12 states that beat India GDP growth failed to create jobs

The economic growth in 12 of the RBI’s 17 non-special states beat India’s economic growth of 6.7% in fiscal 2018, but it did not open more avenues for jobs. In fact, 11 of these 12 states saw a fall in growth in otherwise employment-intensive sectors, said a CRISIL research report. Manufacturing, construction and trade, hotels transport and communication services are some of the employment-inductive sectors.

Further, the growth seen by these states has not been level. Low-income states still fall behind their high-income state counterparts in bridging the per-capita income gap, said the report. On the contrary, the gap is widening. Most of the states could not even keep their Fiscal Responsibility and Budget Management Act (FRBM) line in check, the report added.

The states have become the new drivers of public spending despite the income-gap disparity and lower jobs. This is intensified by the fact that the Centre has little fiscal legroom and the Centre has increased the shares of the states in central transfers.

“States appear to have taken the baton from the Centre in terms of spending, especially capital expenditure, in recent years. This has become more relevant after the 14th Finance Commission increased the allocation of funds to states and gave them the leeway to prioritise spending as per need. Nearly two-thirds of the capex in the economy now is being incurred by the states.” said Dharmakirti Joshi, Chief Economist, CRISIL Ltd.

The overall biggest spenders were Uttar Pradesh, Karnataka and Bihar. States such as Rajasthan, Jharkhand, Uttar Pradesh and Telangana spent the most out of their budget on capex, said the report.

Despite exceeding their capital spending, health and education sectors remain impoverished in these states. “States must also be wary of their debt profiles. While the FRBM Act had helped states recover their fiscal health considerably, recent trends show they are slipping. Debt ratios have risen in many states — with the assimilation of Ujwal Discom Assurance Yojana (UDAY), farm loan waivers, and Pay Commission hikes” said Dipti Deshpande, Senior Economist, CRISIL Ltd.

While states such as Chhattisgarh, Maharashtra and Karnataka kept their debt ratio considerably low, Punjab, Rajasthan and Kerala have their debt ratio over 30%. An increase in the primary deficit is touted to be the cause of the increase in the debt ratio, the report further said.