A new study has put in perspective the divergent and often contradictory scale of growth and economic trends amongst Indian states. So while the South Indian states lead in growth and development, accounting for 31 per cent of India’s GDP, a lion’s share of bank lending actually goes to the Northern and western powerhouse states.
“Southern states contribute roughly 31 per cent of India’s GDP (but) Industrial credit remains concentrated, with the North and West accounting for nearly two-thirds of lending,” said a ‘State of the States’ report by the data insight company Rubix, a Mumbai-based data insights company.
The report presents a decadal analysis of India’s state economies, tracking how growth, investment, and business activity have evolved across regions over the past 10 years.
It brings together a wide set of indicators, including gross state domestic product contribution, state per capita, capital expenditure, capital formation, credit deployment, exports, tourism, and social sector spending, offering a comprehensive view of how subnational trends are shaping India’s broader economic trajectory.
The contradictions and variance in how states and regions perform are stark, with one of the most curious statistics contradicting how a good chunk of loans go to businesses and entities in the North and West of the country, even as most of the economic growth is accounted for by the South.
Mohan Ramaswamy, Co-Founder and CEO of Rubix, however argues this is par for the course, considering the divergent routes to economic growth that South and North (along with West) has taken: “This divergence is partly due to the historical concentration of capital-intensive industries, large corporates, and financial hubs in western and northern regions such as Maharashtra, Gujarat, and Delhi NCR, which continue to attract a higher share of lending from scheduled commercial banks.”
The difference, he feels, is while the North and West need higher investment since they follow a manufacturing and similar model of businesses that require highly capital investment, the South’s strong traditionally has been in “driven by services, technology, electronics manufacturing, and exports, which may be relatively less dependent on bank credit and could be relying on internal accruals or alternative funding sources such as NBFCs, private equity, and global capital.”
In other words, think of Southern business activity as primarily modern businesses ranging from IT to technology-driven, where the source of capital could be anything from equity to funding, while up North, the more traditional ‘factory-based’ model means there would be a requirement for bigger loans.
There are other geographical factors that also come into play, with many companies based in the bigger metro hubs of Greater Mumbai as well as Delhi NCR. “The financial system itself is concentrated in the West, with Maharashtra accounting for a disproportionate share of corporate lending and financial intermediation, where large corporates are registered, financed, and serviced even if their operations are spread nationwide,” Ramaswamy pointed out. “Large companies also tend to borrow centrally, particularly from Mumbai and NCR, and deploy capital across multiple states, which means credit appears concentrated in the North and West even when production or consumption is geographically dispersed.”
But the Rubix insights suggest that there is an opportunity here for scheduled commercial banks to expand their horizons beyond the typical corporates headquartered in the two big metros and their satellite towns and spread their wings to encompass the new age businesses that regions like South seem to specialise in.
“Scheduled commercial bank credit has not fully kept pace with the evolving regional growth mix. As states like Karnataka, Tamil Nadu, and Telangana continue to expand in manufacturing and services, there may be a gradual rebalancing in bank credit flows toward these regions, enabling lenders to better align with emerging growth areas,” added Ramaswamy.
