Maharashtra’s sputtering economic engine

The economy remains the largest among States but faces rural stagnation, employment scarcity, and a stark disparity between rich and poor districts.

Employees at an automobile plant in Chakan, Maharashtra. The State’s high economic growth has not generated large-scale employment opportunities | Photo Credit: Udit Kulshrestha

Maharashtra’s economy dwarfs that of several national economies. In 2023-24, the nominal income of the State was Rs.40,44,251 crore. In dollar terms, at $483.1 billion, Maharashtra’s economy is larger than Nepal’s. Among Indian States, its economy is the largest. As much as 31 per cent of its income comes from industry and 58 per cent from services, with the remaining from agriculture. Banking, finance, insurance, and real-estate services contribute a fifth of its GDP. According to the latest Economic Survey, the State’s nominal GDP growth is expected to be 9.4 per cent in 2023-24, behind only Uttar Pradesh’s (9.8 per cent). When adjusted for inflation, the State is expected to grow by 7.6 per cent.

While the nominal per capita income of the State, at Rs.2,52,389 in 2022-23, is ahead of the national average of Rs.1,69,496, States such as Telangana, Karnataka, Haryana, Gujarat, and Tamil Nadu have a higher average standard of living. The average per capita income of the State also masks significant disparity.

For instance, the per capita income of the richest district, Mumbai, is almost three-and-a-half times greater than that of Washim, the poorest district. Over the years, this gap has only worsened, with the ratio rising from 2.68 to 3.68. The relatively richer districts of Mumbai, Thane, Pune, Raigad, Sindhudurg, and Kolhapur are in the western parts. The seven poorest districts—Washim, Gadchiroli, Nandurbar, Buldhana, Hingoli, Yavatmal, and Amaravati—are all in eastern Maharashtra, the agrarian, dryland agriculture region often referred to as Vidarbha.

The inter-district inequality in the State is thought to be under-reported when district income data are used. The methodology of calculating district-level GDP assumes that per capita service sector income is constant across the State. It is then assigned to respective districts on the basis of the estimated number of individuals employed in the service sector in each district. This inflates the service sector contribution of poorer districts where service sector output per person is quite likely to be lower than that in richer districts.

The State is also highly urbanised: As per Census 2011 data 45 per cent of its population lives in urban areas. Most of it, however, is confined to the western parts, with outliers such as Chhatrapati Sambhajinagar (erstwhile Aurangabad) in Marathwada, and Nagpur in Vidarbha. The list of more urbanised districts overlaps with districts with higher per capita income. This has prompted many to argue that urbanisation—with its agglomeration effects of higher productivity and resource efficiency—is the chief driver of economic growth in the State. Indeed, the major contributors to Maharashtra’s GDP—banking, finance, insurance, and real estate services—are predominantly urban. This sector is growing fast, propelling urban growth. On the other hand, the rural, agrarian economy continues to lag, as evidenced by the increasing income disparity between the richest and poorest districts.

The urbanised nature of economic growth is masking the State’s rural stagnation. In a recent paper in Economic & Political Weekly, the economist Surjit Bhalla’s calculations show rural poverty in Maharashtra to be deeper than the national average. Several economists argue that the old 2011 poverty line (the so-called Tendulkar poverty line) is no longer adequate. Instead, since India is now a lower-middle-income country, Bhalla uses the poverty line of $3.2 in purchasing power parity (PPP) terms as the new poverty line. Going by this yardstick, Rs.2,916 per person is the new rural poverty line for Maharashtra.

A worker at a small-scale manufacturing unit in Mumbai. The majority of manufacturing entities in rural Maharashtra are owned by women.  | Photo Credit: NIHARIKA KULKARNI

At an average household size of four-and-a-half heads, rural households spending less than Rs.13,122 per month would be under the poverty line. Professor Bhalla and his co-author find that such households make up 26 per cent of rural Maharashtra while the national rural poverty ratio is a little lower, at 24 per cent. Only Uttar Pradesh, Chhattisgarh, Jharkhand, Odisha, and West Bengal have a higher incidence of rural poverty compared with Maharashtra. Even the much-vilified Bihar has a lower incidence, at 23 per cent. While a majority of the rural workforce is employed in agriculture, farming per se is no longer viable as an economic activity. The Situational Assessment Survey for Agricultural Households by the National Sample Survey Office (NSSO) for July 2018 to June 2019 shows that 73 per cent of agricultural households in Maharashtra own less than a hectare of land with highly fragmented land ownership.

Most of this land is also primarily rain-fed. Even where dams are supposed to provide water, the non-existence of water users’ associations means that the actual utilisation of water is highly unequal. The same report shows that the average monthly earnings of an agricultural household in the State is Rs.9,592. This figure, even adjusting for inflation over the 2019-24 period, is likely to fall short of the Rs.13,122 poverty line. In fact, most agricultural households in Maharashtra do not get most of their income from agriculture. Of the Rs.9,592 that such households earned per month in 2019, only Rs.3,790 came from actual cultivation.

It was the money these households earned from non-agricultural work that kept them above water. Agricultural wages are particularly relevant for the rural poor. The wages in Maharashtra, for men and women, have consistently been below the national average, even before the pandemic. Post pandemic, with more people returning to agriculture, the rate of growth of wages has not kept pace with the rise in food prices. The situation in Maharashtra is better. The higher productivity of workers coupled with greater economic opportunities has kept the ratio of urban poverty in 2022-23 at around 10 per cent (using the $3.2 PPP poverty line), below the national average. The challenge in urban areas has been in providing decent housing, healthcare, transport, air, and water quality.

In general, the employment situation in the State raises concerns. Although Maharashtra is an industrialised State, high economic growth has not translated into employment opportunities. If one were to focus on industries registered under the Factories Act (the formal sector), total industrial employment in Maharashtra translates to 19,58,888 people. Of these, 13,94,957 were actual workers, with the remaining engaged otherwise. The average annual earnings per worker were about Rs.2,30,000. The number of workers in the formal sector has increased at a rate of 4 per cent over the past two decades.

One significant reason why employment has not increased in line with economic expansion is that much of the formal sector’s growth has been fuelled by the rising use of capital and enhancements in the productivity of both capital and labour. This has meant that increasing production absorbs fewer workers. This is evident at an all-India basis too, as a recent paper by Professor K.L. Krishna and colleagues in Economic & Political Weekly shows. Over the period 1994-2018, gross value added in the economy increased by 6.46 per cent per annum. Only 0.5 per cent of this is explained by the use of additional labour as an input. The growth is driven by increasing the use of capital as well as increases in labour and capital productivity.

Commuters on a Mumbai local train. The average per capita income of the State masks significant disparity. The per capita income of the richest district, Mumbai, is almost three-and-a-half times greater than that of Washim, the poorest district.  | Photo Credit: ABEER KHAN

The same phenomenon has been observed in Maharashtra as well. Hence, formal industrial growth has been unable to generate greater employment. Inflexible labour laws have been blamed for hindering job creation, but a more significant factor might be the nature of productivity improvements. In any case, increasingly, employment has taken the form of contractual employment as against direct recruitment by organisations. This reduces the relevance of labour laws in imposing restrictions in employment generation to an even greater extent. Most of the employment in the State is in the informal sector.

As of 2022-23, 98.81 lakh individuals are employed in the informal sector, according to the NSSO’s Survey of Unincorporated Enterprises: 75 lakh among them are men, while 23 lakh are women. The vast majority are full-time workers; 32 lakh are in rural Maharashtra and the rest are in urban areas. As many as 52.71 lakh work in their own enterprises, which are without any hired workers although they might have unpaid family workers helping them. There are 41 lakh such enterprises in the State. Forty-six lakh work in enterprises that operate with hired workers. There are a little over 11 lakh such enterprises.

Twenty-six per cent work in the manufacturing sector, while the others are equally distributed between trade and services. Although this sector provides significant employment, most enterprises are highly underfunded. For example, the value of assets in an average rural manufacturing unit is about Rs.3.5 lakh. Despite this, the average gross value added per enterprise is Rs.65,000, a return of about 20 per cent on capital invested. The average wage per casual employee is only around Rs.1 lakh a year. Employees with formal contracts do, however, get paid on a par with formal sector employees. The majority of manufacturing entities in rural Maharashtra are owned by women, with the proportion rising over the years, and 67 per cent of those employed in rural unorganised manufacturing are women.

Thus, the key to the revival of employment and reduction in poverty seems to lie in strengthening these tiny units by providing them better access to infrastructure, credit lines, marketing channels, and capacity building.

Neeraj Hatekar teaches at the School of Development, Azim Premji University, Bengaluru. The views expressed in this article are personal.