The Gujarat economy continues to be an enigma. In 2014, many considered the state’s economic performance nothing short of miraculous and credited it to the magic touch of Narendra Modi, then the four-term chief minister of the state. This even led to the coinage of a new term: Modinomics. Three years later, as Gujarat heads towards state elections, what was expected to be an easy win for the Bharatiya Janata Party seems to be developing into a fight. Meanwhile, with an eye on the elections, the Centre and the state government have frantically announced a series of sops, including slashing rates of the Goods and Services Tax on select goods to please small traders, loan waivers for farmers, and benefits for government employees.
Where did the script go wrong?
Gujarat’s is a proverbial case of darkness under the lamps. Over the years, the high growth figures have covered up a dark underbelly of poverty, inequality and poor performance on human development indicators. Those who only looked at the growth numbers concluded that if the “Gujarat model” as it was termed was applied to the whole country, India would be unshackled from an outdated Nehruvian model of development, its growth potential unleashed to make it a world leader. Clearly, this optimistic version proved more persuasive in 2014 than the more sober accounts of the state of things in Gujarat that were based on publicly available official statistics.
The validity of the more sceptical take on the Gujarat model of development can be established by a look at the latest Handbook of Statistics on Indian States by the Reserve Bank of India, which puts together a lot of numbers in one place, will give weight to the scepticism over the Gujarat model of development.
An analysis of this RBI data shows that in terms of both level and growth rate of income, in absolute as well as in per-capita terms, Gujarat has been in the top five among India’s major states in terms of population since the early ’90s. With regard to infrastructure too Gujarat’s performance has been impressive on some indicators. For example, in terms of availability of power per capita, Gujarat ranks third in the country, behind Haryana and Punjab.
This is where the light shines. And what of the darkness beneath it? When it comes to social indicators, the shine of the Gujarat model appears to fade. If we rank states based on the percentage of people below the poverty line (with a higher rank signifying fewer people below the line) Gujarat’s comes 10th out of 20 major states. With regard to infant mortality rate (deaths of children aged under a year per 1,000 live births), Gujarat ranks 11th on a list of major states arranged from those with the lowest mortality rate to highest. On life expectancy, it ranks 10th and 7th for literacy.
In terms of sex ratio, ranking states from the most balanced to least, Gujarat is 15th out of the 20 states, with 919 women per 1,000 men. This is well below the national average of 943 females per 1,000 of males. If we compare states on the Human Development index, Gujarat ranks 10th.
What is much more striking and much less highlighted is that this picture has roughly stayed the same since the early ’90s, with one important exception: with regard to poverty, there has actually been a steep decline in Gujarat’s rank. In 1993, it ranked third in terms of the percentage of people above the poverty line (as mentioned before, a higher rank indicates a better performance). Over the the next eight years, its relative position steadily fell and in 2011, the latest year for which this information is available, the state ranked 10th. In comparison, Kerala improved its rank on this index from number 6 to number 1 over the same period.
At a glance: Gujarat’s performance on various economic and social indicators
The fact that despite three decades of high growth rates, Gujarat’s performance on social indicators has not improved even over time is damaging. After all, it can be argued that a state that has high growth rates over a long period will eventually lift other social indicators, as the benefits of high growth percolates through the economy, creating more jobs, raising tax revenue available for investment in public services. Therefore, if at a given point the income or growth rankings are not in sync with performance on social indicators are not in sync, one can argue that over time this could change.
Clearly Gujarat invested in certain aspects of infrastructure to generate sustained high growth rates for decades, which has pushed average income levels up. But the fact that its social indicators have not improved in the corresponding period and in some cases, have deteriorated in relative terms, shows that the benefits of growth has not reached the wider population.
This is consistent with the fact that inequality has been steadily rising in India ever since the dismantling of the earlier era of widespread government control in the early ’90s following liberalisation. A recent paper by Chancel and Piketty has shown that while the share of the total growth going to the very rich has steadily increased over the last few decades, that accruing to the bottom half, as well as of those in the middle, has decreased. Leaving aside measurement issues that one can quibble with, this pattern is confirmed by several other studies.
Economic hardship and rising inequality are tolerable if there is a prospect of rising incomes in the future. High growth rates can fuel this promise of acchhe din for some time. Eventually, though, the benefits of growth have to trickle down. When decades go by and that does not happen, voters turn restless. When someone comes riding a nationwide anti-incumbent wave promising to make a difference, like Modi did in 2014, expectations shoot up. Three years down, with the growth rates in the doldrums, self-inflicted wounds like the misguided demonetisation exercise, and messy implementation of GST making matters worse, the same set of forces threaten to unsettle the Modi government.
Maitreesh Ghatak is a Professor of Economics at the London School of Economics.