The Gujarat Model: From Rags to Riches?

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The Gujarat Model has become a tremendous success story that built the economy of Gujarat from the shattered state it was in after the devastating 2001 earthquakes and 2002 riots to one of the most developed and fasted growing economies among all the states in India. 

Overview

The Gujarat Model refers to the period from 2002 - 20012, during which, under the leadership of the then Chief Minister of the State, Narendra Modi, Gujarat experienced a boost in economic growth driven by the neoliberal policies implemented by the government.

The growth strategy adopted by the government comprised of three major components:

  1. A boost in infrastructure development in order to facilitate increased inflow of corporate investment.
  2. An improvement in governance to address the needs of corporate units.
  3. A record increase in incentives and subsidies on corporate investment to attract investment.
During the period of the Gujarat Model, the state has definitely shown impressive progress in various fields. However, as a result of the neoliberal status of the policies implemented under the model, there has been a disparity between economic and social growth and development in the state. This has been used by various economists and influential politicians to criticize the model. In order to ascertain if the Gujarat Model was successful or not it is imperative to do a full analysis of the achievements of the model in terms of both economic and social measures.

Economic Achievements

Agriculture

  • The state of Gujarat, situated in the western part of India, despite being dominated by semi-arid climate and erratic and unevenly distributed rainfall, has shown an average annual growth of over 9% in agricultural GDP since 2001-02 to 2013-14, which is one of the highest among all states.
Average annual growth in agricultural GDP, 2001–02 to 2013–14.
Source National accounts statistics, MOSPI
  • The government has implemented various measures that has allowed the state to achieve such impressive figures.
    • The government amended the APMC Act to enable farmers to directly sell their produce to wholesalers, exporters, industries and large trading companies. This encouraged contract farming in the state and also reduced dependence on mandis thus reducing farmers exploitation by middlemen as well as reducing mandi charges. 
    • In order to improve productivity, the state government enabled knowledge-sharing between various stakeholders in agriculture on a regular basis through annual outreach programmes.
    • The issuing of Soil Health Cards allowed farmers to improve soil quality and management and allowed introduction of technology into the mix.
    • Certification of seeds in order to avoid exploitation of farmers.
    • Major investment into irrigation infrastructure development projects. This is visible in the graph below.
Gross irrigated area as a percentage of gross cropped area.
Source Directorate of economics and statistics

Industry

The main focus of the Gujarat Model was on industrial development. Following this it is natural to expect a fast paced growth in the industrial sector. The share of the manufacturing sector in Gujarat's economy rose from 22% in 1993 to 28% in 2013, while in the same period it rose from 15% to 16% at an all-India level. 
  • As seen in the graph below, the Net State Value Added by Manufacturing sector (current prices) has shown impressive sustained growth from 2004 to 2021.
Net State Value Added by Economic Activity - Manufacturing (Current Prices)
Source: RBI handbook of statistics on Indian states
  • Following measures were implemented by the government in order to boost the industrial sector in the state:
    • Emphasis was laid on development of Small and Medium Scale Enterprises (SMEs) through various policy initiatives like offering interest subsidies, venture capital assistance and quality verification.
    • Focus also given to development of emerging sectors (nano-technology, biotechnology, non-conventional energy sources, etc).
    • Rapid industrialisation promoted by focusing on 4 key areas:
      • Faster approval process.
      • Assistance in land acquisition.
      • Development of Special Economic Zones.
      • Development of proper infrastructure.

Financial Status

  • The following three indicators provide a good representation of the financial status of the state:
    • Debt to GSDP Ratio: The debt to GSDP ratio gives a broad idea of the financial status as it gives a clearly shows the debt burden of the state. According to the 15th finance commission, the Debt to GSDP ratio should remain below 34%. Gujarat happens to be among one of the best states in this regard with a ratio of 19%.
    • Interest Payments to Revenue Receipts: Interest payments to revenue receipts gives a clear image of the interest payment burden by showing how much of the revenue receipts are being spent on interest payments. Since interest payments is a non productive expenditure, the lower it is the better. In this regards, Gujarat's performance is moderate with the interest burden standing at 14.2%, as compared to the recommended 10%. To get a better idea some of the worst performing states in this regard are Kerala at 18.8%, Tamil Nadu at 21%, West Bengal 20.8% and Punjab at 21.3%.
    • Revenue Deficit: It indicates the difference between the revenue receipts and revenue expenditures of a state. Gujarat has maintained its revenue deficit between 0% to 2% since 2012.
  • As is clearly visible the financial status of the state can be considered among one of the best of any state within the nation.

Other Economic Indicators

  • Power generation in the state has increased at 10% CAGR between 2000 to 2013 as compared to the national average of 6%.
  • Gujarat has successfully diversified its power generation and is now focusing on alternative sources instead of traditional sources.
  • The government has laid emphasis on physical infrastructure development. As a result, the state boasts the highest density of roads in the country, with appx. 92% of them being paved (compared to the national average of 70% as of March 2020).
  • In addition ports have also been developed to utilize the coastline of the state.
  • Gujarat has turned around numerous PSU's from loss making entities to profit generating entities. As a result the state is ranked first in terms of net profitability of State Level Public Enterprises.

Social Indicators

  • Gujarat has turned around its education system and boasts 100% enrollment in every locality. At the same time the dropout rates have drastically fallen from 20.5% in 2001-02 to 2.09% in 2010-11. Literacy rate has risen from 69.14% in 2001 to 78.03% during 2011(as per RBI Handbook of Statistics on Indian States).
  •  Gujarat has overhauled its water delivery system and has become the first state to have a water grid. The share of households with access to safe drinking water across Gujarat has risen from 84% in 2001 to more than 90% in 2011.
  • Poverty rate has fallen from 31.8% in 2004-05 to 16.6% in 2011-12 (as per RBI Handbook of Statistics on Indian States).
  • Life expectancy has risen from 65.7 years during 2001-05 to 69.1 during 2011-15 (as per RBI Handbook of Statistics on Indian States).

Conclusion

After analysing the economic and social indicators it is safe to say that the Gujarat Model has definitely been successful. Although its achievements in social terms does not match up to those in some other states,  it has definitely shown impressive and unmatched economic results. As we know to gain in one aspect, some sacrifices have to be made in other areas. Thus, although the Gujarat model was not able to achieve much in social terms, it was definitely a success when considering all of its achievements. 

The following video does a good job of explaining the Gujarat Model:



Location: India

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