It is a given that Covid-19 hit the Indian economy hard. The economy contracted 6.6% in fiscal 2021 on account of the pandemic and then staged a mild recovery in fiscal 2022, when it grew 8.7%. However, the impact varied across states, while some states were laid low by the virus, other states were able to withstand the shock to a great extent. Bihar at one end of the spectrum logged the fastest positive growth (2.5%); Kerala was at the other end, shrinking 9.2%.
We took a deep dive into state-level data to analyze how the pandemic impacted the macroeconomic landscape, viz., growth, inflation and fiscal health across states. The analysis gave us quite a disparate picture. Highlights of our findings are:
Not all states saw their gross domestic product (GDP) shrink in fiscal 2021, leading to a differing permanent loss of GDP across states by fiscal 2022
In terms of growth (before Covid-19 and with the pandemic-induced hit), the better placed states appear to be Bihar, Tamil Nadu, West Bengal, and Andhra Pradesh. Kerala, Maharashtra, Uttar Pradesh, Punjab, Rajasthan, Odisha, Jharkhand, and Madhya Pradesh are relatively worse off
Agriculture did cushion the pandemic’s impact on growth among states. This implies generally states with a higher share in their GDP of agriculture contracted less in fiscal 2021
States with a relatively larger dependence on contact-intensive services, on the other hand, got hit more during the pandemic
Interestingly, the pandemic-induced hit to growth among states has not led to a divergence in that low-income states do not appear to have been harder hit
The sharp rise in inflation in the current fiscal has been mirrored in most states. So far this fiscal, 13 large states recorded higher inflation than the national average, with Telangana, Maharashtra and West Bengal recording the highest inflation. Most states facing maximum inflation are the richer states
Fiscal stress, as measured by debt-deficit levels, has increased across states during the past two years. Bihar, Kerala, Punjab, and Rajasthan are especially fiscally vulnerable, and their debt (as a percentage of gross state domestic product) is projected to be the highest among states in this fiscal as well. Finances of Andhra Pradesh, Bihar, Kerala, Madhya Pradesh, Punjab, Rajasthan, and West Bengal worsened, with debt/GDP crossing 35%
