Gujarat Is Excelling On The Back Of Its Famed ‘Model Of Development’

What is the criterion for a ‘model’ state?

A high rate of growth, of course.

Then, growth as a means to achieve the “greatest good for the greatest number” must trickle down and achieve the ‘ends’ of higher employment and development.

And finally, all this needs to be sustainable.

A review of several recent reports leads us to believe that Gujarat has been doing the right things – and across areas.

Our starting point is global analytics company CRISIL’s “States of Growth 2.0” report.

It accounts for growth, fiscal parameters, expenditure quality, and inflation in 2018, as well as in the 2013-2018 period. CRISIL concluded that Karnataka and Gujarat were the best performers along with West Bengal.

Overall, we reached the conclusion after our analysis that Karnataka and Gujarat deserve special mentions, and West Bengal is in the ‘watch this space’ bracket.

Of these, Gujarat’s growth is remarkable for many reasons.

Growth With Discipline

On macro parameters like growth, inflation, and fiscal deficit, Gujarat has been steadily improving its numbers: state gross domestic product (GSDP) or income had grown at 9.9 per cent during fiscal year (FY) period 2013-17 – then the highest among all states.

In FY 2017 alone, Gujarat had grown 10.1 per cent, and at 11.1 per cent in FY 2018. The other high-growth states in FY 2018 were Bihar and Andhra Pradesh, with GSDP growth at 11.3 per cent and 11.2 per cent respectively.

What is commendable about Gujarat is that this has been achieved while reining in its fiscal deficit at less than 3 per cent of GDP, as set under the FRBM (Fiscal Responsibility and Budget Management) Act. Gujarat’s fiscal deficit is 1.7 per cent, the lowest among Indian states.

Fiscal deficit of all states had been deteriorating since the implementation of Ujjwal Discom Assurance Yojana or UDAY, as states had to take up distribution companies’ liabilities.

Growth With Inclusion

Are people benefiting from this growth? Yes, if we went by certain parameters.

First, growth has occurred without higher inflation; it’s easier to grow when you’re willing to be profligate, but that invariably leads to inflation, which hurts people.

Gujarat’s consumer price index (CPI) inflation is in check at 2.6 per cent in FY 2018. On the other end of the spectrum, Tamil Nadu and Kerala have the highest inflation at 6 per cent and 4.9 per cent respectively.

Second, growth has led to employment. CRISIL extrapolated employment generation using sectoral growth as proxy. Gross value added (GVA) of employment-intensive sectors – construction, manufacturing, trade, hotels, transport, and communications – were analysed for all states over a period of five years, FY 2013-2018.

It was found that in these sectors, Gujarat led growth at 11.5 per cent, with Bihar and Haryana trailing at 8.2 per cent and 8 per cent respectively. Karnataka, the other top performer, had a GVA growth of 6.8 per cent, Tamil Nadu 5.9 per cent, and West Bengal 7.4 per cent.

The report says growth in most states was not employment-generating. Though eight states recorded GSDP higher than the all-India figure in FY 2013-18, only Gujarat and Haryana recorded higher growth than the national average in employment-intensive sectors. For both these states, the growth has come from manufacturing.

Here, an argument often rears its head, that the Gujarat model hurts job creation because it is focused on mega projects at the expense of small and medium enterprises. A timely survey of micro, small, and medium enterprises by the Confederation of Indian Industry serves to counter this argument.

The survey found that of the 3.32 lakh jobs created in the country, most were in Maharashtra, followed by Gujarat and Telangana, with the three together accounting for 54 per cent of jobs.

Third, closely related to employment are startups; the recent Department of Industrial Policy and Promotion rankings, which compared the efforts of state governments to grow and manage startup ecosystems, had Gujarat as the “best performer”. Karnataka, Rajasthan, Odisha, and Kerala are just a notch below Gujarat as ‘top performers’, with Andhra Pradesh and Telangana falling in the third level of ‘leaders’.

Fourth, the spending priorities of Gujarat, as per the CRISIL report, are good, and in each category – education, roads, irrigation – the spending is high, commensurate with the requirement.

In the health sector, in fact, CRISIL clubs Gujarat in the category of states that have both “better health parameters” as well as “higher focus on health spending”. As far as policy goes, there is no scope for fault-finding.

This is significant because the “Gujarat model of development” had attracted considerable scorn in the last couple of years, with development alleged to be abysmal alongside, and in spite of, high economic growth. Gujarat has consistently worked to improve social indicators, and its performance has been above all-India levels on most development parameters, as policy expert Bibek Debroy often argues.

Finally, even in agriculture reforms, Gujarat is one of the seven states – along with Uttar Pradesh, Madhya Pradesh, Maharashtra, Andhra Pradesh, Telangana, and Uttarakhand – that are working with the Agriculture Ministry to enhance the use of National Agriculture Market or eNAM through inter-state trade.

Growth That Is Sustainable

If sustainability is the criterion for a better future, Gujarat is in a good place.

First, we look at debt ratio, which is state debt against GSDP and an important indicator of a state’s overall economic health, as it gauges the ability of the state to repay its debt.

As per CRISIL’s analysis, debt ratios of only four states have improved from 2013 to 2018: Gujarat, Maharashtra, Uttar Pradesh, and West Bengal.

Most states had higher debt because of UDAY. In addition, Haryana and Tamil Nadu also had a revenue account deficit. And even though Karnataka has a low debt-ratio, the ratio has increased in 2018 from the 2013 level.

It is important to point out that Bengal was able to contain the debt ratio because it did not participate in UDAY.

Gujarat has managed a low debt obligation despite participation in UDAY. This shows extraordinary planning in managing state finances.

Next, we judge ‘sustainable growth’ by NITI Aayog’s SDG (Sustainable Development Goals) India Index, which NITI Aayog has developed to measure the states’ progress towards SDGs for 2030. Here, we find a heartening addition in Gujarat’s growth and development story.

The SDG dashboard reveals that while Kerala and Himachal Pradesh are the top states with scores of 69 each, Gujarat, Andhra Pradesh, Maharashtra, and Karnataka are not far behind – with scores of 64 each.

SDGs are important, not just as a commitment by world leaders towards an agenda, but because they will ultimately lay the path for the well-being of societies, encompassing economic, environmental, and social aspects.

What is significant is that among all these top states, Gujarat is the only one to have attained “achiever” status in any of the goals: it has a score of 100 in goal six – ‘Sustainable management of Water and Sanitation for all’. In the wake of the water crisis in the country, this is significant.

Chandigarh, Goa, Uttarakhand, Manipur, and Odisha are achievers, too, in other goals, but among the big states, Gujarat is the only one. Kerala and Himachal Pradesh are front-runners in most categories.

And, finally, further growth in the state can come from making the environment more conducive for new businesses. The Ease of Doing Business Index 2018, which measures the states’ process of reforming the regulatory environment for businesses, has Gujarat at number five – up two places from 2017. Karnataka stands at rank eight, Tamil Nadu at 15, Maharashtra at 13, Kerala at 21, and West Bengal at 10.

One concludes by putting these indices in context that the outlook on growth as well as development is high for Gujarat. Priorities are right, which include public spending, and then there’s careful planning towards sustainability and encouraging further growth.

Importantly, one needs to differentiate between growth that comes from manufacturing – as in Gujarat – or something that comes on the back of the real estate sector, or by buoyed liquor excise collections. All these contribute to sustainability.

High Moral Ground

Growth is a moral obligation, as argued here. A one-percentage point increase in GDP per capita, when accompanied by streamlining of the labour and manufacturing regulatory systems, reduces poverty by 0.78 per cent.

However, as the story referenced above points out, economic reforms rather than freebies is what will lead to progress – a fact that is ignored by most states. Gujarat has so far spent the least in its expenditure basket on such direct ‘welfare’ measures.

Given the era of competitive federalism – fostered the way it is by NITI Aayog’s indices and dynamic chief ministers of states – Gujarat must continue on the path of real growth in its studied, steady, understated yet enterprising manner.