India’s economic surge: The role of states in reaching $10.6 tn by 2035

India is set to become the world’s third-largest economy by 2028, with its GDP projected to reach US$ 10.6 trillion by 2035, according to a recent report by Morgan Stanley. This growth will be largely driven by the active role of states and union territories. Several states are expected to achieve a US$1 trillion economy by 2035, while many are already surpassing national averages in per capita GDP and economic growth.

Maharashtra, the country’s largest state economy, is on track to achieve a US$1 trillion GDP by 2030. With a current GDP of US$536 billion, it leads in FDI (39.2%), exports (15.4%), and Global Capability Centres (43%). Industrial and service sectors drive growth, supported by infrastructure projects like the Mumbai Trans Harbour Link. While progress is evident in sectors like IT, healthcare, and agriculture, challenges remain in addressing urbanisation, income inequality, and sustainable development.

According to Morgan Stanley, the states and union territories will play a pivotal role in driving India’s economic transformation, with the nation expected to become the world’s third-largest economy by 2028 and achieve a GDP of US$ 10.6 trillion by 2035. In its report Building Block of India’s Prosperity, the firm notes that state-level policy frameworks will significantly shape India’s emergence as a global manufacturing hub.

The report noted that the success of India’s “competitive federalism” will be a key factor in determining the country’s ability to emerge as a global manufacturing hub, double its per capita income within seven years, and maintain strong momentum in capital markets. 

India is expected to account for 20% of global growth over the next decade and emerge as a significant source of earnings for multinational companies, according to the report. Morgan Stanley’s economists stressed the critical role of the country’s 28 states and 8 Union Territories in driving this growth. States oversee their own finances and actively compete for investments by formulating supportive policies and improving the business environment. As the report points out, every business or factory is ultimately established within a specific state

The report highlights a significant surge in infrastructure investment over the past decade, with the Centre’s capital expenditure rising from 1.6% of GDP in FY15 to 3.2% in FY25. This increased spending has led to a 60% growth in highway networks, a doubling of airports, and a fourfold expansion of metro rail systems. Major national initiatives such as PM Gati Shakti, the National Infrastructure Pipeline, Bharatmala, Sagarmala, and UDAN, have been implemented alongside complementary efforts by states. 

Additionally, states play a leading role in driving investments in sectors like power, water, and urban development. According to the report, sustained cooperation between the Centre and states will be crucial to achieving India’s economic objectives.

Currently, nine of India’s 18 major states have a per capita GDP exceeding the national average of US$ 2,547. These include Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Punjab, Tamil Nadu, and Telangana. Additionally, Assam, Gujarat, Karnataka, and Odisha have posted a five-year real GDP CAGR above the national average of 6.1%. Seven states — among them Assam, Bihar, Odisha, and Uttar Pradesh — also stand out for capital expenditure as a share of GDP, surpassing the national average of 3.2%. 

However, despite the progress, the report flags several state-specific challenges. These include geographical and natural disparities, governance limitations, administrative capacity, uneven policy implementation, fiscal stress, lack of financial autonomy, and infrastructure gaps. The forecast assumes that Maharashtra, Tamil Nadu, Gujarat, Uttar Pradesh, and Karnataka could each reach an economic size of around US$ 1 trillion between 2030 and 2035. 

Maharashtra on track to achieve US$1 trillion GDP milestone

Maharashtra, India’s largest state economy, is on course to nearly double its gross domestic product (GDP) to US$ 1 trillion by 2030, supported by strong leadership, forward-thinking policies, major infrastructure investments, and progressive social initiatives, according to a Morgan Stanley report titled Maharashtra – Leading the Way. With a current GDP of around US$ 536 billion—comparable in size to Singapore’s and accounting for 13.7% of India’s total output, Maharashtra ranks as the world’s 28th-largest economy. 

The report highlights the state’s sustained leadership in multiple sectors and attributes its growth outlook to a combination of fiscal discipline, social advancement, and targeted investments in high-potential industries such as automobiles, pharmaceuticals, electric vehicles, and semiconductors. 

Industrialisation remains a key growth engine, contributing 22.5% to Maharashtra’s GDP. Core industries include metals, automobiles and auto parts, food processing, refined petroleum, machinery, and equipment. The state contributes 20% to India’s auto and auto parts output, 16–17% to medicine and medical equipment production, and 8–12% to textiles. 

Maharashtra is country’s second-largest exporter, following Gujarat. In FY24, it accounted for 15.4% of India’s total exports, representing 13.7% of its own GDP. Major export categories include jewellery, electronics, pharmaceuticals, chemicals, and engineering goods.

The state emerged as the leading destination for Foreign Direct Investment (FDI) in FY25, attracting 39.2% of the country’s total FDI inflows and securing US$19.6 billion during the last fiscal year.

The state’s economic strength is further reflected in its per capita GDP, which is 1.6 times the national average. 

The services sector plays a dominant role, making up 64.3% of the state’s GDP. Maharashtra has emerged as a key hub for information technology, startups, banking, finance, insurance, and real estate. Within the services sector, it is the top destination for IT companies establishing Global Capability Centres (GCCs), accounting for 43% of India’s total. As of FY24, the state was home to 730 GCCs.

The report underscores Maharashtra’s solid fiscal health, noting a debt-to-GDP ratio of 18.5%, among the lowest in India, and fiscal deficit levels consistently kept below 3%, even during the pandemic years.

Several large-scale infrastructure projects are expected to fuel further economic activity, including the Mumbai Trans Harbour Link, Navi Mumbai International Airport, and Vadhavan Port. 

Socially, the state continues to make strides in improving literacy, gender parity, and healthcare outcomes. However, the report points out persistent challenges, particularly in boosting agricultural incomes and ensuring climate-resilient urban development.

Maharashtra is also pioneering the integration of technology in agriculture, with initiatives like the MahaAgri-AI Policy 2025–2029 aimed at leveraging artificial intelligence to enhance productivity and promote sustainable farming practices.

Despite its impressive progress, the report cautions that Maharashtra must continue addressing key issues such as urbanisation stress, manufacturing growth, and income inequality in order to maintain its leadership and meet its long-term economic goals.

Conclusion

India’s ascent to a US$10.6 trillion economy by 2035 hinges on the strength and synergy of its states and union territories. With robust fiscal management, growing FDI inflows, and strategic investments in infrastructure, services, and manufacturing, states are emerging as engines of growth. Maharashtra and other states are leading through innovation and industrialisation. Sustained collaboration between the Centre and states, along with inclusive growth strategies, will be key to unlocking India’s full potential and securing its position as a global economic leader.