A new book by Bibek Debroy on Gujarat looks at how this much-talked about state has performed in economic terms. The author argues history, luck and administrative clarity have been the determining factors.
There has been a discernible pickup in Gujarat's growthperformance since the 10th Plan (2002-07), the five-year Plans being natural periods for breaking up the timeline. It's tempting to argue that there is nothing exceptional in this. Gujarat grew fast during the 8th Plan (1992-97) too. While that's true, one should accept that as development occurs, it becomes more difficult to sustain higher rates of growth.
Among larger and relatively richer states like Maharashtra, Haryana, Gujarat, Kerala, Punjab, Tamil Nadu and Karnataka, it is more difficult to find sources of growth. Growth tends to taper off. Relatively poorer states like Bihar, Orissa, Madhya Pradesh, Assam and Jharkhand find it easier to catch up. Had historical trends alone provided the momentum for growth, Karnataka should have also grown extremely fast.
Moving to a higher growth trajectory is important. But reducing the volatility of growth is no less important. Growth rates in Gujarat have become much less volatile. Given Indian conditions, volatility is fundamentally a function of what has been happening to the agricultural sector.
SECTORAL ISSUES
In any discussion of any country or state's economy, it is customary to discuss sectoral compositions of GDPor GSDP early on - primary/ agriculture, secondary/industry, tertiary/services etc. In popular perception, at least in some quarters, Gujarat's economic growth is about industry. Gujarat is about an investment destination for industries, about Vibrant Gujarat. It is about sectors like bio-tech and pharmaceuticals, chemicals and petrochemicals, engineering, automobiles and ancillaries, food and agri-business, gas, oil and power, gems and jewellery and IT.
Industry isn't just about large-scale industry. That's a misconception. The 2009-10 survey of the Annual Survey of Industries (ASI) covered the entire factory sector. This shows an increase in the number of factories to 15,576 and 9.8% of India's factories are in Gujarat. At 13.22%, the share is higher in net value added. In decreasing order of importance, these factories are in segments like chemical and chemical products, basic metals, machinery and equipment, non-metallic mineral products, textiles, food products and pharmaceuticals. Together, they provided employment of 1.2 million.
Provisional figures show an increase in the number of factories to 25,206 in 2010, with an employment of 1.3 million. 0.13 million MSME enterprises in Gujarat were in 369 clusters, a pattern also exhibited in Tamil Nadu and Uttar Pradesh, cluster being defined as a concentration in manufacture of the same product group.
This suggests that the positive externalities of cluster formation have tended to work and in all probability, many of these MSME enterprises perform an ancillary function. Also interestingly, at least for SSI, there has been a sharp increase in the number of registered units...At the lower end of the industrialization spectrum are cottage and rural industries. There are cluster development schemes for khadi, handlooms, handicrafts and skill upgradation and market development schemes.
There has been a discernible pickup in Gujarat's growthperformance since the 10th Plan (2002-07), the five-year Plans being natural periods for breaking up the timeline. It's tempting to argue that there is nothing exceptional in this. Gujarat grew fast during the 8th Plan (1992-97) too. While that's true, one should accept that as development occurs, it becomes more difficult to sustain higher rates of growth.
Among larger and relatively richer states like Maharashtra, Haryana, Gujarat, Kerala, Punjab, Tamil Nadu and Karnataka, it is more difficult to find sources of growth. Growth tends to taper off. Relatively poorer states like Bihar, Orissa, Madhya Pradesh, Assam and Jharkhand find it easier to catch up. Had historical trends alone provided the momentum for growth, Karnataka should have also grown extremely fast.
Moving to a higher growth trajectory is important. But reducing the volatility of growth is no less important. Growth rates in Gujarat have become much less volatile. Given Indian conditions, volatility is fundamentally a function of what has been happening to the agricultural sector.
SECTORAL ISSUES
In any discussion of any country or state's economy, it is customary to discuss sectoral compositions of GDPor GSDP early on - primary/ agriculture, secondary/industry, tertiary/services etc. In popular perception, at least in some quarters, Gujarat's economic growth is about industry. Gujarat is about an investment destination for industries, about Vibrant Gujarat. It is about sectors like bio-tech and pharmaceuticals, chemicals and petrochemicals, engineering, automobiles and ancillaries, food and agri-business, gas, oil and power, gems and jewellery and IT.
Industry isn't just about large-scale industry. That's a misconception. The 2009-10 survey of the Annual Survey of Industries (ASI) covered the entire factory sector. This shows an increase in the number of factories to 15,576 and 9.8% of India's factories are in Gujarat. At 13.22%, the share is higher in net value added. In decreasing order of importance, these factories are in segments like chemical and chemical products, basic metals, machinery and equipment, non-metallic mineral products, textiles, food products and pharmaceuticals. Together, they provided employment of 1.2 million.
Provisional figures show an increase in the number of factories to 25,206 in 2010, with an employment of 1.3 million. 0.13 million MSME enterprises in Gujarat were in 369 clusters, a pattern also exhibited in Tamil Nadu and Uttar Pradesh, cluster being defined as a concentration in manufacture of the same product group.
This suggests that the positive externalities of cluster formation have tended to work and in all probability, many of these MSME enterprises perform an ancillary function. Also interestingly, at least for SSI, there has been a sharp increase in the number of registered units...At the lower end of the industrialization spectrum are cottage and rural industries. There are cluster development schemes for khadi, handlooms, handicrafts and skill upgradation and market development schemes.
Other than schemes like Sagar Khedu Yojana, Vanbandu Kalyan Yojana, Garib Samruddhi Yojana and even Garib Kalyan Melas, something like Mission Mangalam is also an attempt to integrate animal husbandry, agro processing, food processing, aquaculture, processing of forest products, handlooms, handicrafts, garments, bamboo and timber products into markets, through Sakhi Mandals, self-help groups (SHGs) and other communities of the poor. Gujarat Livelihood Promotion Company Limited (GLPC) was set up in 2010 to implement Mission Mangalam. Part of this inclusion is a financial inclusion agenda.
RURAL PUSH
Gujarat is known as a state with a strong manufacturing base and in constant prices, the primary sector's share in GSDP has declined from 19.5% in 2004-05 to 14.6% in 2010-11, a decline that was mentioned before. Agriculture's share (this includes animal husbandry) has declined from 13.2% in 2004-05 to 10.9% in 2010-11. While the share has declined, the growth rate of Gujarat's agriculture, especially since 2000, has been remarkable and has been commented upon.
Gujarat's agriculture has grown at more than 10%. In addition to water, electricity and roads, there have been other factors too. The Krushi Mahotsav programme was started in 2005 and is a month-long mass contact programme with farmers, including mobile "Krushi Raths". Soil health cards are issued for every plot of land. The Gujarat Cooperatives and Water Users Participatory Irrigation Management Act was passed in 2007 and participatory irrigation management introduced.
Through the Sardar Patel Participatory Water Conservation Scheme, check dams are built with monetary contribution from beneficiaries, 20% in some cases and 10% in others. Animal health camps have been organized in several villages...Of more recent vintage has been the Integrated Wadi and Agriculture Diversification Project (IWADP), started in 2009...IWADP requires a participating entry free from BPL ST families who wish to participate. IWADP has two distinct strands.
There is Project Sunshine strand for the dryland regions of north and central Gujarat, where one tries to push crops like hybrid maize, potato, mustard, pigeon pea and Bt cotton in districts like Sabarkantha, Banaskantha, Panchmahal, Dahod and Vadodara...[the] Jeevika projects for water-intensive areas in south Gujarat, where one tries to push vegetables like tomato, bitter gourd, bottle gourd, okra, pointed gourd, parwal and turmeric and fruits like mango, banana, cashew in districts like Narmada, Valsad, Tapi, Navsari, Surat and Dangs.
PHYSICAL INFRASTRUCTURE
In 2001, Gujarat was a power deficit state, by roughly around 2,000 MW. By the end of 2012, Gujarat will have a power surplus, though expected increases in GSDP growth also increase the demand for power. However, the Gujarat success story isn't just about the macro generation situation. It is also about reduction in T&D losses, down from 35.90% in 2002-03 to 22.20% in 2006-07. It is 20.13% in 2010-11. This is partly because T&D losses aren't actually transmission and distribution losses. They are also about theft and unmetered supply.
Other than metering, theft of electricity became a criminal offence and the law was enforced, with distributors insulated from political pressures. There were special checking squads...Provisions were made for sealed meters that were tamper-proof. Through an e-Urja project, electronic billing and payment was introduced. Faulty meters were replaced. Unauthorized connections were regularized through one-time settlements. The Jyotigram Yojana (JGY) ensures 3-phase power supply to all villages.
The key was a bifurcation of supply lines into dedicated agricultural feeders. For agricultural use, one would thus be ensured continuous power for 8 hours a day, at pre-determined times. For other rural loads, there would be 24x7 power. A 24x7, 3-phase supply was provided to JGY feeders. These then provided 8 hours of 3-phase continuous supply to agricultural feeders and 1-phase 24x7 power to other rural uses.
The argument about people wanting subsidised power and refusing to pay higher tariffs is misplaced. People are prepared to pay, provided that the quality of power supply improves. It was no different for JGY. Once power at pre-determined hours was available, there was less of an incentive to divert subsidized power for agriculture to domestic household use. JGY helped reduce T&D losses. It also helped reduce transformer failures. More importantly, it led to all villages being electrified, without load-shedding, and this had positive socio-economic multiplier benefits.
GUJARAT STORY
Is there a Gujarat story? Clearly, there is. That's reflected in high GSDP growth since 2002 and is also reflected in poverty declines, with no significant increase in inequality, data constraints notwithstanding. Is this reflected in human development outcomes improving, especially in backward geographical regions and backward segments of the population?
The evidence suggests that there have been improvements, especially after the conscious focus on such regions and segments since the 11th Plan (2007-12). Therefore, if Gujarat is being criticized on inequitable development, the time-line of data points is important. Pre-2007 data are not pertinent and one must also remember that social sector outcomes often improve with a time-lag. At best, one can complain that these improvements are not yet reflected in northern and central Gujarat.
If one accepts this Gujarat story, one can move on to the next question. What is the Gujarat model and what has happened? It is one of freeing up space for private initiative and enterprise and the creation of an enabling environment by the State. It is one of decentralisation of planning and empowering people. It is about targeted public expenditure through specific schemes, supplementing CSS-s with State-specific schemes.
It is one of bureaucratic empowerment and improving the efficiency of public expenditure. It is one of feedback loops from the government machinery to people and from people to the government machinery. It is one of delivering public goods (water, roads, electricity, schools, education).
FOUR FACTORS
Stated thus, this is a standard development template that any state ought to adopt and implement. The difference is that not too many states have implemented the template. It is always difficult to disentangle the various factors that go into ensuring the successful implementation of the Gujarat model. First, there is a legacy factor and earlier Gujarat governments, prior to 2002, have left positive impact.
Second, Gujarat has had a healthy tradition of private entrepreneurship and an equally healthy skepticism of government. Third, in sectors like water and roads, Gujarat has also benefited from favourable exogenous circumstances, as it has from negative push factors in other states, automobiles and auto ancillaries being an obvious instance. Fourth, the present political leadership has also had a role in empowering the bureaucracy, clamping down on corruption, decentralizing planning and delivery and focused intervention for backward regions and segments.
While disentangling is difficult, it would be uncharitable and unfair to deny this fourth element. The pride in "asmita" begins from the top. And if that is disseminated and successfully trickles down, quite a bit has been achieved.
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