Gujarat: economy
This is a collection of articles archived for the excellence of their content. |
A backgrounder
Chandrima Banerjee, Dec 13, 2022: The Times of India
From: Chandrima Banerjee, Dec 13, 2022: The Times of India
From: Chandrima Banerjee, Dec 13, 2022: The Times of India
From: Chandrima Banerjee, Dec 13, 2022: The Times of India
From: Chandrima Banerjee, Dec 13, 2022: The Times of India
From: Chandrima Banerjee, Dec 13, 2022: The Times of India
Development and inclusion
In 2013, a committee headed by then RBI governor Raghuram Rajan was asked to come up with a development index for states. When its report said that “Gujarat, one of the most economically prosperous states of India, appears in the list as a ‘less developed’ state” it became a political battle.
Arriving at a parameter for “development” that most can agree on is difficult. So, measuring economic output could help understand development the way most people imagine (though growth and development are not quite the same but we’ll skip that for now).
The per capita net state domestic product (NSDP) of Gujarat grew at an annual 7% between 2004 and 2014 — all the more significant because it actually was a growth sustained every year.
But for it to qualify as a model that stands out, two things need to be checked — is it the best Gujarat has ever done, and is it the best any state has done?
If we go year by year, the post-liberalisation year of 1992 was the best for Gujarat’s economy — per capita NSDP grew 30% in one year. It was not an aberration. Because Gujarat always had a strong economy. Its GDP was growing 10% in 1961, a year after it got statehood. A decade on, it was growing at 15%. And at the end of the 1980s, it was rising at 20%. Growth was a trajectory it was already on.
If we compare Gujarat with other states, it had the highest per capita NSDP growth rate in 1992 and 1994. The next time it regained the top position was two decades later, in 2012. And if we go back to the 2004-14 period we looked at before, Gujarat’s 7% per capita NSDP growth rate was significant but lower than that of large states like Tamil Nadu and Telangana.
For growth to be sustainable, however, it is important that all investments generate returns over time and make the state more self-dependent. But Gujarat’s dependence on central transfers rose from 21% of its revenue to 37% in the decade since 2010.
Also, this growth translates into development only when public infrastructure and support improves. More people should get easy access to hospitals, schools and roads. Growth in social sector expenditure, however, did not change much. Before 2002, it was growing 13.4% a year and after 2002, it was growing 13.7% a year.
Within the time periods we are comparing, Karnataka’s annual increase in social sector expenditure went from 12.6% to 16%, and Punjab’s from 12% to 20%.
Its capital expenditure is, meanwhile, getting a smaller share every year while revenue (recurring operational) expenditure is going up. Even that has not been entirely productive. The number of incomplete projects rose from 1 in 2013 to 73 by 2019, locking some Rs 9,800 crore in funds.
And while BJP brings up subsidies as a problem, Gujarat has been increasing what it gives out every year — from 10.7% of revenue expenditure to 15% in the past five years. These subsidies focus more on business and infrastructure than public aid. The top recipients of subsidies in Gujarat are energy and petrochemicals (41% of all subsidies), and industries and mines (25%).
Equal contribution by all sectors
BJP described the Gujarat model as one in which “all the three sectors, agriculture, industries and services made an equal and active contribution”.
Let’s start with 1990. That year, agriculture contributed to 23% of the state’s GDP, industry accounted for 38% and services 37%. By 2000, the share of agriculture was 14%. The share of industry had not grown a lot — it was 40% of the GDP — and that of services had shot up to 45%.
Given the high-value output of services and low-value output of agriculture, the difference is understandable. It was this gap that the Gujarat model is said to have bridged. So, what happened 2002 onwards?
The share of industry’s contribution to GDP hovered around the 40% mark for almost the entire time, barring four years when it went up to a 42-44% share.
For services, the share actually came down from the 45% mark to just above 30%.
But the biggest drop was in agriculture. Its contribution to the state’s GDP kept going down, from 18% in 2003 to 9% in 2016. Even in absolute terms, the output from agriculture shrank annually at least 11 times, and 8 of them were after 2002.
Usually, the move from a primary sector like agriculture to a secondary one like industry would be a good sign. But that only works when agriculture and industry complement each other. But Gujarat’s agricultural space was saturated by the 1990s. And now, about 67% of farm holdings are smaller than one hectare — much higher than in Rajasthan (54%), Karnataka (52%) or Maharashtra (50%).
Industrial development and investment
Over the 1970s and 1980s, Gujarat added 24,000 units of micro, small and medium enterprises. But in the first decade of the 2000s alone, it added 16.5 lakh. These units became 4 times more productive, employed 4 times as many people and investment went up 15 times in the 2000s.
The same goes for the industrial sector as a whole. The net value added by industry went up 5 times in just a decade since 2002. And while the number of workers in industry dropped by 2,400 in the decade over the 1990s, it went up by 5 lakh over the next decade.
The additional context, however, is that Gujarat had always been one of the most industrialised regions in the country. The Gujarat Industrial Development Corporation had been set up in 1962, power and water supply to industry had been prioritised, and the railway network had been made especially dense in the industrial region of southern Gujarat, economist Indira Hirway wrote in 2000.
While that goes a long way, the supporting infrastructure has to continue growing. Between 2003 and 2016, Gujarat added 36,000km of roads — one-tenth of what Maharashtra did in the same time. The railway network shrunk by 26km. And Gujarat slipped on the ease of doing business index from the top position in 2015 to
Third in 2016 (behind Andhra Pradesh and Telangana)
Fifth in 2017 (behind Andhra Pradesh, Telangana, Haryana and Jharkhand)
Tenth in 2019 (behind Andhra Pradesh, Uttar Pradesh, Telangana, Madhya Pradesh, Jharkhand, Chhattisgarh, Himachal Pradesh, Rajasthan and West Bengal)
What happened? One of the things that the investment destination buzz was based on was how bureaucratic procedures would be simplified. It didn’t always work that well though. In 2017, for instance, a Comptroller and Auditor General (CAG) report said that the guidelines for auction of minor mineral blocks had been changed so often that the process turned faulty.
And while allowances were made for industries in the short run, those that didn’t follow the law were identified and fixed. In 2014, for example, the CAG reported that the government had acquired gauchar (grazing) land and allotted it to a private company at Rs 11 crore less than what it should have taken. Tata Motors moving to Gujarat after the Bengal fallout also involved the government not taking stamp duty of nearly Rs 20 crore without notifying the exemption (as is law).
These gaps in revenue collection are not helping. In 2021, for the first time since 2011, Gujarat ran a revenue deficit and used borrowed funds to cover expenses and debt repayments. Its asset base is declining. And in the next seven years, it has to repay Rs 1.9 lakh crore in public debt. “The state government would have to work out a well thought out borrowing repayment strategy to avoid falling into a debt trap,” the CAG report from 2022 said.
As for employment generation, the number of workers did go up. But the gap between those identified as industry workers and those marked just as “persons engaged” in industry widened to its largest ever — doubling from 2002 to 2016.
Prosperous farmers
One of the agriculture development projects in Gujarat was to provide high-quality seeds to farmers. In 2008, the government set a target of 19,000 quintals of wheat, groundnut and pearl millet seeds with a project cost of Rs 3.5 crore in five years. But by 2014, only 5,500 quintals of seed had been produced and sold to farmers and even though the entire project cost had been spent, only 29% of the target was met.
This is not unique to Gujarat. Governments often announce plans and schemes with much more passion than they set aside for execution. But in this case, BJP said unequivocally that “farmers of Gujarat witnessed unprecedented prosperity”.
If we compare data from two national agriculture surveys in 2013 and 2019, we see that average farmers’ income in Gujarat is now Rs 10,386 — up from Rs 7,926 — but the share of indebted agricultural households is the same, 43%.
The government’s involvement in the agriculture sector is also declining. In 1984, the Gujarat government spent 24% of its capital expenditure on agriculture. By 2014, it was down to 16%.
Meanwhile, Gujarat’s crop yield did improve. Those of oilseeds and sugarcane are higher than the national average — but lower than those in Tamil Nadu. Its cotton yield is also higher than the country’s — but Andhra Pradesh, Rajasthan and Haryana are doing better.
The value of output, however, has gone down for many major crops. Fibres got Gujarat Rs 33,000 crore in 2011 but less than Rs 24,000 crore in 2019. The value of cereals went from Rs 11,000 crore to Rs 9,500 crore. It’s not that output of all products declined.
For a state that has banned meat sale near academic institutions in major cities, started DNA tests to check if meat is beef and asked people to not eat meat for a few days when Ahmedabad shut the only slaughterhouse, the value of Gujarat’s output from meat production went up from Rs 3,000 crore to nearly Rs 4,000 crore over the past decade.
