Why India needs to revive Kolkata?

We recently published a paper titled “Relative Economic Performance of Indian States: 1960-61 to 2023-24” where we looked at the fortunes of different Indian states over the last seven decades. The study threw up several interesting insights regarding the relative shares and per capita incomes of states. One interesting observation was that a common feature of all the high performing states was the presence of one or more urban hubs that drove growth.

Following the economic liberalization of 1991, Karnataka, Telangana, and Tamil Nadu emerged as the leading performers. Karnataka's contribution to India's GDP rose from 5.3 percent in 1990-91 to 8.2 percent by 2022-23, while Tamil Nadu's share grew from 7.1 percent to 8.9 percent. Telangana’s share in India’s GDP has rapidly gone up from 3.8 percent in 2010-11 to 4.9 percent in 2023-24.

Meanwhile, Maharashtra has maintained the highest share of India’s GDP for almost all of the period, with its share now at 13.3 percent. Gujarat’s share after being fairly stable until 2000-01, began to rise rapidly thereafter. It increased from 6.4 percent in 2000-01 to 8.1 percent in 2022-23.

In the north, Haryana and Delhi have seen significant growth over the decades. Haryana’s contribution to national GDP increased from 1.9 percent in 1960-61 to 3.6 percent in 2023-24. Despite its small size, Delhi economic share is now 3.6 percent of India’s GDP, comparable to a large state like Haryana or Kerala.

It is evident that a common factor among these states is the presence of one or more vibrant economic hubs: Bengaluru in Karnataka; Hyderabad in Telangana; Chennai, and Coimbatore in Tamil Nadu. Similarly, we have Mumbai-Pune in Maharashtra, and Gurugram as well as the broader National Capital Region, in Haryana. In Gujarat, has several urban clusters such as Ahmedabad, Vadodara, Rajkot, and Surat. These urban centers have all been pivotal in driving economic activity in their respective states.

The converse is true for laggard states like West Bengal, Punjab, Bihar and Uttar Pradesh. West Bengal, which once had the third largest share in India’s GDP at 10.5 per cent in 1960-61 has dropped to 5.6 percent today. Punjab now accounts for 2.4 percent, down from a peak of 4.3 percent in 1990-91. Contrast this with its agriculture-driven growth in the 1960s.

The share of undivided Bihar has decreased from 7.8 percent in 1960-61 to 4.3 percent now (it is now merely 2.8 percent excluding Jharkhand). Undivided Uttar Pradesh has seen its share decline from 14.4 percent in 1960-61 to 9.3 percent in 2020-21, with a slight increase to 9.5 percent in 2023-24 (8.4 percent excluding Uttarakhand).

Note how the lagging states are characterized by a lack of vibrant urban hubs. Either significant economic hubs were never developed, or the existing ones failed to evolve. For example, Kolkata, once the colonial-era capital, and a major commercial and financial hub, has experienced continuous de-industrialization since the seventies. Similarly, Kanpur, once known as the "Manchester of the East" for its thriving textile mills, gradually lost its prominence. It is only with the recent growth of Noida that UP is finally witnessing some revival.

Ludhiana and Jalandhar were once a successful industrial hubs in Punjab, known for their garments, sports goods and farm machinery industries, but they lost their momentum. Most of the policy debate surrounding Punjab focuses on agriculture but its urban economy tends to be neglected. In Bihar, no significant urban clusters have emerged. In fact, it had the lowest urbanisation rate among major states (11.3 percent in 2011 and perhaps still below 20 per cent). Its sole industrial hub, located in Jamshedpur, became part of Jharkhand following the state's bifurcation.

One of the major findings of our paper was that eastern India is falling behind the rest of India. The real economic divide in India is not North-South but East versus the Rest. Give the importance of urban hubs in generating rapid economic growth, the revival of eastern India will require the energy of one or more vigorous cities. The possible candidates include Ranchi, Patna, Asansol, Jamshedpur, Bhubaneswar, Cuttack and Kolkata.

While all these hubs can play a part, it would obvious to readers that the urban ecosystem of Kolkata is simply on a different scale from the others. Despite decades of decline, it still hosts a sizeable industrial cluster, academic/research institutes, and concentration of physical infrastructure. Several national institutions such as the National Library and Indian Museum are still based there.

For the foreseeable future, Kolkata will remain the best bet for creating a growth engine in this part of the country. Moreover, given its relative size, reviving Kolkata is not merely important for West Bengal but for all of eastern India. While broader policy strategy is needed to accelerate the economies of India’s eastern states, an approach that gives special attention to Kolkata is likely to generate a virtuous cycle more quickly.

Sanyal and Arora are Member and Joint Director respectively in Economic Advisory Council to the Prime Minister. All opinions are personal