Maharashtra, India’s miracle state, finds itself at a crossroads

Maharashtra, India’s most prosperous and second most populous state, has been a marvel that has often defied the conventional tale of modern development. The state has managed to juggle a rare feat of driving economic growth and cosmopolitan urbanisation while sustaining its regional identity, cultural values and social fabric. Over the past century, it has been an economic powerhouse, consistently contributing the largest share of India’s GDP since the 1980s (13.3% share of national GDP in 2023-24), fostering a diverse industry from automobile manufacturing and information technology to multimedia and financial services. In addition, it has also preserved its long-standing reputation as a progressive society which provided thought leadership to India’s struggle for independence and is lauded for its social reform movements eradicating caste and gender-based discrimination at the grassroots.
Yet, as the state prepares to face a crucial assembly election, a strikingly different narrative emerges between its achievements and social discontent. The Maratha-Kunbis (32% of the state population), the state’s predominant community, are grappling with unemployment (22% of them live below the poverty line), and are protesting for reservations in jobs. The state’s growth rate as well as its share of the national GDP are declining (although still at the top), and the government has turned to an unprecedented rollout of free cash handouts as a measure to assuage the restlessness. It recently announced $10 billion (Rs 90,000 crore or 18% of the state’s annual budget) towards direct freebies to millions; the opposition has promised to double it if elected to power. With its dramatically fragmented political landscape, the public debate in the state is now dominated by identity, religion, and caste-based rhetoric, leaving little room for topics of growth and solutions. The state that is Asia’s largest billionaire capital (100 billionaires in Mumbai alone) and aspires to be a $1 trillion economy by 2028 seems to be losing its way.
What has been the recipe of Maharashtra’s Miracle?
The Nobel Prize for Economics in 2024 is awarded to research that outlines the development of strong institutions that usher in robust economic growth for a society. The State of Maharashtra exemplifies this thesis. In 1947, at the time of India’s independence, the regions of West Bengal, Maharashtra (then Bombay), and Tamil Nadu led much of India’s economic activity as large British presidencies. However, due to its abhorrence for industry, West Bengal has since slipped, currently contributing 5.6% towards the national GDP (vs 11% in the 1960s). Tamil Nadu, meanwhile, has stayed steady, contributing 8.5% over the decades. Maharashtra, on the contrary, has managed to rise to the top by consciously diversifying its agriculture dominant economy and nurturing the country’s largest industry and service sectors. The secret sauce to this success is also rooted in its social fabric; it consistently produced political leadership who envisioned and developed strong institutions. In the initial post-independence period, the state leadership pioneered an agriculture cooperative model for driving a locally inclusive agrarian economy. In this model, a ‘special’ status was accorded to the cooperatives and the government assumed the role of a mentor by acting as a stakeholder, guarantor, and regulator. This led to more than 25,000 cooperatives being set up by 1990 and was instrumental in maintaining Maharashtra’s steady economic growth in the early periods. By providing farmers with access to credit, storage, export markets, and other support, it served as a shock absorber, preventing large-scale distress in the vulnerable agricultural sector.
In parallel, during the 1970s, the state implemented a forward-looking industrial policy that prioritised development of industrial estates and offered tax breaks and subsidies to encourage companies to establish operations in the state. This helped it attain India’s most industrialised state status in the mid-1990s, with a landmark investment by Mercedes-Benz to set up an assembly line in 1994. On the human capital front, the state traditionally possessed strong educational values, including a prestigious engineering university (founded in the 1850s) and South Asia’s first women’s liberal arts college (1910s). Maharashtra’s pivotal adoption of an education liberalisation policy in 1983 dramatically increased access to technical coursework, leading to creation of a skilled workforce at scale. Then, in 1991, as India embarked on its historic economic reforms, opening up for privatisation and foreign investment, Maharashtra – with its strong institutional foundation and skilled workforce – was at a vantage position to capitalise on the service boom that followed.
What are its current challenges?
“Maharashtra appears like a successful, though ageing, corporation, beset by some complacency and many feudalistic managers. It’s tough to pinpoint precise reasons for the stagnation,” opines Menaka Doshi, a Mumbai-based senior editor for Bloomberg. During the travels and interaction with local journalists and economists, we found two trendlines pointing to the current distress in the state. First, with over 45% urbanisation, it is one of India’s most urbanised states. Yet, this masks a significant reality. The state’s services sector boom (58% of state output) is driven primarily by the metropolis of Mumbai and Pune; the state also has about 35 tier-2 cities, each with a population under one million, where the benefits haven’t trickled down effectively. These smaller cities desperately need manufacturing jobs to fuel their growth, a sector that has unfortunately seen slow expansion averaging 4% growth since 2013 (vs 9% in services).
Secondly, the stark reality of Maharashtra’s agricultural sector is that while 55% of its population is engaged in agro-allied businesses, their contribution to the state’s GDP stands at a mere 11%. This points directly to cripplingly low per capita incomes for the state’s farmers. Furthermore, farmers often miss out on the upside of price increases, as government price caps and export tariffs aimed at protecting the urban middle class limit their earning potential (as seen recently played out with the onion crisis). Historically, the robust cooperative structure played a vital role in stimulating agricultural output, especially before the rise of industry and services. However, the sector’s vulnerability is its heavy reliance on irrigation.
During our travels, we met the “millionaire tomato farmer” from Junnar (near Pune), whose story of earning Rs 5 crore annually ($750K) highlights this dependency. His phenomenal success hinges on a reliable water supply from five dams, ensuring year-round cultivation, and leveraging proximity to the large consumer markets of Mumbai and Pune. This success story stands in stark contrast to the tragic realities of Vidarbha and Marathwada, regions grappling with only a fraction (under 30%) of the land under irrigation and witnessing over 3,000 farmer suicides annually. To move past this predicament, Maharashtra needs a multipronged strategy: fostering value-added agro-based industries, upgrading agricultural standards to meet international export requirements, significantly increasing capital expenditure to expand irrigation coverage, and simultaneously creating alternative employment pathways to gradually reduce the agricultural workforce’s size.
Collectively, the tier-2 urban unemployment, and farmers’ distress have created a highly constrained environment, with numerous applicants vying for limited resources of water, jobs, and business opportunities. This intensity fuels arguments for caste-based preferential treatment, opening the door to regressive, divisive politics. Maharashtra’s recent political instability, marked by frequent defections and shifting coalitions over the past five years, has amplified the pressure of electoral politics, leading to reliance on short-term, populist measures – handouts and subsidies – instead of addressing these systemic issues.
While the state’s fiscal position isn’t immediately critical, its economic engine, once a powerhouse driving national growth, is sputtering. Its unique social fabric, a crucial ingredient in its past economic success, is starting to fray. If India aims to attain a developed nation status (with over 8% GDP growth rate), it needs Maharashtra to fire on all cylinders. Its current trajectory, however, threatens to transform it from a high-performing state into just another underachiever. The state needs to do what it does best: ‘reform, grow, progress, and rejuvenate’.
(Pratik Sharma works on e-commerce in emerging countries, writes on global economics and politics)