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How vibrant is the Gujarat growth story?

How vibrant is the Gujarat growth story?

Gujarat has been one of India's most industrialised states for decades and its people known for their enterprise. Chief Minister Narendra Modi, for his part, has been more successful than any of his predecessors in packaging the state's strengths.

Narendra Damodardas Modi, Chief Minister of Gujarat, addressing the investor summit Narendra Damodardas Modi, Chief Minister of Gujarat, addressing the investor summit
The state government official on the dais was beside himself with excitement. He struggled to control the torrent of praise coming out of his mouth for the "vision" Chief Minister Narendra Modi had just outlined in his address to the session on small and medium enterprises at the Vibrant Gujarat summit this year. The state, Modi had thundered, wanted not just mass production but production by the masses.

A grand vision, indeed, but not a new one. That is more or less what Mahatama Gandhi said when running his Swadeshi campaign. The summit, meanwhile, rolled on in its now customary grandeur. A day earlier, Mukesh Ambani called his Reliance Industries "a Gujarati, Indian and a global company", in that order. Brother Anil Ambani said Modi was a "king among kings". Mahindra & Mahindra chief Anand Mahindra, however, ascribed the state's achievements to "something about the food" its people eat. And Arjun Modhwadia, head of the state Congress unit, swears that a person living below the poverty line had managed to extract an MOU worth Rs 60 crore at the previous edition of the summit in 2011.

That is the Vibrant Gujarat summit for you: unabashed enthusiasm, rational optimism, and some carping. The truth is somewhere in between. It is not for nothing that this year's event refrained from making a grand announcement about the amount signed in MOUS. We only know that 17,719 "investment intentions" were inked. The focus this time was on collaborations in education and knowledge.

Everything else about the event was intact, though. A horde of industry captains praised Modi. It was assumed that Modi's hat trick of wins in the assembly elections, less than a month earlier, had marked him out as a contender for the country's top job when elections came around next year. Business representatives from countries that do not allow Modi to enter their boundaries either praised him or their Gujarati "connections". There were promises of collaborations.

And brand Modi rode high. "There is increased recognition that Mr Modi is destined to play a greater role not just in Gujarat but on the national scene. So, if you are sensible, you would hedge your bets," says economist Bibek Debroy, who recently authored Gujarat - Governance for Growth and Development. Sensible it may be, but how much of Modi's aura is driven by perception?

Gujarat has been one of India's most industrialised states for decades and its people known for their enterprise. Modi, for his part, has been more successful than any of his predecessors in packaging the state's strengths, with Vibrant Gujarat acting as a glittering roadshow. Till 2011, the total investment promised were to the tune of Rs 39.6 lakh crore. But the figures are not undisputed.

The 2011 Summit alone generated MOUS worth Rs 20.83 trillion (one trillion is equal to 100,000 crore). However, according to the Reserve Bank of India, Gujarat was fifth among the states in cumulative foreign direct investment (FDI) inflows between April 2000 and November 2012. Maharashtra, Delhi-National Capital Region, Karnataka and Tamil Nadu were ahead.

Hemant Kumar Shah, who heads the economics department in H.K. Arts College, Ahmedabad, feels the numbers are unrealistic. To buttress his argument, he cites the Economic Survey for 2011/12 which says the total industrial investment in India during the three years through 2009/10 was about Rs  24 trillion. "How can one state claim to get so much investment in just one year?" he asks. The Gujarat government's Socio-Economic Review 2011/12 reveals that just above one per cent of the investments promised at the 2011 summit have come in so far, and perhaps another 12 per cent are in the "implementation stage". In 2003, the conversion rate was 55 per cent.

This interpretation is disputed by none other than state officials. "Any large project will take five to seven years to complete. Even a small-scale project takes about two to three years," says Maheshwar Sahu, Principal Secretary-Industries and Mining. The large investment promises in Gujarat began in 2009, he says, and the earliest time to check the status should be 2014. "If a large project has been signed in 2011, it should be taken into account in 2016/17. But some people do not look at it that way."

Modi has been more successful than any of his predecessors in packaging the state's strengths.

However, Sahu and his men had little answer when the Income Tax Department knocked on their doors for details of the MOUS inked at the 2011 summit. This had the BJP disrupting Parliament in May that year saying that it was an "assault on the federalism of India". Despite the air of caution at this year's summit, some facts may still have two sides to them. Modi said the state had lost "zero" mandays to labour unrest.

But the Economic Survey for 2010/11, an annual report published by the Union finance ministry, says the "maximum incidences" of strikes and lockouts were recorded in Gujarat. Wage and allowance, bonus, personnel, indiscipline and violence were the major reasons. There is also the recorded spell of strikes at General Motors India's Halol factory in October 2010 and March the next year.

However, GM's woes do not deter its brethren in the automotive industry. After Tata Motors shifted its Nano plant from Singur to Sanand in 2008, Ford Motors announced a new plant a stone's throw away. Maruti Suzuki is investing Rs 4,000 crore at Bechraji in Mehsana district. Hero Honda is looking to become GM's neighbour in Halol.

The Economic Survey for 2010/11 says Gujarat had the most number of of strikes and lockouts

Big capital's love for Gujarat did not happen at first sight, or just after Modi became chief minister 12 years ago. The state, the world's largest producer of processed diamonds, was already home to the world's largest greenfield refinery, by Reliance Industries in Jamnagar. Essar had its fully integrated steel plant in Hazira and had laid the foundation for its oil refinery in Vadinar by the 1990s. State-run Gujarat Industrial Development Corporation had built several industrial parks including in Ahmedabad, Vapi and Vadodara. The milk revolution had been engineered by Verghese Kurien over decades. "Gujarat started riding the high curve of industrialisation within just a decade of being formed in 1960," says Sebastian Morris of IIM-Ahmedabad. In the 1980s and 1990s, as India's manufacturing grew at 5.5 and 8.1 per cent, respectively, Gujarat touched 6.6 and 7 per cent.

In fact, the state went into a recession from 1998/99 onwards until 2001/02, with manufacturing activity declining 0.03 per cent. Fortunately for Modi, the tide turned soon after he took the helm in October 2001. The turnaround, from 2003/04, according to Morris, was in part because of the Union government's large expenditure programmes like the Golden Quadrilateral, which put the economy on the path of growth from early 2003. Since then, as India clocked an average of 8.1 per cent until 2009/10, Gujarat grew at 12.8 per cent. "Modi has not changed the overall picture of Gujarat's economy in any great way," says Shah of H.K. Arts College.

M.A. Hania, Senior Vice President at Meghmani Finechem and honorary secretary to the Dahej Industries Association, says while the overall investment climate in the state is good, there are still some hiccups. "The single-window clearance promised by Modi is yet to take off in Dahej. Industries have to take 40 licences to start a venture," he adds. Environment approvals hold projects up, just like elsewhere in the country.

Narendra Modi with business leaders at the summit
Modi with business leaders at the summit
Why the fanfare, then? That may be down to the business environment, which is better in Gujarat than in most other states. It has surplus power, even as vast tracts of the country go powerless. Land is easy to acquire. The 1,600 km coastline, with 41 minor and intermediate ports complimenting the big one at Kandla, makes trade easy. Special Economic Zones thrive in Dahej, Kandla and Surat even as they flounder in many other states.

The credit for the power surplus goes to Modi. When he took charge of the state, the Gujarat State Electricity Board was sitting over losses of Rs 2,200 crore. Power cuts were rampant. Steps such as renegotiating power purchase agreements with private players, debt restructuring, sharp reduction in transmission and distribution losses, and a crackdown on power theft put the board back on its feet. Most of Gujarat's 18,000 villages get electricity through Jyotigram Yojana, a scheme launched in 2006 to provide three-phase power supply round the clock.

"Gujarat has an installed power capacity of 20,000 megawatt and consumes 12,400 MW," says Yatindra Sharma, former chairman of the Gujarat chapter of the Confederation of Indian Industry. The result is it has no power cuts, something even Delhi cannot boast of. "We have uninterrupted power, which is something very few states in the country can claim," Lowell Paddock, CEO of General Motors India, said at the summit.

The state's industrial parks are expanding. The Dahej GIDC estate is getting ready for its third and fourth phases. In Sanand, Hitachi Hirel Power has started operations and construction is in full swing by Colgate Palmolive. There is a plan to make Dholera, 140 km from Ahmedabad and near the Gulf of Cambay, a special investment region with several industrial parks and knowledge centres. It would have world-class infrastructure including an international airport. But there is nothing tangible yet, with the Dholera draft town plan yet to be finalised.

Maheshwar Sahu, Principal Secretary (Industries and Mining), Gujarat government
Any large project will take five to seven years to complete: Maheshwar Sahu
Gandhinagar, the state capital, is being transformed into a financial hub. A central finance business district that would include an SEZ for financial services, has been earmarked and 886 acres allotted. The first of the commercial towers, a 28-storey building, was inaugurated during the summit. The plan includes many high-rise buildings including a 400-metre-tall 'Diamond Tower', which will look to attract diamond traders from as far as Dubai. The trouble is that the airport in Ahmedabad would not allow such a tall building. It will take off only once the Dholera airport comes up and the Ahmedabad airport is shifted away.

The point to ponder, however, is whether Modi will still be around in the state to inaugurate the new airport. Or, would he have flown towards a circular structure with numerous pillars in the heart of New Delhi?