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How Modi-nomics was forged in one of India s most business-friendly states
Jan 10th 2015 | AHMEDABAD
BILLBOARD images of Narendra Modi loom over visitors to Ahmedabad, the main
city of Gujarat, at almost every turn. The big-brother omnipresence of India s
prime minister is part of the build-up to a big trade fair held in neighbouring
Gandhinagar, a showcase for the business-friendly state initiated in 2003 by Mr
Modi when he was its chief minister. The 2015 Vibrant Gujarat summit, the
seventh such event, will run for three days from January 11th, when Mr Modi
will make a speaking appearance. It will be a vast affair with visitors from
125 countries. A fleet of golf buggies, with plastic wrap still on the seats,
stands ready to ferry visiting dignitaries, including John Kerry, America s
secretary of state, between the hangar-sized exhibition halls.
Gujarat is richer, enjoys faster GDP growth and a greater intensity of jobs and
industry than India as a whole. Mr Modi s reputation for clean government and
economic competence rests on his record here. When Indians voted for him in
great numbers last May, it was in large part because they wanted the country
run as Gujarat is. His impact on the state is nevertheless contested. It is
helpful, say Mr Modi s critics, that he built a platform for a career in
national politics in a state that already had deep roots in commerce (the
Mafatlal textile plant, an hour s drive south of Ahmedabad, for instance,
recently celebrated its centenary). What is clearer is that Mr Modi s time in
Gujarat offers a guide to his approach to the bigger job of fixing India s
economy.
Start with the record, which shows that Gujarat punches above its weight. With
just 5% of India s population and 6% of its land mass, it accounts for 7.6% of
its GDP, almost a tenth of its workforce, and 22% of its exports. Climate and
geography pushed it towards commerce. Poor rainfall made it hard to scratch out
a living in farming; a long coastline favoured international trade. Today a
quarter of India s sea cargo passes through its ports. Even if Mr Modi cannot
claim much credit for Gujarat s natural endowments, the state s annual GDP
growth under his watch from 2001 until 2012 averaged almost 10%, a faster rate
than India as a whole (see chart). Other exporting states, such as Maharashtra
and Tamil Nadu, also did well. But sustaining rapid growth in any of India s
richer states is not a feat to be sniffed at.
Where Gujarat noticeably came up short is in poverty reduction, reckons Reuben
Abraham, of the IDFC Institute, a think-tank. Other states of similar rank made
greater inroads into cutting poverty rates between 1993 and 2012, he finds,
though only three can boast a lower level of poverty. Mr Modi s biggest feats
were tangible, says Mr Abraham, the kind of improvements that migrant workers
tend to notice, and report back to their relatives. The roads through and
around Ahmedabad are excellent. The state has moved from a deficit in
electricity generation, in 2002, to a surplus, despite the energy demands of a
booming economy. Its 18,000 rural villages are connected to the grid. Water
supply is abundant.
This emphasis on basic infrastructure, a hallmark of the Gujarat model, extends
to making land easily available for commercial development. In 2008 Tata Motors
switched the site for the plant to make the Nano, a small car, from West Bengal
to Sanand in Gujarat after Ratan Tata, boss of the conglomerate parent,
received an SMS message from Mr Modi offering him a factory-ready plot for the
firm and its suppliers. Bogged down in messy land disputes at its initial
choice of site, Tata Motors readily made the switch. Others have since
followed. Ford is opening a plant in Sanand later this year.
India sits a lowly 142nd out of 189 countries in the World Bank s ease of
doing business rankings. But in Gujarat factories spring up more readily
because permits, licences and environmental clearances are granted quickly.
This predates Mr Modi s time in office. Apollo, a big tyre manufacturer, opted
in 1990 to build a plant in Gujarat in part because clearances were less
painful than elsewhere. Mr Modi added his own twist. He saw that e-governance,
the application of IT to the provision of government services, could make civil
servants more accountable and cut corruption. He thought of it as synonymous
with good governance, says S.J. Haider, secretary of IT for the government of
Gujarat. Tata Consultancy Services, an IT-services firm, designed systems for
tracking state finances, documents within government offices and value-added
tax payments. Other states are now looking at adopting similar platforms.
A focus on basic infrastructure and public goods; a drive to make civil
servants honest and accountable; a penchant for IT; a flair for marketing to
business investors. The elements of Mr Modi s brand of economics are not
obviously those of Margaret Thatcher or Ronald Reagan, to whom he has been
compared by some commentators. Thatcher wanted a small state. Reagan is held to
have said that the nine most terrifying words in the English language are: I
m from the government and I m here to help. Mr Modi, by contrast, believes
government can be made to work better.
The Gujarat model is more about ideologically-neutral good governance than the
sort of big-bang reforms seen in 1980s Britain and America, says Vivek
Dehejia, an economist. What sets Mr Modi apart from many of his predecessors is
his ability to make a decision and be held accountable for it. But his record
suggests those hoping for big privatisations or bold labour reforms are likely
to be disappointed.