New Delhi: India’s poorer states are beginning to show early signs of “growth convergence” after the pandemic, as a jump in state public capital spending has helped some lagging regions grow faster than their wealthier counterparts, a report noted on Wednesday.
Assam, Uttar Pradesh, Rajasthan and Bihar stand out for their higher public capital expenditure and robust growth, according to HSBC Global Investment Research.
“Those states that have lower GDP per capita can display strong catch‑up growth for several years if the conditions are right. This is what we call ‘growth convergence’ in economics and can be a driver of strong national growth,” the report said.
HSBC analysts observed that when states enjoy healthy fiscal revenues, they are more likely to boost capital spending—particularly in emerging states—adding that the central government’s transfers to states rose after the pandemic.
The report also warned that a slowdown in the centre’s tax‑revenue growth could dampen automatic transfers to states. While several states, especially those heading into elections, have announced new cash‑transfer programmes that, to date, do not appear to crowd out capital spending, they remain a point of vigilance.
The research firm suggested that the centre could broaden the scope of its capital‑expenditure loans to state projects.
“Centre can increase the size, broaden the use, make it more flexible, and increase its predictability. It may help to get clarity for the next few years, so that states can invest in some bigger capex projects that need multi‑year funding,” it said.
States could help by driving deregulation and putting labour‑law relaxations into practice. Earlier this month, Morgan Stanley noted that macro indicators remain stable, giving policymakers plenty of leeway to support growth through both monetary and fiscal policy.
With rural and urban consumption both set to rise, GDP is projected to grow at 6.5 percent in FY 2027–28, the report added.
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