India’s manufacturing divergence across states | Number Theory

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The first article of this three-part series explained the importance of boosting manufacturing to improve India’s living standards and cited its key role in the economic rise of China. To repeat the clichéd question of how India can emulate the Chinese path in boosting manufacturing, one needs to begin by underlining the fact that manufacturing shows large inter-state variation in India. Here are four charts which explain this in detail.

Workers sew winter garments at a Gokaldas garment facility in Bengaluru, India, September 16. (REUTERS)

Inequality among states in manufacturing is greater than overall GVA among states

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  Inequality among states in manufacturing is greater than overall GVA among states

  If one were to compare the share of different states in the country’s overall Gross Value Added (GVA) and manufacturing GVA, it emerges that manufacturing is more skewed than overall GVA. Maharashtra, India’s highest-ranked state by total GVA, had a share of 12.9% in India’s 2023-24 GVA. India’s top-ranked share by manufacturing GVA, Gujarat, has an all-India share of 18.6%. The top three and top five states by overall GVA had a 30.7% and 47% share in India’s GVA; while those ranked in the top three and top five by manufacturing GVA had shares of 43.2% and 57.5%.
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  Manufacturing has grown at the same pace almost everywhere, keeping states where they were

  If Telangana is considered a separate state in 2011-12 for inter-year comparisons, 21 states and the NCT of Delhi had at least 1% share in India’s nominal manufacturing GVA in the year. These 22 states/UTs show a lot of divergence in their share in manufacturing GVA. The 25th percentile mark (Q1) of this number was 1.8%, the 50th percentile or median mark was 3% (Q2), the 75th percentile mark (Q3) was 4.9%, and the highest share was 17.4%. Q1, Q2, and Q3 marks were almost exactly the same in 2023-24, and the maximum changed by just over a percentage point. The shares of 14 of these states and UTs have changed by under 50 basis points in the 12 years since 2011-12. The reason for this is that manufacturing has grown at nearly the same pace everywhere. The Q1, Q2, and Q3 marks of the CAGR of nominal manufacturing GVA, for example, are 7.9%, 9.3%, and 9.9%. To be sure, there are outliers. For example, Maharashtra’s share in manufacturing GVA has fallen sharply because it has grown at a slower pace than average and Gujarat’s share has risen sharply because it has grown much faster than average.
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  Manufacturing is more employment intensive in some states than others

  This can be seen by comparing the share of different states in India’s manufacturing GVA and jobs. The state with the highest share of manufacturing jobs is West Bengal, although it is ranked sixth by manufacturing GVA in 2023-24. The state’s share in India’s manufacturing jobs is 2.4 times its share in GVA. To be sure, this ratio is also at a similar level in states like Bihar and Assam. However, because the manufacturing sector is very small in these states, a high ratio in such states only implies higher labour intensity of manufacturing; not a large share of manufacturing jobs. Similarly, while labour intensity might be low in states like Gujarat and Maharashtra, they have a large share of manufacturing workers simply because the industry is much bigger than elsewhere in these states.
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  And some states have done much better than others in boosting manufacturing employment

  A high labour intensity of the manufacturing sector in a state also does not necessarily mean that the sector is boosting manufacturing employment over time. For example, the sector’s share in the state’s total jobs has increased in Assam between 2011-12 and 2023-24, but decreased in West Bengal. On the other hand, the sector’s share in the state’s total jobs has increased in Haryana, which otherwise has a low labour intensity in manufacturing.
• The first part of this series explained manufacturing's role in India's economic standing internationally. The third and final part will show the inequality within the sector in terms of formal and informal manufacturing.