In Gujarat public funds are committed to supporting private investment. This does not benefit the poor
Amidst the clamour of India’s colourful 2014 general election, a public debate of great import for India’s future is underway. Leading political candidates debate which development model is best suited for a country of vast economic potential and embedded historical impoverishment.
Most opinion polls rate Narendra Modi as the front-runner in the 2014 general election. In his energetic campaign, Modi downplays his earlier hostile discourse about the country’s religious minorities in favour of one which promises development on the model of Gujarat. His promise is that all of India would benefit from the verve and pace of economic growth derived from high private investment which his leadership accomplished in Gujarat.
This claim raises many pertinent questions. One is whether Gujarat under Modi indeed outpaced other states in economic growth and private investment. The second is the terms on which this private investment is encouraged and whether this indeed was in the public good. Finally, is there evidence that people of economic and social disadvantage have benefited significantly from this economic growth?
On the first question, Gujarat has indeed enjoyed high levels of economic growth in the years of Modi’s leadership. But growth rates were also high in the state for two decades prior, suggesting that Modi’s policies were not decisively responsible for this growth performance. It is also pertinent that growth rates were higher in states such as Maharashtra and Tamil Nadu. Gujarat’s performance as the most attractive destination for private investment is also overstated. Its share in foreign direct investment in 2102-13 was 2.38%, placing it at a distant sixth position among states. By contrast, Maharashtra’s share was just under 40%. Economist Atul Sood also reminds us that of the total agreements signed under successive high-profile investor summits in Gujarat, the proportion of projects actually realized fell precipitously from 73% in 2003 to 13% in 2011.
Even more pertinent are the terms on which Gujarat attracts private investment. Its gold standard reputation as an investor-friendly government derives from the alacrity with which it provided land for Tata’s small car factory, contrasted with long futile years of bitter public struggle in West Bengal. A right to information application revealed that the Tata investment was ₹ 2,900 crore, and the state government awarded it a loan of ₹ 9,570 crore at 0.1% rate of interest, repayable on a monthly basis after 20 years. In addition, it received land at much cheaper than market, and the state paid stamp duty, registration charges and electricity. It has been calculated that the total subsidy element of the cheap car is half its total market price.
This is the basic template of the policies of Modi’s government for other large industrial houses as well. Economists such as Indira Hirway question whether this is good governance or crony capitalism. It turns on its head welfare principles of taxing the rich to provide a better life for the poor: the Gujarat model is of taxing the poor to subsidize the super-rich. Sood also worries about the implications of completely handing over both investment and decision-making regarding all new infrastructure projects—ports, highways, rail—to profit-led large industry, and that Gujarat now has among the worst records of labour unrest among states in the country.
The other side of the same coin of massive state expenditure for unprecedented incentives to large businesses is markedly declining investments in the social sector. In 2011-12, Gujarat ranked 17th among Indian states in the proportion of development expenditure in total public expenditure. Only 1.09% of public expenditure in Gujarat was on education and health, well behind states such as Rajasthan (3.09%). Shipra Nigam points to the inevitable consequences of this neglect: between 1999-2000 and 2007-08, fewer children between six and 14 years of age attended school in Gujarat than the national average. Even more worrying, the proportion of girls, scheduled castes and tribes, Muslims and other minorities who attended school was much lower than national averages. Gujarat is again below the national average and also compares unfavourably with other high growth states such as Tamil Nadu, Haryana, and Maharashtra in infant mortality, under-five mortality and mortality rates for women. No wonder that in the India Human Development Report 2011, Gujarat’s ranking was a lowly 11th in 2007-08.
Gujarat’s hunger story is even more damning. A 2012 National Nutrition Monitoring Bureau (NNMB) survey shows 53.7% children under five in Gujarat are stunted (low height for age). Stunting is an indicator of chronic malnutrition mainly caused by lack of access to nutritious food and repeated illness. About 43% of adult men and women have a low body mass index. Time trends from both the National Nutrition Monitoring Bureau and National Sample Survey data show the average calorie consumption and cereal consumption is also falling. There is also a decline in consumption of other nutrients such as proteins, calcium and iron. While many states have been improving their public distribution system (PDS) in the past five years, Gujarat is one of the worst-performing states on two aspects of the PDS: it has a low and falling per capita PDS consumption, and among the highest rates of foodgrain diversion. Over half of those in the poorest quintile in Gujarat report that they do not get any subsidized grain, nearly ten percentage points higher than the national average, according to the 2009-10 NSS. Below the poverty line lists have not been updated since 1998, which pegged the poverty line at ₹ 11 a day.
Below and bluster and hyperbole of political claims, the choice before the country is stark. Can markets alone deliver a better life for people of disadvantage, or must caring states play a more active role? Will ordinary people, and especially the millions who live in poverty, indeed benefit from a model of development in which huge public funds are committed to supporting private investment, to the neglect of investments in education, healthcare, nutrition and infrastructure?
Harsh Mander is a former member of the National Advisory Council.