Column: Gujarats inclusive growth

Written by Surjit S Bhalla | Updated: Apr 12 2014, 16:01pm hrs
Both the opinion polls, and the bookies, suggest that Narendra Modi will be the next prime minister of India. There is a constant, but healthy, debate in the media about the likely pros and cons of a Modi administration. For each assertion made by the BJP, there is a counter-view presented. Some of this is quite transparently facilefor example comparing item-for-item UPAs 10-year record with the NDAs 5-year record (1999-2004). There are several reasons this comparison borders on the ridiculousthe most important being that the Indian voter has already voted for the good performance of UPA-1. This she did in 2009 when even the Congress was surprised by its victory. The proper comparison is obviously 2009-14 with the NDAand when this comparison is made well, that is what the voters are voting for or against, we will know their evaluation on May 16.

Another important objection to Modi comes with the refrain that the dream, the vision that Modi is selling is a nightmare for the poor, the minorities, and the disadvantaged. The accusation is made that the Modi growth model is really for the rich and the super-rich, i.e., the

Adanis and the Ambanis of India. As debates in India rarely centre on evidence, the allegations fly thick and fast. Agricultural growth in Gujarat, far from being high, was actually negativeor so proclaimed the Aam Aadmi Partys Arvind Kejriwal. When sanity returns, the argument changesgrowth has always been high in Gujarat because the Gujaratis are industrious and hard-working. The real problem, the critics contend, is that growth in Modis Gujarat has not been inclusive. Now, inclusion, like beauty, is in the eyes of the beholder, particularly if the person pontificating is of the secular, left-wing varietyhere it is automatically assumed that if one is secular, then one is guaranteed pro-inclusion. Saying so makes it so.

This debate is very important. If Modi is the next PM, we need to directly examine his contribution to both the successes and failures of the Gujarat model. Towards this end, I will

present results pertaining to growth indicators (in the accompanying table) and socio-economic indicators (in my next column). The method followed is straightforward. Narendra Modi became the Chief Minister of Gujarat in 2001how did Gujarat compare with other similar states in India then But how does one define similar One approach is, and the one adopted here, is to look at states that had a similar per capita income in 2001. Thus, data are presented for Gujarat, all India, and the average of seven other states that were close to (20%) Gujarats 2001 per capita income level. These seven states are Andhra Pradesh, Himachal Pradesh, Karnataka, Kerala, Rajasthan, Tamil Nadu and West Bengal.

Data are examined for various indicators (subject to data availability) for pre-Modi Gujarat (years between 1992 and 2001) and Modi Gujarat (2002 to the latest year for which data are available, 2011/12). These data indicate that the people of India might just possibly be voting for Modi because they are impressed with Gujarats growth performance. No matter what the growth indicator, Modi and Gujarat come out trumps. (This is the conclusion for only indicators of growthsocio-economic indicators do not present this overwhelmingly consistent story). Annual agricultural growth accelerated across India and in the Seven Similar States (SSS), agricultural growth accelerated by 1% per annum (ppa) to 3.8%; in Gujarat, the acceleration was more than three times as much. Some have argued that this was entirely the result of Bt cotton. Which raises the interesting questionwhy did other states not adopt Bt cotton Manufacturing in Gujarat accelerated by 5.6 ppa compared to an acceleration of 2.9 ppa for the SSS; perhaps, this is the Adani and Ambani effect that Modis detractors emphasise. But 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 Modi10.7% per year vs 7.7% before.

A consistent story that emerges about the Gujarat growth model is that Modi/Gujarat did deliver extra growth. But did this extra growth benefit all sections of society rather than just the privileged few To answer this question, household-level NSS data on wages and unemployment for the large sample years 1983 to 2011/12 are used. Wage and unemployment data are presented for the disadvantaged group (comprising of Muslims, SC & ST) and the rest (not disadvantaged group). In the Modi period, wages of the rich (non-disadvantaged) group increased at an annual rate of 2.2% per annum compared to a higher 3.5% per annum rate for the poor. In the comparator states, the difference was only 0.4 percentage points higher for the poor. At the all-India level, the poor had faster growth of only 0.2 ppa.

The critics of UPA have emphasised the jobless nature of growth. This aspect is brought out by the parallel data on unemployment. And, these data are striking. By an overwhelming margin, Gujarat has had, and continues to have, the lowest unemployment rate in the country. In both the pre-Modi and Modi periods, unemployment rate in Gujarat averaged 1.5% of the working population; the national average increased from 2.7-2.9%; in the 2001-11 period, only Gujarat shows a decline in the unemployment rate of the poor disadvantaged group (from 1.8-1.6%) while the SSS show a 0.2 percentage point increase, and for all India, there is a sharp 0.5 ppt increase.

This result is not contingent on data source, or selection of time-period. No matter how the data are sliced, the overwhelming conclusion is that Gujarat has witnessed enviable economic growth under Modi. Are the opinion polls reflecting this simple fact

The author is chairman, Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company. Twitter: @surjitbhalla