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Gujarat’s inclusive growth

From high farm growth to wages for the disadvantaged, even their employment levels, Gujarat comes out on top.

Written by Surjit S Bhalla |
Updated: April 12, 2014 8:54:54 am

From high farm growth to wages for the disadvantaged, even their employment levels, Gujarat comes out on top.

Both the opinion polls and the bookies suggest that Narendra Modi will be the next prime minister of India. There is a constant but healthy debate in the media about the likely pros and cons of a Modi administration. For each assertion made by the BJP, there is a counter presented. Some of this is quite transparently facile — for example, comparing item for item the UPA’s 10-year record with the NDA’s five-year record (1999-2004).

There are several reasons this comparison borders on the ridiculous — the most important being that the Indian voter has already voted for the “good” performance of UPA 1. This she did in 2009, when even the Congress was surprised by its victory. The proper comparison is obviously 2009-14 with the NDA, and when this comparison is made — well, that is what the voters are voting for or against; we will know their evaluation on May 16th.

Another important objection to Modi comes with the refrain that the dream, the vision, that Modi is selling is a nightmare for the poor, the minorities and the disadvantaged. The accusation is made that the Modi growth model is really for the rich and the super-rich, that is, the Adanis and Ambanis of India. As debates in India rarely centre on evidence, the allegations fly thick and fast. Agricultural growth in Gujarat, far from being high, was actually negative — or so proclaimed Arvind Kejriwal.

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When sanity returns, the argument changes — growth has always been high in Gujarat because the Gujaratis are industrious and hard-working. The real problem, the critics contend, is that growth in Modi’s Gujarat has not been “inclusive”. Now inclusion, like beauty, is in the eyes of the beholder, particularly if the person pontificating is of the secular left-wing variety. Here it is automatically assumed that if one is secular, then one is guaranteed inclusion — saying so makes it so.

This debate is very important. If Modi is the next PM, we need to directly examine his contribution to both the successes and failures of the “Gujarat model”. Towards this end, I will present results pertaining to growth indicators (see below) and socio-economic indicators (next article). The method followed is straightforward. Modi became chief minister of Gujarat in 2001. How did Gujarat compare with other “similar” states in India? But how does one define similar?

One approach is, and the one adopted here, is to look at states that had a similar per capita income in 2001. Thus, data are presented for Gujarat, all India, and the average of seven other states that were close to (+/- 20 per cent) Gujarat’s 2001 per capita income level. These seven states are Andhra Pradesh, Himachal Pradesh, Karnataka, Kerala, Rajasthan, Tamil Nadu and West Bengal.

Data are examined for various indicators (subject to data availability) for pre-Modi Gujarat (years between 1992 and 2001) and Modi Gujarat (2002 to the latest year for which data are available 2011/12 (see table). These data indicate that the people of India might just possibly be voting for Modi because they are impressed with Gujarat’s growth performance.

No matter what the growth indicator, Modi and Gujarat come out trumps. (This is the conclusion for only indicators of growth — socio-economic indicators do not present this overwhelmingly consistent story). Annual agricultural growth accelerated across India and in the similar seven states (SSS), agricultural growth accelerated by 1 per cent per annum (ppa) to 3.8 per cent; in Gujarat, the acceleration was more than three times as much. Some have argued that this was entirely the result of Bt cotton. Which raises the interesting question — why did other states not adopt Bt cotton?

Manufacturing in Gujarat accelerated by 5.6 ppa compared to an acceleration of 2.9 ppa for the SSS; perhaps this is the Adani and Ambani effect that Modi’s detractors emphasise. But the service sector in Gujarat, from being 0.5 ppa behind the comparator states in the pre-Modi period, accelerated to 2 ppa higher with the arrival of Modi — 10.7 per cent per year versus 7.7 per cent before.

A consistent story that emerges about the Gujarat growth model is that Modi/Gujarat did deliver “extra” growth. But did this extra growth benefit all sections of society rather than just the privileged few? To answer this question, household-level NSS data on wages and unemployment for the large sample years 1983 to 2011/12 are used. Wage and unemployment data are presented for the disadvantaged group (comprising of Muslims, SC & ST) and the rest (non-disadvantaged group).

In the Modi period, wages of the “rich” (non-disadvantaged) group increased at an annual rate of 2.2 ppa compared to a higher 3.5 ppa rate for the poor. In the comparator states, the difference was only 0.4 percentage points (ppt) higher for the poor and all-India, the poor had faster growth of only 0.2 ppa.

The critics of UPA have emphasised the jobless nature of growth. This aspect is brought out by the “parallel” data on unemployment. And these data are striking. By an overwhelming margin, Gujarat has had, and continues to have, the lowest unemployment rate in the country. In both the pre- and current Modi period, unemployment rate (those looking for a job and unable to find one) in Gujarat averaged 1.5 per cent of the working population; the national average increased from 2.7 to 2.9 per cent.

In the 2001-11 period, only Gujarat shows a decline in the unemployment rate of the poor disadvantaged group (from 1.8 to 1.6 per cent) while the SSS show a 0.2 ppt increase and for all India, there is a sharp 0.5 ppt increase.

This result is not contingent on data source or selection of time-period. No matter how the data are sliced, the overwhelming conclusion is that Gujarat has witnessed enviable economic growth under Modi. Are the opinion polls reflecting this simple fact?

The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company.

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