People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


Vol. XXXVII

No. 52

December 29, 2013

 

Gujarat’s Economic Trajectory

Prabhat Patnaik 

 

TWO alternative perspectives on the appropriate trajectory of economic development, almost diametrically opposed to one another, are in contention in India at present. According to one, the growth of the gross domestic product must be given absolute priority, for which “incentives” of all kinds must be made available to domestic and foreign corporates, so that they feel inclined to make investments in the economy in question. Redistribution of incomes towards the poor and the working population, by coming in the way of growth, constitutes unwarranted “populism”: if such redistribution is eschewed and growth is pursued single-mindedly by wooing the corporates, then the poor themselves would be better off over time than they would be with such “populism”. It follows then that government support for, and promotion of, corporate interests is in the interests of the poor, indeed more in the interests of the poor than “populist” measures of income redistribution.

 

As against this, the other perspective suggests that the pursuit of growth by providing “incentives” to the corporates, will not improve the lot of the poor either through any automatic “trickle down” or through the eventual availability of larger fiscal resources to the government for expenditure on the poor (since such resources will always be required for providing “incentives” to the corporates). Hence waiting for poverty eradication to occur spontaneously as a consequence of growth amounts to waiting forever. The governments must therefore follow a redistributive agenda immediately. And if it is pursued, then growth, of a different kind, catering to the demands created through such redistribution, will occur which will be more “inclusive”, more sustainable and no less rapid.

 

The difference between these two perspectives is often labelled mistakenly as “growth versus redistribution” or as “a single-minded pursuit of growth versus a lackadaisical pursuit of growth”. The real difference however does not lie in these: it lies essentially in two alternative strategies of effecting growth, one emphasizing incentives to corporates; and the other eschewing such incentives and emphasizing instead the need for income redistribution as a means of promoting growth. Portraying this difference as a “growth versus redistribution” issue tends to hide the real difference, which relates to a “pro-corporate redistribution for effecting growth” versus a “pro-poor redistribution for effecting growth”. I shall therefore refer to these strategies as “pro-corporate” and “redistributive” growth strategies respectively (since the bald term “redistributive” in common parlance refers usually to “redistributive towards the poor”). 

 

While these two perspectives, which can also be seen alternatively as emphasizing the supply-side and the demand side respectively, have been much debated theoretically, the empirical debate has tended to pick up prototypes of each strategy and to compare them. And in this context, two particular states in India have been picked up, each of which is seen, not without reason, as a case-study of the application of one of the strategies: Gujarat has been picked up as an illustration of the application of the first, “pro-corporate” strategy, while Kerala has been picked up as an example of the second.

 

The fact that Gujarat does represent the pro-corporate strategy is underscored  by the strong corporate backing that is being provided at present to the Gujarat chief minister in his bid to emerge as the new prime minister, including the credence given by the corporate media to his Party’s claim that he is the man for “development”. And neo-liberal economists who are necessarily committed to a pro-corporate strategy are working overtime to show that Gujarat not only leads in growth but is even improving its social indicators with rapidity, thus vindicating the claims made on behalf of the first strategy. The projection of Gujarat as a “success story of development”, the projection of its chief minister as a “man of development”, and hence the projection, implicitly, of a pro-corporate strategy, of the absolute necessity for wooing corporates for successful development, have become quite loud of late. And this has also accompanied a debunking by these advocates of the “Gujarat” model, of the achievements of Kerala.

 

DISREGARD FOR

EVIDENCE

What is surprising about this campaign however is its disregard for evidence. In fact, the evidence shows not only that Gujarat lags woefully behind Kerala and many other states in terms of social indicators, and even in terms of the rate of improvement of social indicators, but also that the growth rate of its real per capita gross state domestic product has not been significantly different from Kerala’s, and has been less than that of some other, larger, states.

 

Of course gross state domestic product data are both weak for each state and not easily comparable across states. But since an issue has been made of it by neo-liberal economists, let us use whatever data we have. Table 1 gives the average annual compound growth rates of per capita real GSDP at factor cost (at 2004-5 prices) for the seven-year period 2004-5 to 2011-12 for Gujarat, Kerala, and a few other states (chosen entirely for illustrative purposes). The choice of 2004-5 as the initial year is dictated both by the availability of a series with base prices of that date and by the fact that the recent growth acceleration of the Indian economy began around then; and the choice of 2011-12 as the end point is because Gujarat data in the cited source are available only until then.

 

Table 1: Growth Rates of  Per Capita GSDP (at 2004-5 prices): 2004-5 to 2011-12

Bihar:                              15.3 percent

Tamilnadu:                      8.65 percent

Gujarat:                           8.19 percent

Kerala :                           7.91 percent

Andhra Pradesh:              7.6 percent

All India:                         6.65 percent

Source: The GSDP data are from the Planning Commission. The population of each state is assumed to grow at the same rate as the observed annual compound growth rate for the period between the two census years 2001 and 2011.

 

While the difference between Gujarat’s and Kerala’s GSDP growth rates is marginal, notwithstanding the fact that Kerala, unlike Gujarat, maintains extraordinarily high levels of public social expenditure to keep up its welfare orientation, the case of Tamilnadu is instructive. Tamilnadu of late has been pursuing a redistributive, social expenditure-augmenting strategy that has already yielded significant results in terms of closing its gap in social indicators vis-ŕ-vis Kerala. The fact that it has nonetheless exceeded Gujarat’s GSDP growth rate over this period, appears to vindicate the redistributive growth strategy and goes against the arguments of the neo-liberal economists. In short, the claim that Gujarat, because it has eschewed so-called “populism”, and instead devoted resources towards making the state hospitable for domestic and foreign corporates, has somehow become uniquely successful in achieving GSDP growth, has no basis.

 

                                                          II

Even during this period however Gujarat’s rank among states in terms of its Human Development Index has slipped (the data presented in this paragraph and the next are taken from Hirway (2012)). In 1981, Gujarat had the fourth rank among states; it slipped to seventh in 2001 and to eighth in 2008. In terms of the increase in the value of Human Development Index between 2000 and 2008, Gujarat was eighteenth among all states! Since the HDI gives a significant weight to per capita income itself, which was growing in Gujarat at a faster rate than in most other states and in India as a whole (though not much faster than in Kerala and certainly slower than in Tamilnadu), it follows that in terms of the other components of the Human Development Index, Gujarat must have done abysmally.

 

Gujarat ranked fourth in literacy in 1981, slipped to fifth in 2001 and sixth in 2011. In terms of decadal rate of growth of literacy between 1991 and 2011, it ranked sixteenth among the 20 major states of the country. Likewise, its rank in terms of life expectancy at birth was ninth among the major states in 1992 ; it slipped to tenth in 2006. And in terms of the decline in the Infant Mortality Rate over the period 1991-2009, the state ranked tenth among the twenty major states.

 

But changes in Gujarat’s rank among the states, while of significance in the context of claims of neo-liberal economists, need not per se signify much. They result only from the relative rates of improvement among states, and when states are close together, not much, it may be argued, can be read into them; besides, as long as improvement occurs, whatever its rate, it is a matter of satisfaction.

 

There is little scope, alas, for consoling oneself in this manner, because in terms of satisfying the most elemental human need of its people, namely hunger, which does not figure in the HDI, Gujarat has actually retrogressed. The proportion of rural population not accessing 2200 calories per person per day, which is the official benchmark for the definition of rural poverty in India (It was originally fixed at 2400 calories per person per day, but for some reason was later scaled down to 2200 calories) was 71.5 percent in Gujarat in 1993-4 according to the National Sample Survey data. In 2009-10 it stood at 76 percent. Likewise the proportion of the urban population of Gujarat not accessing 2100 calories per person per day, which is the benchmark for the official definition of urban poverty in India, was 57 percent in 1993-4; it went up to 66 percent in 2009-10. There has been in other words an absolute increase in the extent of calorie deficiency (The figures in this paragraph are taken from Utsa Patnaik (2007), (2010) and (2013).)

 

This is also borne out by the data on the per capita intake of calories. Table 2 provides these data and also shows that the decline in per capita calorie intake between the two end-points has been accompanied a decline in per capita protein intake.

 

Table 2: Per Capita Daily Calorie and Protein Intake in Gujarat

 

Calories

Protein

 

Rural

Urban

Rural

Urban

1983

2113

2000

 

 

1993-4         

1994

2027

55.6

54.9

2004-5

1923

1991

53.3

57.3

2009-10

1982

1983

54.0

53.3

Source:  National Sample Survey

 

What is striking about these figures is not only the decline between the end-points, but also the fact that unlike in the rest of India the calorie intake in rural areas of Gujarat is lower than in its urban areas after 1983. It is a well-known fact that since rural labour typically requires greater energy expenditure the calorie intake needs to be greater in rural areas, and this is invariably the pattern actually observed. The fact that Gujarat constitutes an exception to this established pattern suggests that purchasing power in rural Gujarat, which has a substantial tribal population, is simply too meager to permit a higher intake of calories.

 

INADEQUACY OF

PURCHASING POWER

The decline in calorie intake over time is often attributed to changing tastes or to dietary diversification. But all over the world, taking all kinds of consumption into account (including of processed foods), the total per capita calorie intake rises with per capita income, both cross-sectionally and over time. If the per capita intake has been coming down, then since the rich would not be reducing their calorie intake (even if they diversified their diets this is unlikely to happen), it follows that the calorie intake of the poor must be getting squeezed even harder than these figures suggest, and the only reason for it would be the inadequacy of purchasing power in their hands relative to food prices. The conclusion is inescapable therefore that notwithstanding Gujarat’s performance in terms of the growth of its GSDP, there has been an increase in the relative magnitude of absolute hunger in the state; and this has been because of the inadequacy of purchasing power in the hands of the working people.

 

                                                          III

This fact should come as no surprise. GSDP growth can make an impact on the conditions of the people in either one or both of two possible ways. One, if it uses up labour reserves, in which case those who are underemployed get fuller  employment and therefore increase their earnings, and those who were not underemployed but were employed to start with, get higher wages on account of the tightness of the labour market. Two, GSDP growth can make more fiscal resources available for transfers to the poor which can improve the conditions of the people.

This second avenue however gets foreclosed because the argument for enlarging GSDP by giving concessions to corporate interests does not have any determinate temporal limits to it. If the proponents of such a pro-corporate strategy were to set down some specific limit, such that until that limit is reached GSDP growth is to be encouraged by giving incentives to the rich, but once it is reached redistribution towards the poor is to commence, then there would be some scope left for redistribution towards the poor. But since no such break, no such threshold, is ever prescribed, no shift in strategy in the form of a change in the direction of income distribution is ever contemplated. This second avenue therefore is a non-starter.

Just to give one example, the Gujarat government allegedly offered the Tatas a sum of Rs 31,000 crores under various kinds of subsidies to induce them to shift their Nano plant to Gujarat. This is an enormous draft on the Gujarat government’s budget, which correspondingly restricts the scope for pro-poor social sector expenditure. And since under the logic of this strategy, such blandishments to corporate interests are supposed to be always worthwhile, the paucity of resources for transfers to the poor becomes a continuing feature of this strategy.

Now, as regards the first avenue, namely the using up of labour reserves, whether it happens or not depends on the rates of growth of labour demand and labour supply. If the net rate of growth of labour demand, after taking into account the displacement of the working population owing to the unviability of certain activities (for instance petty producers getting displaced by competition, or by encroachment through land appropriation, from the corporate sector), exceeds the rate of growth of labour supply, consisting of the natural growth of the work-force owing to population increase, and the immigration into the region, then the existing labour reserves will get progressively used up; in the opposite case they will keep increasing in absolute and relative terms. The problem with the “pro-corporate” growth strategy however is that its capacity to generate net labour demand is exceedingly limited, well below the rate of growth of labour supply. And this has been the case in Gujarat as well.

 

This can be clearly established as follows. The National Sample Survey uses a number of different concepts of employment, an important one of which is “usual principal status”. This is computed by taking note of what people themselves declare to be their principal activity during the reference period on a usual basis, and refers therefore to a state of being employed in a relatively stable sense. Now, it stands to reason that in a situation of tightness in the labour market, the proportion of “usual principal status” employment to the total employment, and hence to the total labour supply, should increase, since employers would not risk being without enough workers and would offer employment on a more stable basis; and the opposite should happen when the labour market is slackening. Hence an indication of whether the relative size of the labour reserves to the total labour supply is decreasing or increasing may be obtained by comparing the rate of growth of “usual principal status” employment with that of labour supply.

 

Taking India as a whole, between 2004-5 and 2009-10, the rate of growth of “usual principal status” employment for those in the 15-59 age group was a meagre 0.88 percent per annum according to the National Sample Survey (Chandrasekhar and Ghosh 2011), even though the rate of growth of GDP at factor cost (at 2004-5 prices) was 8.73 percent per annum. Since Gujarat pursued the same neo-liberal “pro-corporate” growth strategy that was being generally pursued in the country as a whole, but in a far more concentrated form, the rate of growth of employment in Gujarat relative to that of its output could not have been any larger than in the country as a whole. Since Gujarat had an output growth rate of 10.44 percent over this quinquennium, its “usual principal status” employment in the 15-59 age group could not have grown faster than at around 1.1 percent.

 

This rate which is not likely to have been exceeded throughout Gujarat’s recent growth phase, is far short of the rate of growth of the population of Gujarat during 2001-11, and hence of the natural rate of growth of the work-force, even if we do not take into account the substantial influx of migrant labour into the state. Far from getting exhausted, labour reserves in Gujarat are likely to have increased as a proportion of the local work-force. The influx of migrant labour into the state in other words was not because Gujarat was experiencing labour scarcity but because it was more convenient for employers to use such labour, which also happens to be more docile and more prone to regimentation, than to use local labour.

 

As a matter of fact during this period agriculture and industry have registered negative growth in employment (Rani and Kalaiyarasan 2013). Whatever employment growth has occurred has been in the service sector and taken the form of self-employment and causal employment, indicative of an increase in “informalisation”, and a decline in the quality of employment, suggestive of a slackening of the labour market and an increase in the relative size of the labour reserves. Not surprisingly this has had its impact on the wage rate as well: in 2007-8 among regular workers, Gujarat’s wage rate was lower than the average all-India level for every category of workers, rural male, rural female, urban male and urban female. Its rank among the 20 major states for each of these categories was 17, 9, 18 and 13 respectively (Hirway and Shah, 2011).

 

Time-series data for casual workers show a decline in its rank, in terms of the level of the wage rate among the 20 major states, between 1999-2000 and 2007-8, from 9 to 14 in the case rural male workers and also from 9 to 14 in the case of urban female workers. In the case of rural female workers’ wages and those of urban males, its rank remains unchanged at 8 between these two dates.

 

The nominal daily wage rate of rural males, the largest of these categories, when deflated by the official consumer price index of rural labourers, shows an annual compound rate of growth of real wages in Gujarat of only 2 percent between these dates, while the rate for India as a whole was 3.2 percent. Considering the fact that these figures relate not to earnings (which also depend upon the number of days on which a person was employed) but only to the wage rates, and also the fact that the official price index notoriously underestimates the increase in the cost of living (as became evident recently from the Planning Commission’s ludicrous poverty lines), by not taking into the account the rise in healthcare and other costs owing to the de facto privatization of services (Patnaik 2013), the conclusion that Gujarat’s high growth has been accompanied by an increase in the magnitude of hunger, is not at all surprising.

 

The redistributive growth trajectory by contrast, precisely because it puts directly or indirectly more purchasing power in the hands of the working people, generates demand for a range of simple goods whose production is both employment intensive, and not particularly subject to labour saving technical progress. It therefore generates greater employment growth and thereby sets up a virtuous cycle that can lead to an exhaustion of labour reserves, which constitutes a necessary condition for poverty removal. But since it moves away from neo-liberalism, it entails a degree of delinking from the global economy.

 

The “pro-corporate” growth strategy pursued in the neo-liberal era in the country has not only exacerbated income and wealth inequalities, but has intensified the magnitude of hunger even in the midst of high rates of GDP growth. Gujarat provides a particularly strong illustration of this phenomenon. At a time when the crying need is for a change of growth strategy towards a redistributive one from the “pro-corporate” one we have been pursuing of late, the projection of the Gujarat chief minister as the next prime minister and of the “Gujarat model”, which represents a virulent form of neo-liberalism, as worthy of emulation in India as a whole, is a corporate ploy to control the polity by “exploiting” the chief minister’s Hindutva “appeal”! This insidious attempt must be defeated.

 

                                                                  

REFERENCES

Chandrasekhar C.P. and Ghosh J. (2011) “The Latest Employment Trends from the NSS”, The Hindu Business Line, July 12.

Hirway I. and Shah N. (2011) “Labour and Employment Under Globalization: The Case of Gujarat”, Economic and Political Weekly, May 28.

Hirway I. (2012) “Professor Jagdish Bhagwati on the Gujarat Economy”, February 6, www.macroscan.org

Patnaik P. (2013) “A Critique of the Welfare Theoretic Basis of the Measurement of Poverty”, Economic and Political Weekly, April 6.

Patnaik U. (2007) “Neoliberalism and Rural Poverty in India”, Economic and Political Weekly, July 28.

Patnaik U. (2010) “Trends in Urban Poverty Under Economic Reforms 1993-4 to 2004-5” Economic and Political Weekly, January 23.

Patnaik U. (2013) “Poverty Trends in India 2004-5 to 2009-10” Economic and Political Weekly, October 5.

Rani R. and Kalaiyarasan A. (2013) “Galloping Growth Stagnant Employment: Mapping Regional and Social Differences” in Atul Sood ed. Poverty Amidst Prosperity: Essays on the Trajectory of Development in Gujarat, Aakar Books, Delhi.