Deciphering The Gujarat Growth Paradigm

Is Gujarat India’s most industrially advanced and high growth state? If not what are the parameters that you should be using to assess the states performance?

In the light of several recent reports and debates on the issue, IndiaSpend’s Dhritiman Gupta studied growth and income patterns across six big states including Gujarat over the last 10 years to come away with some interesting and somewhat mixed findings.

The hard fact is that between 2004-05 and 2011-12, Gujarat grew at an average rate of 10.08%. This is better than the national rate of 8.28%. Equally, in comparison to states like Bihar, Maharasthra and Tamil Nadu, Gujarat lagged these states in this period.

Table 1

(Figures in %)

Source: Planning Commission Data

It can be argued that Bihar started off from a low base, but Tamil Nadu and Maharashtra are starting on a high base too. Except 2005-06 and 2007-08, Gujarat has lagged Bihar in all years. Maharashtra, despite being more affected by the recession (growth slipping to 3.38% in 2008-10) also managed to do better than Gujarat over the period.

Improving Growth Rates

The real story emerges when we look at the improvements in growth rates the states have made when we compare the periods 1994-2002 to 2004-12.

Over the period 1994-2002, Gujarat grew at an average rate of 6.45%. That figure improved to 10.08% for the period 2004-12; a rise of 3.63% in growth rates.

Bihar, on the other hand, was growing at an average rate of 4.94% over 1994-02 and improved to 11.42% over 2004-12; an increment of 6.48%. Tamil Nadu and Maharashtra improved their average growth rates by 4.73% and 5.78% respectively over the same period.

Good Industrial & Agricultural Growth

If we break up growth across industries and agriculture an interesting story emerges.

Over the period 2004-09, Gujarat’s domestic product in the industrial sector grew an average 12.65%, among the highest in the country, though behind Orissa and Chhattisgarh where industrial production grew by 17.53% and 13.03% respectively.

The surprise, however, lies in agriculture. Gujarat’s average agricultural growth rate over 2004-09, has been 7.46%, which is only behind Bihar where the growth rate was 8.14% for the same period.

Of course, it could be argued that the agricultural base in Gujarat is smaller and hence growth easier. But the fact that it has maintained a healthy average growth rate of over 7% in agriculture since 1994 is insightful.

Per-Capita Income Increasing

Now, if we look at Gujarat’s per-capita (per-person) income in 2010-11, the state ranks 8^th in the country at Rs 52,708, behind states like Goa, Haryana, Maharashtra and Delhi.

Table 2

Source: Planning Commission Data

And yet, even though Gujarat ranks 8^th, it has shown the highest improvement among these states since 2000-01. The per-capita income of the state has more than tripled since the turn of the century.

All the other states have shown nearly similar increments but none could touch Gujarat. Starting from a per-capita income of Rs 17,227 in 2000-01, Gujarat has than more than good to reach Rs 52,708 in 2010-11.

Rising per-capita incomes signals people oriented development only to the extent that poverty in declining. Growing incomes with rising inequality would imply that the poor are being left behind.

Poverty Reduction

This brings us to a somewhat natural corollary; Gujarat’s performance in poverty reduction. We will take big states with similar (below 40% BPL population) levels of poverty as Gujarat in 2004-05.

The states have been ranked from best to worst in poverty reduction

Table 3

(BPL- Below Poverty Line), Tendulkar Methodology used

Source: Planning Commission Data

Among the 7 states considered (the ones which had a BPL population of less than 40% in 2004-05), Gujarat ranked 5^th when it came to poverty reduction. In 2004-05, 31.6% of people of Gujarat lived below poverty line.

This came down to 23.0% in 2009-10; a reduction of 8.6%. The performance however lags Maharasthra and Tamil Nadu who managed to reduce their BPL population by 13.7% and 12.3% respectively. Even Rajasthan beat Gujarat by reducing its poverty rate by 9.6%.

Social Indicators

Besides looking at poverty reduction, the health of the state also emerges from other social indicators like life - expectancy, infant mortality rates, and literacy rates - indicators which are combined to give the Human Development Index.

Let’s have a look at a few of these indicators. We have taken some big states which are doing better than Gujarat on most of these indicators.

Table 4

(Refer to Table 5 below to get an idea of trends in life expectancy)

Source: Planning Commission Data 1, Planning Commission Data 2

If we consider literacy rates; Gujarat ranks 4^th amongst the 6 states taken with a rate of 79.31%. Only West Bengal and Karnataka lag Gujarat. Besides there are many other states like Delhi, Goa and even north eastern states like Mizoram which do better than Gujarat.

The literacy rates in Delhi and Goa are 86.34% and 87.40 % respectively and in Mizoram it is 91.58%. In fact if we take all 35 states and union territories into account Gujarat ranks 18^th when it comes to literacy rates.

If we take life expectancy at birth (2002-06), then Gujarat does the worst of the 6 states chosen, with a person expected to live 64.1 years at birth. The figure for Kerala is 74.0 years. In fact of the 15 states for which data is available, Gujarat ranks 9^th when it comes to life expectancy at birth.

The data used in this report suggests that Gujarat is batting steadily with some strong wins (steady agricultural growth, increase in per capita income) in some areas and some areas to catch up, like poverty reduction or life expectancy.

One reason IndiaSpend is stepping up focus on states is to help readers take future calls on India’s regional growth prospects. And understand the federal structural better, economically; while we learn more about it too.

Making an industrial investment or lifestyle selection of state or city should combine both economic and social parameters. And more importantly, the rate of change in these data points and the direction they are headed.

Table 5

Source: Planning Commission Data