number of universities are being established at the district-level where there were not any, like Azamgarh, Saharanpur, etc.,” Awanish Awasthi, additional chief secretary to government of Uttar Pradesh told Outlook Business.
According to N.R. Bhanumurthy, economist and vice-chancellor, Dr. B.R. Ambedkar School of Economics University, Bengaluru, investments create more jobs in the pockets where they are happening and everything together gives a better life to people, but it is a long-drawn-out process, he says. “As far as the social sector goes, Uttar Pradesh might take longer to improve. Things like poverty, health indicators and education will not change overnight. It takes at least a generation to change these indicators. Even if you invest in them today, you do not get return on social sector overnight,” he says.
Easing Business Woes
While several projects have been announced in Uttar Pradesh, the bulk of private sector investment in India is still concentrated in states like Gujarat, Tamil Nadu and Maharashtra. In the first half of FY21, Tamil Nadu attracted about 16% of the total investments in the country, as per a CARE Ratings report.
Uttar Pradesh wants to play the game of wooing investors aggressively. In a bid to attract investment, in May 2020, right in the middle of the pandemic, the state government suspended most of its labour laws for three years to facilitate ease of doing business. The 2020 ordinance retained only three provisions—the Bonded Labour (Abolition) Act, 1976, Employee Compensation Act, 1923, and Building and Other Construction Workers’ Act (Regulation of Employment and Conditions of Service), 1996.
“States with natural resources have a natural advantage of attracting businesses. Ease of doing business is important for getting investments. To ascertain whether a state is conducive to business, several factors have to be studied—like how the labour codes are in a state, how good or bad is its physical infrastructure and how educated is its labour force. States which can address these issues have a natural advantage in getting investment whenever it comes,” says Devendra Pant, chief economist, India Ratings and Research.
Uttar Pradesh has the advantage of having natural resources from a geo-economic perspective. The Gangetic plain is one of India’s most fertile areas. At present, in Uttar Pradesh’s GSDP, agriculture’s contribution stands at 23%, manufacturing at 27% and services at 50%. Its industries are based on agriculture, forest and minerals. The handloom industry is one of the largest industries of the state, which ranks third as far as the cotton textile industry is concerned with about 73 cotton mills. As the largest producer of sugarcane in the country, it runs 24 state-controlled cooperative sugar mills.
Assuming that the share of each sector in the economy stays at the current level, to become a $1 trillion economy, the manufacturing sector will have to grow five times from the current Rs 5.6 lakh crore to Rs 27.6 lakh crore, agriculture by two-and-a-half times to Rs 11.8 lakh crore from the present Rs 4.7 lakh crore and services by four times to Rs 40 lakh crore from Rs 10.3 lakh crore currently.
The state’s dependence on agriculture is not only through farm produce and direct and indirect employment, agro-based industries are also the state’s mainstay. The Adityanath government will have to continue to focus on the farm sector while wooing newer sectors of growth.
Power to Fuel Investment
Apart from focusing on infrastructure, to achieve large-scale industrialisation, it is important to have power sector reforms. Despite four big reforms in the last 15 years, state-owned distribution companies (DISCOMS) are operationally and financially down in the dumps.
The Ujwal DISCOM Assurance Yojana (UDAY), launched by the Ministry of Power in 2015, helped states for a while, but most states started failing to meet their targets and continued in losses after the scheme ended in FY20.
The loss-ridden Uttar Pradesh Power Corporation Ltd (UPPCL)’s commercial and technical losses will increase when demand for power goes up. The UPPCL is also struggling to deal with rampant power theft and inefficient collection systems.
“The good thing about Uttar Pradesh is that it had a revenue surplus for a long time. It is trying to amend its policies to achieve sustainable growth in the medium to long term. But, to attract investment, it is important to have power infrastructure in place,” says Pant.
Remnants of Jungle Raj
Top decision makers of the Uttar Pradesh government believe that apart from economic push on infrastructural projects, their journey to the $1 trillion economy will pass through sound law-and-order situation, which they claim sets this regime apart from other earlier governments.
In a conversation with Outlook Business, deputy chief minister Brajesh Pathak said that the Uttar Pradesh government has adopted a zero-tolerance policy towards crime and taken strict action against “rioters, mafia elements and other anti-social elements” under the provisions of the Goonda Act, National Security Act and Gangster Act. He says, “We worked … to destroy the organised crime mafia that had spread its tentacles across Uttar Pradesh. Today, the same infamous crime mafia members are spending time in jail.”
As the Uttar Pradesh government pushes for widespread infrastructure creation, it is yet to be seen whether Chief Minister Adityanath can continue being the taskmaster on the economic front the way his supporters believe he is in other spheres. However, this is certain that if India wants to take a serious shot at being a $5 trillion economy, Uttar Pradesh will have to come close to the $1 trillion target it has set for itself.
