The Gujarat model revisited

The debate around the Gujarat model of development is based on the following template. Both the level and the rate of change in the social indicators are immensely important. If the level of social indicators is low and the rate of growth is also negligible, the situation is the worst of all.

However, if the rate of growth is fast in a region, it holds the possibility of catching up with the developed regions.

Naturally one cannot afford to ignore growth, though there are examples to suggest evolved social indicators despite sluggish growth.

Such an outcome is possible either because of a proactive state creating awareness among public in a significant manner, or social movements being influential enough to outweigh economic non-performance. In the absence of all this the economist’s desperate argument in favour of economic changes as an agent of change in social indicators comes into play.

So, one is back to the issue of growth — not only growth but also the determinants of growth, some of which may have a direct impact on social indicators. Take the case of infrastructure, which contributes to growth and also enables the population to access better health and educational facilities.

In this context of these conundrums, the Gujarat model, with its emphasis on manufacturing, makes lot of sense. If industry can be the engine of growth at the all-India level there is no doubt pro-poor programmes will also get a boost.

This is not to deny the fact that the manufacturing sector has also become highly capital intensive over time and even the so-called labour intensive industries have witnessed a major decline in labour to value added ratio.

But expansion in the manufacturing sector will have better implications in terms of employment generation rather than just services led growth.

Despite a steady rise in the share of the services sector in total GDP, the spillover effect of the manufacturing sector’s performance on the rest of the economy is seen to be much greater than the other way around.

If a large part of the workforce has to be shifted from agriculture to non-agriculture, it is manufacturing which holds the key. So how the manufacturing sector can take the lead, and how the unorganised component within this sector can be made economically viable, are some of the challenges for inclusive growth.

The UPA government initiated the National Manufacturing Policy but a lot more needs to be done.

It did not falter on the growth front. There has been sustained, accelerated growth in the last 15 years or so, till the global crisis occurred. However, inflation and the charges of corruption and inaction were serious enough to cause its ouster in the recent election.

On top of that there was a major crisis related to leadership. But an unnoticed and huge error, apart from the stress on services over manufacturing, was the lopsided emphasis on doles instead of productivity.

The popular Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) could not create assets to make households or communities self-sufficient. Even the beneficiaries understood the limitations of these programmes, though research tends to suggest that they resulted in wage increase and reduced distress migration to urban areas.

At most they provided consumption support in a limited sense but the implementation was haphazard, as revealed by several Jan Sunwai events or public hearings. People revealed how towards the end of the financial year there was always a rush to settle accounts and public money was spent to “dig holes and fill them in”.

A significant change in perception this time round was that slums would no longer be the biggest vote-banks. The growing participation of the middle class was recognised; it became apparent that discourse around doles may not pay off.

The new agenda included provision of infrastructure, expansion in business, and modernisation of cities. These call for an accent on manufacturing – precisely the sector where Gujarat has excelled. Therefore, following the Gujarat model can make a difference to India.

The writer is a professor at the Institute of Economic Growth, New Delhi