India has emerged as the world’s sixth-largest economy, but its average income levels remain relatively low compared to over 140 other countries.

Key Points

• India ranks sixth globally in nominal GDP, trailing only the U.S., China, Germany, Japan, and the UK.
• Per capita income is considerably low compared to many nations, with Bihar and Uttar Pradesh remaining among the poorest states since the economic reforms began in 1991.
• Maharashtra, despite hosting Mumbai, has fallen out of the top five states economically.
• Recent improvements linked to GST consumption estimates do not necessarily indicate a reduction in regional income disparities.

Since initiating its economic reforms in 1991, India has grown into the sixth-largest economy globally in nominal terms and ranks third when adjusted for purchasing power parity. Over the past 35 years, the nation’s per capita income has increased more than 40-fold, yet it still remains lower than that of over 140 countries, as reported by the International Monetary Fund.

This discrepancy can largely be attributed to India’s population, which exceeds 1.4 billion, leading to aggregate economic figures that mask modest average incomes. Despite a growing middle class, the World Bank classifies India as a lower-middle-income economy.

The state-level data highlights the demographic challenges India faces. While the economic landscape has seen some states rise and fall over the years, the poorer states have generally fallen further behind. Bihar and Uttar Pradesh have consistently ranked low in terms of per capita income.

Pronab Sen, a former chief statistician, emphasizes that economic activity often concentrates in areas where it is already thriving. He explains that although infrastructure investment can spur growth, relocating production to underdeveloped regions poses distinct challenges, especially when suppliers are located far away.

Since the onset of reforms, only Delhi and Goa have consistently been among the top five states economically. Karnataka recently joined this group, while Maharashtra, which was once in the top tier in 1990-1991, has since dropped out.

Experts attribute Maharashtra’s decline to a phenomenon known as the law of large numbers, as explained by Devendra Kumar Pant, chief economist at India Ratings and Research. He notes that as states grow larger, their growth rates tend to slow compared to smaller states that are still developing.

Additionally, N R Bhanumurthy from the Madras School of Economics points out that Maharashtra’s rapid population growth has affected its economic standing. When population growth is factored out, he states, Maharashtra remains one of the fastest-growing states in India.

Punjab, which saw significant income growth following the Green Revolution in the 1960s, has also slipped from the top five since the 2010-2011 fiscal year. Sen attributes this decline to Punjab’s heavy agricultural dependence and the economic insecurity caused by past insurgency, coupled with the impact of recurring floods. The state’s small and medium enterprises, vital to its economy, faced numerous challenges, including the effects of demonetization and the pandemic.

Historically, Bihar and Uttar Pradesh have ranked among the poorest states since the reforms began, with Jharkhand joining this list in 2000-2001. Bihar’s income has declined significantly in relation to the national average, decreasing from 53% to about 34%. Uttar Pradesh has also seen its share drop from three-fourths of the national average in 1990-1991 to roughly half today.

Despite a slight rise in per capita income for Bihar, Jharkhand, and Uttar Pradesh from 2020-2021 to 2024-2025, significant regional income disparities remain. The introduction of the goods and services tax in July 2017 might have contributed to this improvement, as it aims to address regional imbalances through its destination-based structure. However, experts caution that this improvement does not necessarily indicate a structural narrowing of income disparities.

Madhya Pradesh has made its way into the bottom five states for the first time in 2024-2025, despite not being categorized as such in previous years. Bhanumurthy notes that Madhya Pradesh has historically been among India’s poorer states since being identified as part of the ‘BIMARU’ group in the 1980s, a term coined by demographer Asish Bose to describe economically challenged states, including Bihar, MP, Rajasthan, and UP, and later Odisha.

Addressing these economic imbalances is becoming increasingly urgent, especially considering the statement from NITI Aayog Vice-Chairman Ashok Lahiri, who indicated that to transform India into a developed economy by 2047, the per capita income would need to increase more than sixfold in the next two decades. As growth patterns continue to evolve, it is crucial to recognize that changes in leadership do not always correlate with improvements for those still lagging behind.