TN, Karnataka have made economic gains amid Maharashtra's political flux
Unlike its southern peers, Maharashtra has been unable to capitalise on emerging opportunities in sectors like electronics manufacturing, green tech and EVs
By : K Giriprakash
Update: 2024-12-07 01:00 GMT
Maharashtra, long celebrated as the engine of India’s economy, finds itself at the crossroads.
Political instability, inconsistent policies, and slowing growth have eroded its dominance, creating opportunities for southern states like Tamil Nadu and Karnataka to pull ahead.
Once the unchallenged leader in industrial growth and economic output, Maharashtra faces mounting challenges as these southern states redefine India’s economic dynamics.
Over the past five years, the state has seen much political flux, with a split in the Shiv Sena, the NCP, and resultant government changes mid-tenure. Now, with Devendra Fadnavis helming what appears to be a stabler coalition government, the state could possibly look at fixing its economic issues.
Southern states take lead
Tamil Nadu and Karnataka have become India’s new economic leaders through strategic governance and focused policy-making. Their growth is no accident – it results from clear priorities, political stability, and an ability to adapt to emerging opportunities.
In contrast, Maharashtra has struggled to maintain its earlier momentum.
Dubbed the “Detroit of Asia”, Tamil Nadu has emerged as a global manufacturing hub. Its automotive sector leads the nation, while its electronics exports reached a staggering $9.56 billion in FY 2023-24, making it India’s largest exporter.
In 2023, Tamil Nadu also accounted for 68 per cent of the country’s electric two-wheeler production, indicating its ability to embrace new technologies and sectors.
Meanwhile, Karnataka has cemented its reputation as India’s Silicon Valley. Its robust tech industry has made it a global hub for innovation, attracting significant investment in IT, biotech, and green technology. With Bengaluru at the centre of this transformation, Karnataka’s economy has become one of the most dynamic in India.
GDP contributions
This shift is reflected in their growing contributions to India’s GDP. The chart below compares the GDP contributions of Maharashtra, Tamil Nadu, and Karnataka over time, highlighting shifts in economic dominance.
Tamil Nadu’s share rose from 7.1 per cent in 1990-91 to 8.9 per cent in 2023-24, while Karnataka’s share increased from 5.4 per cent in 1960-61 to 8.2 per cent in 2023-24.
Maharashtra, while still the largest state economy, has seen its share drop from over 15 per cent in earlier years to 13.3 per cent in 2023-24, as per the Economic Advisory Council to the Prime Minister's working paper titled Relative Economic Performance of Indian States.
Per capita output
The per capita Net State Domestic Product (NSDP) is a key metric that reflects economic output per individual. Here, too, Tamil Nadu and Karnataka have outpaced Maharashtra, showcasing their stronger industrial and economic bases, as reflected in the chart below.
Karnataka's per capita NSDP rose from ₹2,65,623 in 2021-22 to ₹3,32,926 in 2023-24, while that of Tamil Nadu rose from ₹2,41,131 in 2021-22 to ₹3,50,000 in 2023-24. Maharashtra's per capita NSDP increased from ₹2,15,233 in 2021-22 to ₹2,77,603 in 2023-24, per data from the Ministry of Statistics and Programme Implementation (MoSPI).
While Maharashtra’s growth is notable, it lags significantly behind its southern peers, underlining its slower adaptation to changing economic conditions.
Maharashtra’s challenges
Maharashtra’s struggles can be traced back to political instability and inconsistent policies. Frequent government changes have created uncertainty, discouraged investment and hindered long-term planning.
Once synonymous with industrial might and financial clout, the state now is not able to capitalise on emerging opportunities in sectors like electronics manufacturing, green technology, and electric vehicles.
Even in traditional industries, Maharashtra has been losing ground. Its industrial output has not kept pace with Tamil Nadu’s manufacturing resurgence or Karnataka’s rapid expansion in new-age sectors. This has raised concerns about the state’s ability to compete in a fast-changing economic environment.
Growing debt burden
Adding to Maharashtra’s woes is its growing debt burden. The state’s debt rose by 23 per cent over the past three years, reaching ₹7,11,278 crore in 2023. By contrast, Tamil Nadu’s debt grew by less than 1 per cent, while Karnataka’s increased by 13 per cent, as the chart below shows.
Maharashtra’s fiscal health is becoming a cause for concern, particularly as its economic growth slows, as per various reports and PRS Research data.
According to Maharashtra’s Economic Survey, the state’s growth rate is projected to decline from 9.4 per cent in 2022-23 to 7.6 per cent in 2023-24. This drop is driven by a sharp decline in key sectors like agriculture and services, vital to the state’s economy.
Employment: A mixed bag
One area where Maharashtra has fared relatively well is employment.
The state’s unemployment rate stands at 4.3 per cent, better than Karnataka’s 10.65 per cent and slightly higher than Tamil Nadu’s 4.1 per cent. However, this metric alone is insufficient to offset the broader challenges Maharashtra faces in maintaining its economic leadership.
Southern model: Lessons for Maharashtra
The rise of Tamil Nadu and Karnataka highlights the importance of political stability and targeted policies in driving economic growth. These states have diversified their economies, focusing on high-growth sectors and exports.
Tamil Nadu’s manufacturing strength and Karnataka’s tech leadership demonstrate how clear priorities and proactive governance can transform regional economies.
Both states have also invested in creating an investor-friendly climate. Tamil Nadu’s infrastructure and Karnataka’s innovation ecosystem have attracted significant foreign direct investment, fuelling their economic growth.
On the other hand, Maharashtra needs to regain investor confidence and adopt similar strategies to reclaim its position as a leader in India’s economy.
The broader shift in Indian economy
The rise of Tamil Nadu and Karnataka is part of a broader trend in India’s economic landscape. The south’s share of India’s GDP has grown from 25.2 per cent in 1960-61 to 30.6 per cent in 2023-24, driven by states like Karnataka, Tamil Nadu, and Telangana.
Despite being a new state, Telangana has emerged as a strong performer with a per capita income of ₹3,93,327, nearly twice the national average. In contrast, northern and eastern states have struggled.
Bihar’s per capita income is now just one-third of the national average, while Uttar Pradesh’s is only 50.8 per cent. Even among northern states, Uttarakhand, carved out of Uttar Pradesh, has outperformed its parent state, with a per capita income 141.3 per cent above the national average.
Path forward for Maharashtra
Despite its challenges, Maharashtra remains India’s largest state economy, with a Gross State Domestic Product (GSDP) of ₹42.67 lakh crore in FY 2024-25.
To reclaim its position as an economic leader, the state must address several key issues:
1. Political stability: Stable governance is essential for attracting investment and fostering long-term economic growth.
2. Diversification: Maharashtra must focus on high-growth sectors like green technology, electric vehicles, and electronics manufacturing.
3. Infrastructure development: Improved infrastructure will be critical to support industrial and economic expansion.
4. Urban-rural balance: Bridging the gap between urban and rural areas is necessary to ensure equitable growth across the state.
5. Fiscal responsibility: Managing the debt burden and improving fiscal health will be vital for sustaining growth.
The ascendance of Tamil Nadu and Karnataka marks a turning point in India’s economic story. These states have not only caught up with Maharashtra but, in many ways, have surpassed it by embracing innovation, strategic investments, and forward-looking policies.