UP’s race to nowhere

After the Ram Mandir consecration ceremony, perhaps, we may return to more mundane, bread-and-butter issues concerning India’s largest state by population.

Ram Mandir has been inaugurated, and Ayodhya has got a swanky new airport, too. Uttar Pradesh is basking in all that glory. Now, perhaps, we may return to more mundane, bread-and-butter issues concerning India’s largest state by population. 

Much has been claimed about UP’s development. It is the singular pitch of the current dispensation’s estimated Rs 50-crore-per-day advertising campaign promising to make UP a $1 trillion economy, parroted from PM Modi’s presentation to BRICS in 2019 about making India a $5 trillion economy by 2024, with UP driving that growth. What’s the reality?

A good place to start would be to study two districts, both drivers of growth, one of which is in UP, and the other elsewhere.

The first is Bengaluru. The Bengaluru Urban District is the third richest district in India, with a per capita income (PCI) of $6,500. Bengaluru has a population of over 12 million that delivers a GDP of $110 billion (2022). It houses thousands of technology companies and start-ups that together employ over three million people. Bengaluru is the engine for Karnataka’s growth -- 16% of the state’s population drives over 40% of the state’s GSDP.

The other is Gautam Buddha Nagar that comprises the satellite town of Noida. GB Nagar generates a GDP of $26.5 billion and contributes roughly 10% of UP’s GSDP. With a population of 2.3 million people, GB Nagar has the second highest per capita income in the country of $10,000, albeit over a smaller base of a concentrated population that lives in this district, fuelled by its satellite town. In other words, 1% of UP’s population contributes 10% of its GSDP. 

Noida is a satellite city of Delhi, established by authoritarian diktat to decongest New Delhi during the Emergency, and though it forms a part of the National Capital Region (NCR) of India, it actually is a part of UP and lies in the district of GB Nagar. Satellite towns like GB Nagar, Gurugram, Faridabad, Hosur and Mohali draw their strength from their planet towns – Delhi (which has the highest PCI of the country at $11,000), Bengaluru, and Chandigarh. Nothing intrinsically lay in these satellite towns that would otherwise explain their exponential growth. 

The planet town, in turn, has seen several prior decades of development -- and at the base of this is human capital, a rules-based system of governance that allows for quality education and healthcare, besides maintenance of law and order. Not so much, infrastructure!

Bengaluru has grown and surpassed Mumbai and Delhi despite its infrastructure, not because of it. It was the talent of engineers, medical professionals, graduates and ITI diploma-holders that led to many companies establishing themselves in Bengaluru. Infosys, for instance, established itself in Bengaluru in 1981. 

Noida derived all of this initially from Delhi -- AIIMS, Delhi University, IIT-D, JNU, etc. In fact, HCL, that other IT behemoth, saw its origins in the NCR region in 1976. GB Nagar has taken that many decades to stand on its own feet and justify Asia’s largest airport today, but its development is restricted to two million people. Bengaluru’s development is spread over six times that.

Another way to look at UP is to compare two states. UP recently took over from Tamil Nadu as the state with the second highest GSDP in the country. Tamil Nadu has eight districts out of 38 that account for 50% of its GDP, spreading growth evenly. The state’s urbanisation stands at 49% across 15 districts and 52% of the state’s GSDP comes from services. Its PCI at $3,500 is three times that of UP. 

Data shows that it will take decades for UP to achieve real GSDP growth. In 2023, 46 districts out of 75 were below the already low PCI of the state ($1,300 in 2022-23), let alone the national average ($2,400). Of the 20 districts that average a higher PCI, 18 lie in a contiguous belt across western UP alongside NCR and account for 60% of the state’s GSDP, derived from agriculture, manufacturing, public administration, and defence sectors, excluding Noida and its IT. 

There is only so much you can grow these sectors by. With this skew, how does the Rs 1.1 lakh crore being spent on infrastructure and a flagship initiative like ODOP (One District One Product) even begin to bear fruit? At last count, two years of effort has thrown up just Rs 1,600 crore of revenue from ODOP, some .000001% of the state’s GSDP. It is estimated that most of the 3 million labourers who were asked to return to UP post-Covid have left UP again, despite a massive exercise by the government
to map their skills to jobs. That is because a bulk of the migrant labourers were unskilled. 

UP’s focus, therefore, must be education and healthcare. If we agree that human capital lies at the basis of a nation’s/city’s growth, then the bluster contradicts the budgetary allocation for education. UP’s budget for education is Rs 80,000 crore for a population of 230 million, or just four times that for the city of Delhi with 30 million people. It is not surprising to note that the private sector follows the government’s lead and just 7% of the ‘proposed’ investment at the state’s Global Investor Summit was for higher education. UP’s healthcare spend is a similar story.  

UPs contribution to India’s GDP is 8.25%, and ranks second after Maharashtra. There should be no pride in this rank as it is mostly population and inflation-driven. UP’s population is three times that of Tamil Nadu, whose GDP it just overtook. UP will take 16 years of sustained GSDP growth at 9% to become a $1 trillion economy from today, not the 5-year promise made by the ‘double-engine sarkar’ in 2019! 

Maharashtra, which is growing at 6.8%, Tamil Nadu, and Karnataka will reach the $1 trillion GSDP faster than UP. Importantly, in five years, per capita income in UP will still be 32% lower than India’s current PCI. This means, concentration of wealth in UP with a few, surrounded by widespread poverty. 

Districts like Chitrakoot, Mahoba, Bundelkhand, Balrampur, Bharaich, Shravasti, to name a few, are actually seeing a drop in PCI. The Niti Aayog re-calibrated the population living in poverty in the state to 40%. 

Given all this, when the state government claims in the Assembly that unemployment has dropped to 4% and growth will be at 19%, we need to worry. In my experience, industry decision-makers find this messaging misleading. Facts must lie at the basis of good, considered policy decisions. Anyone indulging in bluster is doing the country and the state a grave injustice.  

(The writer runs a Corporate Finance practise headquartered in Bengaluru)