Need for a strategic approach in Bharat’s macro level policy

Bharat is a country that has state specific issues and challenges and therefore, macro level policy of one size fits all may not be an effective strategy. This article attempts to highlight the state specific issues and challenges and suggest a multiple strategic approach to address those challenges effectively with greater focus on the targeted outcomes.

Interestingly small States occupy the top 5 slots in per capita income (Goa, Sikkim, Delhi, Chandigarh and Haryana) and HDI (Kerala, Chandigarh, Puducherry, Delhi and Jammu & Kashmir), though they are not in the top 10 States in terms of SGDP. In other words, States with less population have fared better when it comes to per capita income and HDI. This is in line with the global trend where small countries like Luxembourg, Switzerland, Ireland, Singapore and Norway occupy the top 5 slots in per capita income and   Switzerland, Norway, Iceland, Hongkong and Denmark occupy the top 5 slots in HDI, respectively. Similarly, the top 5 countries in terms of GDP like- USA, China, Germany, Japan and Bharat do not feature in the top 10 countries in terms of per capita income and HDI. Exception being USA which features in the 7 th position in terms of per capita income and Germany which occupies 7^th position in terms of HDI.

This leads us to the inference that larger countries have normally performed better in terms of GDP whereas smaller countries have done well in terms of per capita income and HDI. (Bharat, China, United States, Indonesia and Pakistan are the top 5 countries with highest population whereas Bharat, China and United States have featured in the top 5 countries in terms of GDP).

GDP, HDI and IHDI

Economists opine that GDP reflects the status of economic growth in a country, whereas HDI is a mirror of the status of the people’s access to health, education and a decent standard of living, reflecting on the overall development of the country. The HDI is the geometric mean of normalized indices for each of the three dimensions, i.e., health, education and standard of living. The flaw in the HDI model is that it does not factor the income inequalities since the standard of living is measured by gross national income per capita. UNDPs IHDI (Inequality adjusted Human Development Index) model addresses this aspect. IHDI measures the level of human development when inequality is accounted for. IHDI adjusts the Human Development Index (HDI) for inequality in the distribution of each dimension across the population, i.e., access to a better standard of living, affordable healthcare and education.

Income and wealth inequality in Bharat

The findings of the working paper by the World Inequality Lab that examines income and wealth inequality in Bharat from 1922 to 2023 indicate the following:

Extreme levels of inequality in Bharat in 2022-23

• The top 1% received 22.6% of the national income, the highest since 1922, surpassing even the colonial period.

Extreme wealth concentration at the very top

• Between 1961 and 2023, the wealth share of the top 1% tripled from 13% to 39%. Most of these gains occurred after 1991, with the top 1% shares consistently rising until 2022-23.
• International comparison of income inequality

• Bharat ranks second in terms of the income share of the top 10%, trailing only South Africa.
• However, when looking at the income share of the top 1%, Bharat has the highest level at 22.6%.
• According to the paper, Bharat’s top 1% income share is among the highest globally.

International comparison of wealth inequality

• Both with the top 10% and the top 1%, Bharat’s wealth concentration is moderate.
• Brazil and South Africa exhibit extreme levels of wealth concentration, with top 10% shares of 85.6% and 79.7%, respectively.

Poverty in Bharat

A UNDP study reveals that a staggering 415 million Bharateeyas emerged from multidimensional poverty in a span of 15 years. As per the National Family Health Survey Report-4 (2015-16) during the period of 2015-16 only seven states in Bharat had less than 10 per cent of their population living in multidimensional poverty. These states were Mizoram, Himachal Pradesh, Punjab, Sikkim, Tamil Nadu, Goa, and Kerala. However, in the subsequent period of 2019-21 (NFHS-5), the number of states with less than 10 per cent multidimensional poverty increased twofold to 14 states. The newly added states in this list were Telangana, Andhra Pradesh, Haryana, Karnataka, Maharashtra, Manipur, and Uttarakhand.

Indeed, it is notable that, except for Bihar, no other state in Bharat more than one-third of its population living in multidimensional poverty. This indicates that while there is progress in poverty reduction across various states, Bihar continues to face significant challenges in this regard, with over one-third of its population still experiencing multidimensional poverty. 

 Kerala has the lowest rate of poverty in Bharat, with only 0.71% of the population classified poor. Kerala is followed by states like Goa (3.76%), Sikkim (3.82%), Tamil Nadu (4.89%) and Punjab (5.59%). Bihar, Jharkhand, Uttar Pradesh, Madhya Pradesh, and Meghalaya are the poorest states with High Poverty. 33.76% of the population in Bihar classified as poor, followed by Jharkhand (28.72%), Uttar Pradesh (22.93%), Madhya Pradesh (20.63%)

Way forward                   

Bharat’s GDP has reached the size and scale which can sustain its growth in the years to come in order to retain Bharat’s position in the top 5 countries. However, the country needs to focus on per capita income, HDI, IHDI and reduction of poverty. As can be seen from the above analysis, each Bharateeya state has unique problems and therefore, the one size fits all policy will be ineffective. According to data from the National Family Health Survey (NFHS-5), several southern states now have TFRs (Total fertility Rates) significantly below the replacement level. Only three states—Bihar, Uttar Pradesh, and Jharkhand—still record TFRs above the 2.1 threshold, while the southern states are experiencing the opposite demographic trend. Therefore, when it comes to population, most of the southern states may have to encourage population growth whereas some of the northern states will have to ensure population control. Similarly, Meghalaya needs to focus on reducing the poverty levels. Bihar, Uttar Pradesh, Madhya Pradesh have to focus on addressing the twin problems of large population and poverty as well as improving their HDI index. In the same manner, Jharkhand has to improve its HDI index and reduce the poverty level whereas Odisha has to improve on its HDI index.

The terms of reference (TOR) to the Finance Commission should also include identification of state specific priority areas (as mentioned above) and allocation of specific financial resources for those priority areas under the central government schemes and central sector (infrastructure) projects. A committee consisting of the Finance Ministers of all the States may be formed under the coordination of Niti Aayog to assist the Finance Commission in identification of such state specific priority areas. This mechanism will also enable the southern states to get greater share in the tax revenues if they go for population growth whereas the states like Uttar Pradesh, Bihar, Madhya Pradesh too will get greater share in the tax revenues if they go for population control.  

Let us hope that the Government will look into these suggestions and take appropriate measures to suitably modify the TOR to the Finance Commission and follow a multiple strategic approach towards the country’s overall development, which is the need of the hour.

Reference:

1. Niti Aayog’s Multidimensional Poverty Index (MPI) Report 2025
2. https://factodata.com/gdp-of-indian-states-in-2025/.
3. https://statisticstimes.com/economy/india/indian-states-gdp-per-capita.php.
4. https://www.mospi.gov.in/asi-top-10-states-number-factories.
5. https://statisticstimes.com/demographics/india/indian-states-population.php#google_vignette.