Reversing months of decline, southern states saw a rise in economic activity and moved up the charts in January, the latest update to Mint’s State Economy Tracker shows. With the exception of Andhra Pradesh, all the southern states moved up the league tables. Karnataka moved from fifth position in December to the top of the charts in January, followed by Tamil Nadu at the second spot.

Mint’s State Economy Tracker, launched earlier this year, is a first-of-its-kind attempt to measure the pace of economic activity at the state level based on seven high-frequency indicators. The seven indicators encompass consumer demand (vehicle sales, air passenger growth), financial metrics (inflation and credit growth), a barometer of industrial activity (power demand), and public finance metrics (public investments and tax receipts). The final state rankings are based on a composite score, which gives equal weights to each indicator. Most indicators capture monthly growth over the year-ago period. In the case of vehicle sales and credit growth, the latest quarterly year-on-year growth figures have been considered. The public finance indicators reflect provisional year-to-date numbers, as reported by the Comptroller and Auditor General (CAG).

The improved performance of Karnataka and Tamil Nadu in the latest update was largely due to an uptick in public capex spending in these states. Karnataka also saw a pick-up in tax revenue growth, while Tamil Nadu’s tax revenues continue to be lacklustre. At the third spot behind Karnataka and Tamil Nadu stands West Bengal, which has managed to beat the slowdown in passenger vehicle sales affecting other states of the country.

View Full Image State economy tracker (Graphic: Sriharsha Devulapalli/Mint)

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Among prosperous states (with relatively high per capita income), the western states continue to lag the rest. Gujarat was at the bottom of the heap in January while Maharashtra was at eighth position. Gujarat was ranked tenth in December while Maharashtra was ranked seventh that month.

The ten largest state economies in the country, all of which exceeded ₹5 trillion in GSDP as of 2017-18, find a place in Mint's State Economy Tracker. Other state economies have been clubbed into two broad categories: mid-sized state economies (GSDP between ₹3-5 trillion) and small-sized state economies (GSDP less than ₹2 trillion).

Uttar Pradesh, which was ranked the top state in December saw the sharpest slide in the latest rankings. India’s most populous state saw a sharp slide in year-to-date public capex spending, decline in power demand, and a sharp rise in inflation in January --- all of which contributed to its fall in the league tables.

While southern states have made an impressive comeback in the latest rankings, thanks largely to an improvement in public capex spending, their ability to sustain high capex spend could come under a cloud as the broader economy grapples with the fallout of Covid-19 and the supply chain disruptions it is causing. Southern and western states may be hit harder because of these disruptions as they are integrated to a greater extent with global supply chains.

The recommendations of the fifteenth finance commission, which has hit the southern states harder than the rest could also dampen the ability of state governments in the south to ramp up public spending. These headwinds could slow down the southern states, and affect their rankings in the league tables in the coming months.

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