Economic complexity and regional development in India: Insights from a state-industry bipartite network

TL;DR

This paper applies economic complexity analysis to Indian states using firm-level data, revealing regional heterogeneity, a positive link between complexity and economic performance, and growth trends, thereby informing regional development strategies.

Contribution

It introduces a novel application of complexity metrics at the sub-national level in India using firm registry data, validating the approach for policy insights.

Findings

High complexity states like Maharashtra and Karnataka outperform others.

Firm count in India grows exponentially at 11.2% annually.

The complexity structure shows a characteristic triangular pattern.

Abstract

This study investigates the economic complexity of Indian states by constructing a state-industry bipartite network using firm-level data on registered companies and their paid-up capital. We compute the Economic Complexity Index and apply the fitness-complexity algorithm to quantify the diversity and sophistication of productive capabilities across the Indian states and two union territories. The results reveal substantial heterogeneity in regional capability structures, with states such as Maharashtra, Karnataka, and Delhi exhibiting consistently high complexity, while others remain concentrated in ubiquitous, low-value industries. The analysis also shows a strong positive relationship between complexity metrics and per-capita Gross State Domestic Product, underscoring the role of capability accumulation in shaping economic performance. Additionally, the number of active firms in India demonstrates a persistent exponential growth at an annual rate of 11.2%, reflecting ongoing formalization and industrial expansion. The ordered binary matrix displays the characteristic triangular structure observed in complexity studies, validating the applicability of complexity frameworks at the sub-national level. This work highlights the usefulness of firm-based data for assessing regional productive structures and emphasizes the importance of capability-oriented strategies for fostering balanced and sustainable development across Indian states. By demonstrating the usefulness of firm registry data in data constrained environments, this study advances the empirical application of economic complexity methods and provides a quantitative foundation for capability-oriented industrial and regional policy in India.