‘Recovery’ is the word that best summarises 2023 as countries the world over emerged from the remainder of the damaging social and economic fallout brought by the COVID-19 pandemic. Adapting to the new normal was not easy since the post-COVID-19 world was one of elevated inflation rates that had to be tamed through interest rate hikes. This resulted in reduced Venture Capital (VC) investments in startups, casting a shadow on their survival. As investors turned to safe haven instruments like government bonds, a long funding freeze arose, bleeding capital reserves dry. This dearth of funds has since forced many startups worldwide to shut down.

Although the chills were felt in India too, in general, the startup ecosystem displayed resilience. Its buoyancy can be credited to the government’s enactment of investment-inclined policies and financial incentives to spur innovation. In addition, India’s macroeconomic numbers were also robust. Strong domestic demand helped register a real Gross Domestic Product (GDP) growth of 6.3%. Inflation rates have been steady, exports have grown, and the Current Account Deficit (CAD) has improved. Next, considerable Foreign Direct Investment (FDI) inflow on the backs of significant progress in technology and innovation has been observed. However, when the focus shifts from national to regional and sub-national, heterogeneity and unevenness in social and economic development come through.

In this edition, we carry out an in-depth analysis of the competitiveness of the 36 sub-national economies and five regions of India.

• Maharashtra is the most competitive sub-national economy for the eleventh consecutive year, owing to its allure among foreign investors, robust physical infrastructure, and proficiency in business practices.
• Jharkhand ranks as the least competitive state as there remains great scope for improvement in technological infrastructure and ensuring an adequate standard of living among its people.
• The Western and Southern regions exhibit high levels of competitiveness facilitated by efficient financial infrastructure, considerable FDI inflows, and high labour productivity. Areas that demand attention include low healthcare expenditures and a high old-age dependency ratio.
• The North-eastern region contains most of the least competitive sub-national economies as four of the seven sister states are plagued by weaknesses in physical infrastructure and fiscal instability. Nevertheless, this region does surpass others in education spending and medical infrastructure.

Performance of sub-national economies in the Innovation Index

This book also measures the degree of innovation across India’s sub-national economies through the Innovation Index Framework. On the whole, our study reveals that the Northern, Southern, and Western regions comprise the top-scoring states in innovation competitiveness. In contrast, the Eastern and North-eastern regions score low primarily due to uneven geographical terrains that hinder infrastructural development. At the sub-national level, Gujarat and Uttar Pradesh register high scores in R&D performance but fall behind in retaining talented human capital. Lastly, despite being a formidable player in startup creation, Bengaluru records the maximum number of copyright violations and extortion cases, accounting for 81% of all electronics-related fraudulent activities in its state, Karnataka.

By VAID, Rohanshi, ZHANG, Xuyao