A study comparing the economic growth of Uttarakhand and Himachal Pradesh over the last two decades found that Uttarakhand (UK) outpaced Himachal Pradesh (HP) despite receiving the same Concessional Industrial Package (CIP) in 2003, following different paths that led to starkly different financial outcomes. The paper, titled “The Great Convergence: A Case Study of Uttarakhand and Himachal Pradesh (2000 to 2020)”, was co-authored by Shamika Ravi (Member, EAC-PM) and Alok Kumar (Principal Secretary, Industrial Development & MSME, Government of UP). The paper available on EAC-PM website sheds light on how two neighbouring hill states performed economically different in two decades.
The study discovered that Uttarakhand was able to quickly overtake and surpass HP’s per capita income in a comparatively short period of time. As one of the most significant barriers to industry and urban growth in India, the state’s proactive and committed approach to town planning and land use regulation allowed it to better capitalise on the advantages of the CIP.
The Uttarakhand government defied expectations by building an industrial infrastructure on 8,000 acres of land from a green field stage in just three years. This infrastructure included roads, 220KV power plants, drinking water supply systems, drainage, sewage, and effluent treatment plants, logistic parks, residential and business districts, and other related amenities.
Two of the estates were developed through the classical governmental approach; the third estate was developed through Public Private Partnership approach to ensure rapid development unencumbered by the constraints of the limited bandwidth available with SIIDCUL (both finance and HR).
The expansion of the manufacturing sector had a multiplicative influence on Uttarakhand’s economy as a whole. Compared to Himachal Pradesh, Uttarakhand has a substantially higher total growth rate. The UK GSDP grew at a CAGR of 11.05 per cent between 2000 and 2011, whereas HP saw a more moderate CAGR of 6.91 per cent. During this time, the two states’ per capita income gaps were mostly closed, with Uttarakhand playing catch-up.
The Industrial Policy Shift: A Game Changer for Uttarakhand
Uttarakhand was formed on November 9, 2000, and as a newly formed state it faced serious economic challenges. Uttarakhand had a narrow tac base and much smaller financial resources than its neighbour, Himachal Pradesh. Fiscal sustainability issues were in the background, with the fear that the state would find it difficult to raise enough money for development. The size of Uttarkhand’s annual plan was almost half the size of Himachal Pradesh’s, even though it had a 40 per cent larger population. This disparity made it imperative for quick economic growth and revenue raising.
Understanding the significance of a boost in industrial development, the Government of India launched CIP in January 2003, providing tax benefits, subsidies, and financial assistance to induce industries to establish manufacturing facilities in the hill states, such as Himachal Pradesh and Uttarakhand. The package offered 100 per cent excise duty exemption for 10 years, income tax benefits, and capital investment subsidies, among other incentives.
Industrial policies launched by both states to take benefit of CIP have significantly different approaches to industrialisation leading to divergent economic outcomes.
The Strategic Move: Planned Industrialisation vs. Open Market Land Purchase
Himachal Pradesh took a market-driven approach to industrialisation. The state allowed industries to directly negotiate and purchase land from farmers, making it easier for businesses to set up manufacturing units. Additionally, the government provided infrastructure support around industrial clusters, including roads and connectivity. However, this approach resulted in unplanned industrial growth, leading to scattered industrial development and logistical inefficiencies.
While on the other side, Uttarakhand adopted a more strategic and planned approach. In place of allowing industries to buy land straight from the landowners, the state government established dedicated industrial zones with pre-built infrastructure, including highways, power plants, water supply systems, drainage, sewage treatment plants, logistics parks, and residential areas, rather than permitting industries to purchase land from owners. The purpose of these planned industrial zones was to guarantee sustained urban expansion surrounding these clusters and draw significant investments.
The Outcome: Faster Industrial Growth in Uttarakhand
At first, industries preferred Himachal Pradesh due to its quicker and more flexible land acquisition process. However, investors are not as optimistic about Uttarakhand’s ability to execute such an ambitious, state-led industrialisation model. But turning all odds Uttarakhand established three significant industrial townships in three years by effectively developing 8,000 acres of industrial infrastructure.
This infrastructure-first approach paid off in the long run. As a result:
- In Uttarakhand, Industries get an advantage from ready-to-use basic facilities which reduce their operational and logistical expenditure.
- More capital-intensive industry investments were drawn to the state, which increased economic output and employment generation.
- By 2010, despite starting from a poor fiscal position, Uttarakhand’s per capita income exceeded that of Himachal Pradesh.
Uttarakhand’s planned industrialisation strategy turned out to be a game-changer, enabling the state to accelerate economic development and optimise the advantages of the Concessional Industrial Package.
Massive growth in Industry and Employment
The report stated that between 2000 to 2019 Uttarakhand’s industrial economy expanded 9.5 times in comparison to 4.5 times in Himachal Pradesh. The number of factories increased rapidly in both states, Uttarakhand attracted more capital investment and created significantly more jobs. The industrial workforce of Uttarakhand had expanded 12 times by 2019, significantly surpassing HP’s 5.6-fold increase.
Revenue and Economic Expansion
One of the UK’s most noteworthy achievements is its ability to significantly expand the State’s Own tax revenue (SOTR) base. The amount has been increased to Rs 9981 crores from a comparatively lesser base of Rs 553 crores. Thus, it is about doubling its SOTR every five years, which is an 18 times growth over 22 years. In contrast, HP has experienced a somewhat more modest rise, rising from Rs 1267 crore to Rs 6933 crore within the same time frame, depicting 5.5 times growth in real terms. While HP continued to secure more central grants, Uttarakhand benefited from higher tax revenue and investment inflows, allowing it to surpass HP in total state expenditure from 2014 onwards.
Challenges and Future Outlook
Despite UK’s remarkable industrial success, the report identifies state capacity development as an area needing improvement. HP, with its stronger administrative structure and better human development indicators, continues to utilize central government grants more efficiently.
For Uttarakhand to sustain its growth, the study suggests strengthening governance, improving public service delivery, and expanding its economic base beyond industrialisation.
With 25 years of statehood completed in 2024, Uttarakhand’s journey from an economically weak state to an industrial success story serves as a model for planned industrialisation in India.
