One of my favourite columnists has written a piece on Gujarat as having the most economic freedom in India.

Swaminathan S Anklesaria Aiyar, along with Bibek Debroy and Laveesh Bhandari, put together the report which assesses the various states as they stood in 2013. That is the basis of Aiyar’s piece, which I want to discuss.

What is economic freedom? Aiyar explains that “data for Indian states is not available on many issues" so the study “limits itself to 20 indicators of the size and efficiency of state governments, their legal structure and property rights, and regulation of labour and business."

These 20 indicators will then give an idea of how well the state is governed, but we are cautioned that “economic freedom is not identical to good governance. But lack of economic freedom typically means poor governance—a jungle of rules and obfuscating bureaucrats that promote corruption, delay and harassment. This hits everybody from farmers and consumers to industrialists and transporters."

What these indicators arrive at, then, seems to be efficiency in the conduct of business.

But how much of this is an aspect of governance? This is important to Aiyar’s argument because he writes that neither Gujarat’s economic growth nor its social indicators are Modi’s principal election plank. It is on good governance that he is standing.

By the authors’ assessment, Gujarat has been number 1 for the last three years and has come to be the leader from being number 5 in 2005. The authors say this is “driven mainly by better legal and regulatory performance."

Let’s see how this works.

In the section ‘Legal structure and security of property rights’, which covers six of the 20 indicators, Gujarat is ranked number 9 and has fallen from its ranking of 4 in 2009 and 12 in 2005. This does not seem to hint at good governance, but let’s move on.

In the section ‘Size of government: Expenditures, taxes and enterprises’, which has seven indicators, Gujarat is number 2.

But it was number 2 also in 2005. It would be interesting to me to see where it would have stood 20 years ago.

It is in the third and last section ‘Regulation of labour and business’ that Gujarat finally comes first. But here again, it was first in 2005 also. What was it before Modi?

Lest I be seen as quibbling, let me accept: there are clear areas in which Modi is superb. In Aiyar’s words:

“Modi’s Jyotigram scheme provides 24/7 electricity for rural households, plus reliable power at fixed times for tubewells. This explains why Gujarat has India’s fastest agricultural growth (10%/year for a decade, say economists Gulati and Shah). Indian agriculture is crippled by regulations, but Gulati shows that Gujarat has the highest agricultural freedom among states. Modi charges farmers for power, and so all his three state power companies are profitable. By contrast, power companies in other states with free rural power have accumulated losses of almost 200,000 crore."

So: Well done Modi.

My fear is that the writers may have conflated certain cultural aspects of the states, for instance the ease in running business in a state with a very powerful mercantile tradition, with the efficiency of government.

Aiyar writes that “Gujarat is the best state in pendency of corruption cases, and in the proportion of non-violent crime." But I could have told him that without data. Gujarat is not a violent place. It has prohibition and its citizens have internalised a certain level of corruption. It shouldn’t be attributed to state efficiency or governance.

I could be wrong about this speculation, of course, and I am willing to accept that. But some of their own data shows that there is no clear way to show that Gujarat’s government is any different from those in other states on several parameters.

Aiyar writes: “Looking at children of class 3-5 who can do subtraction, Gujarat has declined from 22nd among 28 states in 2006 to 23rd in 2012." Without question, this is a failure of state-run schools, of governance in the most fundamental sense.

He says Gujarat “scores poorly in judicial vacancies and recovery of stolen property."

Nonetheless, Aiyar tries to arrive at his “good governance" hypothesis, saying:

“One businessman told me that in Tamil Nadu, it took six months and several visits (and payments) to ministries for industrial approval. But in Gujarat, the ministry concerned called him the day before his appointment, asking for details of his proposal. Next day, he found the bureaucracy had in advance prepared plans of possible locations for his project, and settled the matter on the spot. This was unthinkable elsewhere, and showed both efficiency and honesty. Corruption has not disappeared in Gujarat, but is muted."

This is of course anecdotal but here again I would say Aiyar’s outlook is right. Gujarat is keen to get business and has always been.

Aiyar says: “Critics accuse him of giving cheap land to favoured industrialists. But state and national governments the world over use such sops to attract industries. Unlike most politicians, Modi has clearly not enriched himself." This is also quite true, I accept.

“In sum, (our) and other studies show that Gujarat has good governance. It has social and communal flaws. But it is India’s top state in economic and agricultural freedom. That’s not hype," the writer says.

I agree with Aiyar. I just don’t know whether he has got the causes right.

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