‘Lagging states are catching up’: RBI Deputy Governor says India’s growth gap is narrowing

Indian states are beginning to catch up with richer ones after decades of widening divergence, RBI Deputy Governor Poonam Gupta said on Monday. She said India’s growth story was becoming increasingly broad-based, with welfare indicators, consumption levels and living standards converging across states.

“The pace of income divergence has weakened considerably with the growth gap between richer and poorer states narrowing over successive decades,” Gupta said while speaking at the Columbia Indian Economy Summit 2026 at Columbia University. 

“Lagging states are catching up, and the distribution of well-being across India is becoming more equal,” she added in her speech titled “Prosperous States for a Prosperous India.”

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Gupta said India’s economic growth had steadily accelerated over the last four decades. Average real GDP growth rose from 5.7 per cent in the 1980s to 7.7 per cent in the most recent four-year period. Per capita income also saw a sharp jump. India’s per capita income increased from around $274 in 1981 and $306 in 1991 to nearly $2,700 in 2024, she said.

“As per the forecasts in the October 2025 World Economic Outlook of the IMF, per capita income is projected to increase to US$ 2818 in 2025, US$ 3051 in 2026 and US$ 4346 in 2030,” Gupta said.

She added that India had entered a “virtuous cycle” of faster growth and macroeconomic stability, pointing to lower inflation volatility, a manageable current account deficit, stronger bank balance sheets and improving fiscal discipline.

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The Deputy Governor highlighted reforms such as the Fiscal Responsibility and Budget Management framework, Goods and Services Tax and the inflation-targeting regime introduced in 2016 as key drivers behind the stability. 

“In monetary policy, the Flexible Inflation Targeting framework introduced in 2016 has lowered inflation, anchored inflation expectations, reduced macroeconomic volatility, and enhanced policy credibility,” she said.

On the states’ performance, Gupta said every state had recorded a significant rise in per capita gross state domestic product over the last two decades. “In the last two decades, average per capita incomes across states have surged nearly fivefold in current US dollar terms and more than threefold in constant rupees,” she said.

However, she said richer states continued to grow faster for a long period, leading to divergence in income levels. “Per capita income levels in more prosperous states have grown faster than in relatively less prosperous ones,” Gupta said.

But that pattern has started weakening over the last decade.

“The growth gap between richer and poorer states has narrowed in recent years,” she said, attributing part of the shift to the improved performance of states such as Odisha, Assam and Uttar Pradesh.

Gupta said convergence was now more visible in welfare indicators than in income levels. Consumption expenditure, literacy, sanitation, drinking water access, financial inclusion, and healthcare indicators were increasingly becoming more equal across states, she said.

“Indicators spanning health, education, demography, physical infrastructure, access to electricity, safe drinking water, sanitation, clean cooking fuel, and financial inclusion have all trended toward greater parity across states,” Gupta noted.

She pointed to the sharp rise in women’s financial inclusion. The percentage of women with access to bank accounts rose to around 80 per cent during 2019-21 from 14 per cent in 2005-06. 

Child nutrition and infant survival rates also improved steadily, while access to electricity, sanitation and clean cooking fuel widened significantly across states.

At the same time, Gupta cautioned that several structural growth drivers still showed divergence. She said interstate convergence remained limited in areas such as industrial productivity, capital formation, foreign direct investment inflows, bank credit growth and movement away from agriculture.

“Some of the drivers or correlates of growth are still showing divergence across states,” she said.

Looking ahead, the Deputy Governor projected that India’s per capita income could grow fourfold by 2046-47 if current growth trends continue. “If growth trajectories of the past two decades are sustained, the average state per capita income could approach high-income thresholds by 2046-47,” she said.

She said richer states should focus on innovation, urbanisation, talent attraction and global competitiveness, while poorer states should prioritise agricultural productivity, labour-intensive industries, skills and fiscal capacity building. 

Gupta also stressed the need for states to use their policy powers more effectively. She said the Centre controlled key macroeconomic levers such as monetary policy, financial regulation and trade policy, while states shaped business conditions through land, labour, education, healthcare and governance reforms.

“Strengthening all of these in a holistic framework would be important to accelerate the rate of growth of prosperity for each one of the states and thereby the national average,” she said. “Prosperity is both India’s ambition and its destiny.”