No model state

In Gujarat, growth relies on indebtedness. And relegates development.

The Gujarat pattern of development has often been arraigned from the left because of its social deficits. Indeed, the state's social indicators do not match its economic performance. With 23 per cent of its citizens living below the poverty line in 2010, Gujarat does better than the Indian average — 29.8 per cent — but it reduced this proportion by less than 10 percentage points in five years. This poverty reduction rate has something to do with the wages of casual workers. According to the 68th round (2011-12) of the National Sample Survey Organisation (NSSO), Gujarat has among the lowest average daily wages for casual labour (other than in public works) in urban areas: Rs 144.52, when the national urban average is Rs 170.10. This kind of poverty goes with malnourishment. One of the social indicators where Gujarat shows the most dramatic lag is the hunger index — only about 43 per cent of children under ICDS in the state are the normal weight, according to an Indian Institute of Public Administration report.

These indicators are aggregates. Their break up is particularly enlightening. The urban/rural divide is pronounced in Gujarat. This is evident from NSSO data, including estimates of the average monthly per capita expenditures (MPCE). The urban MPCE was 49 per cent higher in towns and cities than in villages in 1993-94. Fourteen years later, the urban MPCE was 68 per cent higher. In 2011-12, the difference stabilised at 68.1 per cent. Certainly, the operationalisation of the Narmada dam has improved circumstances for some people living in rural areas, but only in part, because the canals have not reached the fields, especially in Saurashtra. This has happened not only because of bad planning, but also because the supply of water to cities (including industry) was prioritised. Second, cash crop farmers have been affected by the low level of agricultural prices. Cotton is a case in point: prices did not go up, whereas inputs became costly because of inflation. Third, prime agricultural land has been given to industry and the latter's activities have affected the natural environment. In Mahua, where the Nirma group had been given 3,000 hectares for mining activities and a cement factory, BJP MLA Kanubhai Kalsaria objected that the water tank the villagers depended on would be badly damaged. He was sidelined and subsequently, he resigned from the party to fight the government's policy.

Among the rural groups that suffered from the state's policy, Adivasis are a case in point. According to a World Bank report, between 1993-94 and 2004-05, the share of those who lived below the poverty line increased from 30.9 per cent to 33.1 per cent — 10 percentage points below the national average. The Modi government has been criticised for not allocating to Adivasis and Dalits funds in proportion to their population. While the former represent almost 18 per cent of the state population, they were allocated 11.01 per cent of the total outlay in 2007-08, 14.06 per cent in 2008-09, 13.14 per cent in 2010-11 and 16.48 per cent in 2011-12. Moreover, actual expenditures were even lower. The same was true of the Dalits, who represent 7.1 per cent of the state population and who were allotted 1.41 per cent of the total outlay in 2007-08, 3.93 per cent in 2008-09, 4.51 per cent in 2009-10, 3.65 per cent in 2010-11 and 3.20 per cent in 2011-12.

Generally speaking, Gujarat has not spent as much as other states on the social sector. In a report, the Reserve Bank of India showed that Gujarat spends less than several other states in this area. Take education — in 2010-11, Gujarat spent 15.9 per cent of its budget in education, when Bihar, Chhattisgarh, Haryana, Kerala, Maharashtra, Orissa, Rajasthan, Uttar Pradesh and West Bengal spent between 16 and 20.8 per cent. The national average was 16.6 per cent.

While these criticisms from the left are well known, those on the right, especially the liberals, could also have indicted the Modi government for its lack of financial discipline. The Gujarat growth pattern relies on indebtedness. The state's debt increased from Rs 45,301 crore in 2002 to Rs. 1,38,978 crore in 2013, not far behind the usual suspects, Uttar Pradesh (Rs 1,58,400 crore) and West Bengal (Rs 1,92,100). In terms of per capita indebtedness, the situation is even more worrying, given the size of the state: each Gujarati carries a debt of Rs 23,163 if the population is taken to be 60 million. In 2013-14, the government plans to raise fresh loans to the tune of Rs 26,009 crore. Of this amount, Rs 19,877 crore, that is 76 per cent, will be used to pay the principal and the interests of the existing debts. Gujarat would fall into the debt trap the day this figure reaches 100 per cent.

This fiscal crisis has been caused by several factors. First, many Gujaratis who are supposed to pay taxes don't, whether they are at the helm of companies or ordinary citizens. In 2010, the total amount from taxpayers in Ahmedabad, Surat, Baroda and Rajkot alone was Rs 7,555 crore. This was more than the annual tax collection of Bihar at the time.

Second, the exchequer has been directly affected by the business-friendly attitude of the Modi government. To woo investors, it has indulged in tax deductions and low interest rates, and sold land at throwaway prices. Take the example of the Nano factory. If K. Nag's biography of Modi is to be believed, the Gujarat government made unprecedented concessions to Tata Motors, including the sale of 1,100 acres of land at Rs 900 per square metre, when its market rate was around Rs 10,000 per square metre, a Rs 20 crore exemption on stamp duty levied on the sale of land, a 20-year deferral in the payment of value added tax on the sale, and loans amounting to Rs 9,570 crore against an investment of Rs 2,900 crore (330 per cent of the investment) at 0.1 per cent interest rate over 20 years. Most of the big companies investing in Gujarat — Adani, Essar, Reliance, Ford, Maruti, L&T and others — have been offered special conditions, especially under the SEZ framework.

Certainly, to attract investors is a good way to prepare for the future and heavy debts are not a problem if these investments generate tax revenue. But how productive these investments will be remains to be seen. Many of them are at least partly speculative. The SEZ Act allows the owners of large SEZs (above 1,000 hectares) to use 75 per cent of their superficy for non-industrial purposes (for the smaller ones, up to 50 per cent of an SEZ can be devoted to non-processing areas). SEZ owners have been quick to indulge in real estate speculation and to lease at market price land that they've bought at throwaway prices. Interestingly, the corporate sector is not covered by the RTI. We wonder why.

Those on the right, who overlook the fact that the Modi government is more business-friendly than market-friendly (surprisingly, for liberals), claim that the way Gujarat is attracting investors is good for development. But it is only good for growth. For development, investing in education would make much more sense.

The writer is senior research fellow at CERI-Sciences Po/CNRS, Paris, professor of Indian Politics and Sociology at King's India Institute, London, and non-resident scholar at the Carnegie Endowment for International Peace express@expressindia.com

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