The great Gujarat growth debate
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“In a democracy, statistics is politics,” one of my teachers in graduate school once said. His words never seemed as true as it does today, with political parties using and abusing statistics to drive their campaigns.
In the 2014 election campaign, the war of statistics has been fiercest when it comes to the state of Gujarat, given that Narendra Modi has used his governance record in Gujarat as his trump card in the parliamentary elections. The debate on Gujarat’s ‘growth model’ now seems to be drawing an ever-widening circle of academics. Not all appraisals have been flattering.
In a sharply worded critique of the ‘wild euphoria and exuberant optimism about (Narendra) Modi’s economic leadership’, Maitreesh Ghatak of the London School of Economics and Sanchari Roy of the University of Warwick questioned Modi’s role in driving Gujarat’s economic performance in a 13 March opinion piece for the Guardian . The duo pointed out that while Gujarat’s growth record has been impressive; it has been so even before Modi took charge at the helm of the state. Besides, other states have done better than Gujarat when it comes to growth. And when it comes to broader development indicators, the list of states outranking Gujarat is even longer. The extended version of their essay, published by Ideas for India reserves praise for Bihar instead, since the state seems to have turned around after long years of stagnation.
“Though Modi’s stock is rising high, evidence for the success of Modinomics is unconvincing. For those frustrated with the status quo and hoping for a magical turnaround of the Indian economy if Modi comes to power, it may be wise to think about lessons from the stock market. At some point all bubbles burst—and the numbers have to add up,” the duo concluded in the Guardian piece.
Rebutting such arguments, Arvind Panagariya, a Columbia University economist and a long-standing admirer of Narendra Modi, argued in a 29 March Tehelka article that Gujarat’s growth has been both faster and more inclusive under Modi. Citing research by Ravindra Dholakia of the Indian Institute of Management, Ahmedabad, Panagariya argued that the claim that Gujarat had always grown fast was false. “The growth rate trend in Gujarat was below the national average in the 1960s, above it in the 1970s and below it yet again in the 1980s.”
In a counter-punch delivered a few days ago, Ashok Kotwal and Arka Roy Chaudhuri, respectively professor and Ph.D. student at the University of British Columbia, wrote that Gujarat presents a perplexing case that has done much better than many states on growth but has performed much worse in terms of developmental outcomes.
“Despite the fact that Gujarat grew faster than most other states during the decade of 2001-11, its per capita expenditure is not only not at the top of the chart but has slipped further to the 12th position. Equally surprising are its ranks in, one, the extent of poverty and, two, female literacy: they are smack in the middle of the list at 14th and 15th respectively, showing no improvement by 2011-12 despite fast growth. It does show some improvement in its ranking for ‘Infant Mortality Ratio’ from 19th to 17th, though the record of being in the lower half of the class is still disappointing for such a fast growing state,” wrote Kotwal and Chaudhuri in the Indian Express.
The debate over the ‘Gujarat model’ of growth and development is not entirely new though. Nearly three years ago, the pages of the Economic and Political Weekly (EPW) were witness to a spirited debate on the pros and cons of the ‘Gujarat model’ between Indira Hirway (of the Centre for Development Alternatives, Ahmedabad) and Neha Shah (of the L J Institute of Management Studies, Ahmedabad) on one side, and Ravindra Dholakia and Amey Sapre (both from the Indian Institute of Management, Ahmedabad) on the other. That battle has now widened, attracting more scholars from home and abroad.
In a 2011 EPW paper, Hirway and Shah argued that the fruits of rising prosperity in Gujarat had been thinly spread in the past decade. While the share of capital in total output was rising, the share of labour was falling. Despite rising labour productivity, wage growth was anaemic in Gujarat, the duo pointed out, using Annual Survey of Industries (ASI) data. As a result, Gujarat’s developmental outcomes have suffered even in the face of high growth, the duo argued. Dholakia and Sapre pointed out that the findings change if one considered a broader definition of ‘workers’. Hirway and Shah responded that Dholakia and Sapre had clubbed both blue collar and white collar workers together, and that camouflaged the depressed wages of factory workers because managerial staff typically tends to receive higher wages and bonuses. The duo also pointed out that casual wage rates for informal workers in Gujarat was among the lowest in the country. Other researchers have also drawn attention to the surprisingly low wage growth in Gujarat in the past few years.
The Gujarat growth debate throws up two key questions. First, has growth actually been faster during Modi’s tenure than earlier? And second, has high growth has translated into superior development outcomes?
The answer to the first question is a definitive no. There is very little evidence to suggest that Gujarat’s growth accelerated under Modi. Panagariya’s argument that growth in Gujarat has not been high throughout independent India’s history may well be true but it is also true that Gujarat’s growth trajectory has been higher than India’s at least in the post-liberalization era. In fact, Dholakia, whom Panagariya quotes to buttress his case, argued in a 2006 research paper that economic growth in Gujarat accelerated in the early 1990s itself after the Indian economy was liberalized. Gujarat’s performance was not spectacular in the 1980s but it picked up dramatically in the 1990s. It is not so difficult to divine why this happened. Economic liberalization pulled up growth across states, and the effect was greater in case of open economies such as Gujarat, which were more closely integrated with the global economy. The growth acceleration therefore happened a full decade before Modi took charge.
One of the problems in relying on trend growth rates of states is that the estimates are often subject to major changes depending on which years are chosen as the initial or final years. This is a problem with any time series but the problem is aggravated in the case of state domestic product (SDP) data, which witness sharp annual fluctuations. In a 2013 EPW paper, R. Nagaraj of the Indira Gandhi Institute of Development Research (IGIDR) and Shruti Pandey of the EPW Research Foundation (EPWRF) used two alternative methods to track the trajectories of two state economies that have been in the limelight: Gujarat and Bihar. The duo examined the changes in the rankings of the two states vis-à-vis others as well as the change in their respective shares (when expressed as a proportion of the national economy). Both Gujarat and Bihar’s rankings have remained fairly stable since the early 1990s. Their shares in the national pie also remain almost the same, the duo found.
Using the physical quality of life index (an average of literacy, infant mortality, and life expectancy rates), Nagaraj and Pandey showed that even on social development parameters, the relative rankings of the two states have not altered much over the past decade. “The findings reinforce earlier research that reported a divergence between Gujarat’s economic performance (which is almost at the top of the table) and its social development (which is close to the national average).”
Does all this mean that Modi did nothing at all over the past decade?
That would be stretching things a bit too far. First, he has at least ensured that Gujarat has continued its growth momentum except in the years following the global financial crisis of 2008.
Second, the Modi administration’s interventions in the power and farm sector have had a major impact on rural areas. Gujarat’s agricultural performance was superior to most other states even in the 1990s. In the 2000s too, Gujarat maintained its growth advantage. But what the averages actually hide is a remarkable turnaround of the resource-poor and drier regions within Gujarat (such as Saurashtra) during this period. Calling the superior growth performance of such semi-arid regions an ‘agrarian miracle’ in a 2009 EPW article, water policy expert Tushar Shah and economist and CACP chairman Ashok Gulati attributed the miracle to the state government’s aggressive agricultural development programme focusing on watershed management, improved extension services and rural infrastructure. The commissioning of the Sardar Sarovar Project (SSP) also aided farm growth by raising the irrigation cover.
Finally, the data does not reflect on qualitative aspects of changing governance. For instance, it can be very difficult to quantify improvements in things like law and order.
Be that as it may, the key takeaway from the Gujarat growth debate is that both Modi’s achievements (on growth) and failures (on all-round development) are perhaps exaggerated because of legacy effects.
Perhaps the most balanced take on the subject was that of Prof Y.K. Alagh, the chancellor of the Central University of Gujarat and a former Union minister. Alagh argued in a 2013 Mint opinion piece that while there was nothing new about Gujarat’s manufacturing prowess, maintaining a high agricultural growth rate over the past decade is indeed credit-worthy. Agreeing with most other scholars on the subject, Alagh said that Gujarat’s performance on social inclusion is weak despite its impressive growth performance.
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