Saturday, April 19, 2014

Gujarat growth model: is it for real?

There has been an enormous amount of talk about the Gujarat growth model. Modi's admirers say it has worked, meaning it has delivered growth and better living standards. His critics say that it has worked only for corporates. Where does the truth lie?

I have scanned the literature. Let me state my conclusions upfront:
  •  Gujarat has been a leader when it comes to growth rate
  • It has lagged behind in social indicators (meaning, its indicators are not as good as those another high-growth state such as Tamil Nadu)
  • However, Gujarat has been catching up on social indicators too. Once Modi's attention was drawn to Gujarat's adverse indicators, he has been quick to address this issue.
Ok, now on to some key facts. How do we address the growth issue?
  • Comparing Gujarat's growth rate in the 2000s with that in the nineties: Not correct, because it is not just Gujarat that has improved its growth rate but the rest of India
  • Comparing Gujarat's growth rate with that of other states:Not correct because if Gujarat has always been ahead of other states, then the fact that it has done the same under Modi does not tell us whether Modi has made a difference
  • Comparing the difference in growth rate between Gujarat and the rest of India in the 2000s (post-Modi) with that in the 1990s (pre-Modi): Correct. If the differential has changed, we can come to conclusions.
An article in EPW follows the last approach.  There are some important methodological issues. Do we look at growth in state domestic product (SDP) or growth in per capita SDP?  The authors use both methods and come to the following conclusions:
  • Gujarat was at par with or ahead of the rest of India in the 1980s
  • Gujarat was ahead of the rest of India in the 1990s
  • Gujarat maintained its lead over the rest of India in the 2000s but the difference was not significantly greater than in the 1990s.
  • Gujarat is not alone in the high-growth league: it must share honours with Maharashtra, Tamil Nadu and Haryana
The authors conclude that Modi not deserve special credit for his performance. It is possible to differ. Growth in the 2000s was on a higher base, so if Modi was still able to maintain the difference with respect to India, that constitutes an achievement.

Surjit Bhalla, writing in IE, follows a slightly different tack.  He looks at the pre-Modi Gujarat (years between 1992 and 2001) and Modi Gujarat (2002 to 2011/12) and compares indicators with seven states whose per capita incomes were at the same level as Gujarat in 2001. His conclusions are resoundingly in favour of Modi:
  • 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
  • Manufacturing in Gujarat accelerated by 5.6 ppa compared to an acceleration of 2.9 ppa for the SSS
  • 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
What about the criticism that Gujarat's growth was not inclusive and that growth in Gujarat has been jobless? Well, Bhalla points out that when we look at growth in wages of the poor relative to those of the rich, Gujarat does better than other states; also, on unemployment.

What about social indicators? Bhalla has a piece on this aspect as well. He points out that on several indicators- inequality, education, access to sanitation and water, health and the sex ratio- the improvement in Gujarat's indicators is better than in the seven comparable states (except for female infant mortality).

Note, however, that only looks at the change from what you might call a low base for Gujarat. In absolute terms, Gujarat's indicators lag behind the best performers in the country, as Jean Dreze points out in his article in the Hindu:
Whether we look at poverty, nutrition, education, health or related indicators, the dominant pattern is one of indifferent outcomes. Gujarat is doing a little better than the all-India average in many respects, but there is nothing there that justifies it being called a “model.” Anyone who doubts this can download the latest National Family Health Survey report, or the Raghuram Rajan Committee report, and verify the facts.
Dreze makes a more interesting point. He questions the view that Gujarat's achievements are the result of private enterprise as distinct from state intervention (and,by implication, there are lessons for the rest of India). He writes:
When I visited Gujarat in the 1980s, I was quite impressed with many of the State’s social services and public facilities, certainly in comparison with the large north Indian states. For instance, Gujarat already had mid-day meals in primary schools at that time — decades later than Tamil Nadu, but decades earlier than the rest of India. It had a functional Public Distribution System — again not as effective as in Tamil Nadu, but much better than in north India. Gujarat also had the best system of drought relief works in the country, and, with Maharashtra, pioneered many of the provisions that were later included in the National Rural Employment Guarantee Act. Gujarat’s achievements today build as much on its ability to put in place functional public services as on private enterprise and growth.
Dreze asks: if Gujarat's high growth is not matched by a commensurate improvement in social indicators, does it has to do with a slackening in public services or with gender inequality? It is interesting that, in a recent interview, Modi has said that PSUs can do as well as private firms, if given adequate autonomy and has cited Gujarat's own PSUs as cases in point.


Anonymous said...

Interesting views on Gujarat the saying goes - You may argue it or like it or dislike it, you cannot ignore it.

I tend to have same views as that of Bhalla. Yes, social indicators are not so encouraging, but they were acted upon once they came on the agenda of Gujarat govt.

And I would say Public enterprise does have their role to play in shaping Gujarat's business growth...take the PSU such as GSPC, GNFC, GSFC, GGRC, GACL. I visited each of them and let me tell you they are a notch above in terms of governance & processes when compared to many of their peers MNC.

One will always have the reasons to improve and so does Gujarat. It is not the best model and it also has its own flaws. What is more important, is to act on those flaws having identified them. And I don't Gujarat govt not doing that thing.

Deva said...

All said and done... I would be more interested in the ground realities in Gujarat. Sanitation, Cleanliness, Crime rate, safe drinking water, better roads. These are the indicators that really matter to a common man. If these are significantly better than the rest of the India and significantly better then pre-2000 Gujarat. Then a big round of applause for the Gujarat Model.