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Lessons from the Gujarat model

Growth matters,apparently much more than dole,for poverty reduction.

Written by Surjit S Bhalla |
October 26, 2013 12:09:50 am

Growth matters,apparently much more than dole,for poverty reduction.

Almost a year ago,on December 13,2012,I published an article in The Indian Express (‘The Modi metric’) with the explicit goal of evaluating Gujarat’s development in terms of both economic growth per se and improvements in living standards. Gujarat was just about to go to the polls,and there had been constant (and continuing) debate about whether,under Narendra Modi’s stewardship,the much-hyped economic growth had also delivered results to the poor. Of particular interest was the improvement in the lives of the Muslims. Gujarat’s record since 2002 has been scarred by the post-Godhra riots,which took place just six months after Modi became chief minister in 2001.

In this article,I had offered an index of inclusion,an index that revealed how the poverty decline for a particular disadvantaged community (for example,Muslims) compared to the poverty decline among the non-disadvantaged (non-SC/ST and non-Muslim). For all groups,the reference calculation was the decline in absolute poverty between 1999-2000 and 2009-10. If a state achieved a higher decline in poverty reduction of the disadvantaged relative to the advantaged,it obtained a higher rank. According to this index,Gujarat’s rank was 15th out of 18 big states. That is,Gujarat was the fourth worst performer for poverty reduction among Muslims relative to the non-disadvantaged. Hence,I concluded that “Gujarat has delivered growth under Modi,but such growth has been neither equitable nor inclusive”.

Today,the contours of the debate have changed somewhat. Modi has been nominated as the BJP’s prime ministerial candidate and the Gujarat development model has come under increasing criticism. Sometimes,this criticism comes in the form of fantasy,as the Congress’s shooter for all occasions,Digvijaya Singh,recently claimed that not only was Gujarat’s performance worse than Rajasthan’s,but also the number of poor had increased under Modi!

Others,including Nobel laureate Amartya Sen and most of the glitterati,have been equally critical of Gujarat’s economic performance. Some,like me,based their analysis on the then latest 2009-10 NSSO data. Others used inappropriate data to draw conclusions,for example,using data on the population sex ratio to make inferences about the sex ratio at birth. No doubt,this discussion will continue into the elections next year,and it is entirely appropriate,indeed required,that an intelligent debate take place about development and models of development.

This debate takes on heightened importance for another reason. Two of India’s leading economists — Jagdish Bhagwati and Amartya Sen — have been positing their distinct and separate models of economic development. While both desire and want development,their prescriptions have an important difference. Simply put,Bhagwati would let economic growth do most of the work,while Sen would want active government intervention in the form of doles,preferably doles by right,to make right the misfortunes of the poor.

The debate about performance is particularly obtuse in India. There is a considerable amount of molestation of statistics going around (for example,Digvijaya Singh’s comment above),and when that is not enough,many in India take recourse to debating,in Madhav Dhar’s words,the existence of gravity. Surely an interesting subject for rich and other wannabe rich Scandinavians to debate,but clearly not as important as determining what is the best strategy for reducing absolute poverty in India.

This,and subsequent articles,will attempt to transparently discuss (just as the ‘Modi metric’ article) economic performance in India. Which model has delivered growth? Reduction in inequality? Education? Health? Poverty reduction? This first article looks at the most talked about,and possibly the most important,indicator variable for inclusive growth — that is,reduction in absolute poverty in India over the period 1999-2000 to 2011-12. (The beginning point is chosen for two reasons: it is a decade away and it also presents a reliable and convenient “initial conditions” set for Gujarat and PM contender Modi.)

The standard source used for the analysis of poverty decline are the NSS surveys for these two years. Data for 2009-10 are also reported for ease of comparison with my earlier article and conclusion about Modi’s Gujarat. The results are presented for different population groups. In addition,the data are aggregated into two population groups — the disadvantaged,consisting of Muslims,SCs and STs,and the non-disadvantaged (consisting of OBCs and upper-caste Hindus).

As is well known,the NSSO conducted a new large sample survey in 2011-12 to counter the biased influence of the 2009-10 drought year. Note the marked decline in national poverty rates (a decline of 7.7 percentage points over 2009-10 at the national level) and in Gujarat (a decline of 6.3 per cent for the same period).

The latest 2011-12 NSSO data radically changes the conclusions and interpretation of the nature of inclusive growth in Gujarat. The sharpest decline in poverty between 2009-10 and 2011-12 is observed for Muslims,the very community against which a Gujarati-Modi bias is assumed and presumed. The poverty ratio for Muslims,which had not shown much change between 1999-2000 and 2009-10,now collapses to only a 11.4 per cent level from the high 37.6 per cent level observed just two years earlier. At this level,the Muslim poverty rate is marginally below the 12.4 per cent poverty rate of the non-disadvantaged group consisting of OBCs and upper-caste Hindus.

The lower panel B reports on the performance ranks for the different population categories. The rank for each category is based on the poverty decline in that category,with reference to the decline observed for the non-disadvantaged. For Gujarat,the non-disadvantaged have a poverty decline of 15 percentage points (ppt) between 1999-2000 and 2011-12. For SC/STs,the poverty decline is 28 ppt for the same period. So the excess poverty decline for SC/STs is 13 ppt,and this is the third-largest excess decline in the country for SC/STs. In the case of Muslims,Gujarat was the second best performing state,with West Bengal as the state where Muslims had the largest relative decline. (However,the poverty level for Muslims in West Bengal in 2011-12 was more than twice the level observed in Gujarat and near identical to the national Muslim average of 25.5 per cent).

Election 2014 should be about development,and about the aspirations and improvement in the lives of the bottom 40 per cent of the population (the proportion of disadvantaged in the national population in 2011). If one looks jointly at poverty reduction and poverty levels,the preliminary conclusion has to be that the “Gujarat model” of development seems to have performed much better than most models on offer.

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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