Economic Dynamics of Southern Indian States | 12 Feb 2025

Source: TH 

Why in News?

Chief Economic Adviser (CEA) V. Anantha Nageswaran emphasized that Southern Indian states should benchmark their economic performance against global standards rather than just other Indian states, highlighting the economic strength of the region and areas requiring improvement. 

What is the Economic Contribution of Southern States? 

• Economic Contribution: Southern States account for 30% of India’s GDP, with Tamil Nadu and Karnataka leading in Gross State Domestic Product (GSDP) growth after Maharashtra in FY 2024-25. 
• Higher Growth Rate: The South records 6.3% annual GSDP growth in real terms, compared to 5% for the rest of India. 
  • Per capita GDP is rising at over 5%, compared with the rest of India per capita GDP growth of 4.2%. 
• Manufacturing & Investment: 37.4% of total factories and 37% of operational factories are located in South India.  
  • 25.6% of India’s total fixed capital investment comes from the region. 
  • 33% of India’s manufacturing workforce is based in South India. 

Why Do Southern States Outperform the Rest of India? 

• Historical Stability: Southern India’s relative stability, unlike the north's repeated foreign invasions, enabled consistent economic and cultural development, with major trade centres like Vijayanagaram, Kanchipuram, Madurai, Mahabalipuram, Kochi, and Kozhikode. 
• Colonial Advantage: By the mid-18th century, Madras and Bombay had emerged as major Presidency towns in the south, while the north had only one—Calcutta.  
  • Portuguese and French influences in the south further boosted early trade and urban development. 
• Economic Growth: Southern states outpaced northern states in economic growth post LPG reforms, attracting more industrial investment and FDI.  
  • Karnataka and Tamil Nadu became hubs for automobile, textile, and Information technology (IT) industries, while Telangana emerged as a biotech and pharmaceutical center (contributes to 1/3rd of the global vaccine output).  
  • Despite development in Maharashtra, Gujarat, and National Capital Region, uneven growth persists in other regions, with northern states lacking major urban centers, unlike southern states. 
  • while the Northeast faces significant challenges, including border identification delays, congested roads, and limited connectivity, hindering its trade and development. 
• Agricultural Productivity: Tamil Nadu and Karnataka adopted modern farming techniques and diversified into cash crops, horticulture, and aquaculture. 
  • Northern states like Uttar Pradesh and Bihar relied heavily on traditional crops like wheat and rice, leading to stagnation in productivity. 
• Governance: Telangana and Karnataka introduced IT & e-governance reforms that boosted their economies. 
  • However, cities like Mumbai, Pune, Ahmedabad, Noida, and Gurugram gained economic growth much later than southern cities due to delayed reforms in land, labor, and industry. 
• Social Development: At independence, southern states were underdeveloped. Controlled population growth later enabled better resource allocation for development. 
  • Kerala, Tamil Nadu, and Karnataka have much higher literacy rates. Better schooling infrastructure and focus on education in the South led to a comparatively more skilled workforce than the rest of India. 
    • Tamil Nadu pioneered the midday meal program, boosting school enrollments, while Andhra Pradesh and Telangana have focused on expanding English-medium education.  
    • Kerala, with the highest literacy rate in India (96.2%), has developed a highly skilled workforce. 
  • Poor performance in northern states is due to insufficient investment in education, and infrastructure, driven by political neglect. 
• Health and Social Indicators: Southern states excel in healthcare, with Kerala having the best infrastructure and low infant mortality (6 per 1,000 births) compared to Madhya Pradesh (46).  
  • The Maternal Mortality Ratio in Southern India is lower than the national average (103 in 2020).  

• Natural Factors: Proximity to ports boosts trade, exports, and industrial growth (Chennai, Kochi, Visakhapatnam). 
  • Moderate climate supports agriculture, tourism, and living conditions better than extreme weather in the north. 

What are the Concerns Regarding the Southern States' Economic Growth? 

• Productivity Gap in Manufacturing: The southern region contributes only 26% to the total manufacturing output. Indicates lower productivity and efficiency in manufacturing despite a strong workforce. 
• Skill Development Deficiencies: The region has a strong Skill Level 2 workforce (intermediate skills) but lags in Skill Levels 3 and 4 (advanced professional skills in AI, engineering, and high-tech sectors). 
  • Inadequate investment in higher education and research limits innovation and job creation in high-value industries. 
  • Declining demography (youth) in southern states, worsened by emigration for better opportunities, risks labour shortages, highlighting the need for an inclusive migrant policy to sustain growth. 
• Infrastructure: Urban congestion and energy challenges persist. There is a need for better industrial corridors, logistics networks, and digital infrastructure to attract more global investments. 
• Regional Disparities: States like Tamil Nadu and Karnataka lead in economic growth, while others like Andhra Pradesh and Telangana face slower industrialization. 
  • Rural areas still lag behind urban centers in terms of economic opportunities and infrastructure. 
• Climate Change: Southern India is highly vulnerable to climate change, with frequent droughts, cyclones, and extreme weather events. Agriculture and coastal economies are particularly at risk. 
• Policy Issues: Many states rely heavily on financial transfers from the central government, reducing their fiscal autonomy and rising state debt ratios are burdening the states. 

Way Forward 

• Global Benchmarking: Southern states should pursue global competitiveness, with Bengaluru, India’s "Silicon Valley," comparable to California in tech growth. 
• Enhance Productivity: Improve manufacturing productivity to align workforce participation with output. Invest in skill upgrades, especially in high-value manufacturing and encourage Industry 4.0 adoption. 
• Infrastructure Improvement: Strengthen industrial corridors, logistics networks, and digital infrastructure through Bharatmala Pariyojana to boost global trade and attract foreign investment. 
  • Expand industrial corridors linking North-South and East-West economic zones for balanced growth. 
• Tourism Potential: Leverage southern states' rich temple heritage and promote sustainable coastal tourism. 
• Strengthen Revenue Growth: Enhance tax collection through GST and promote Production Linked Incentives (PLI) for sustainable fiscal space. 
• Inclusive Growth: Reduce regional disparities by developing less industrialized areas through Smart Cities Mission (SCM) and Regional Connectivity Scheme (RCS). 
  • Northern states can adopt Kerala's healthcare and education models to boost human development, which in turn boosts economic growth through a ripple effect. 
  • Build and expand inland waterways along major rivers like the Ganga and Yamuna to enhance regional connectivity and trade.