Senior economist’s rejoinder to Prof Bhagwati: Redistribution suffered in Gujarat growth story

Jagdish Bhagwati

This is a rejoinder by Prof Indira Hirway* to Prof Jagdish Bhagwati’s lecture in Gandhinagar before Gujarat’s top officialdom, justifying Gujarat’s “growth model.”

Prof Jagdish Bhagwati, Eminent Economist and a strong advocate of free trade, delivered a lecture on “Debunking Populist Myths that Undermine Prosperity – Lessons from and for Gujarat” in the last week of December 2011 at Gandhinagar. The main message of the lecture was that Gujarat economy is doing very well, not only in terms of economic growth (with the highest rate of growth of per capita income during 2000-2010 among the states in India) but also in social sectors. He also gave his certificate that Gujarat is on the right track and its economic growth will (and has) automatically lead to social development.

He stated that Gujarat’s achievements in human development have been better than many other states in the recent years: Gujarat has experienced 57.5 percent increase in literacy between 1951-2011 – higher than what has been achieved by Maharashtra or Kerala; the rate of decline in IMR between 1971-2009 was again better in Gujarat than in these two states; and the increase in the life expectancy at birth since 1970 also has been higher in Gujarat than in Kerala or Maharashtra. Falling back on his favorite argument, he stated that in the first phase of development it is important to raise the rate of growth of SDP to generate revenues for promoting social sector in the subsequent phase.Gujarat has generated revenues and now it is promoting its social sectors.

One major point we have with Prof. Bhagwati’s lecture is his use of the data. Though Gujarat did experience a higher rate of growth in literacy during 1951-2011 than Kerala (which started at a much higher level) and Maharashtra (marginally higher), 7 other states have seen a much higher rate of growth in literacy during this period. The decadal growth rates in literacy show that the increase in literacy in Gujarat was of 18.02 percentage points during 1991-2011 (during the period of the new growth model) with the state ranking 16th among the major 20 states in India in the rate of growth. The state that ranked 4th in literacy in 1981, slipped to 5th rank in 2001 and to 6th in 2011. Similarly, 7 other states are ahead of Gujarat in the decline of IMR since 1970. When one analyzes the periodical data of the SRS, one finds that the decline in IMR in the state during 1991-2009 was 30 points with the state ranking 10th among the major 20 states in India in the decline; and the rank of the state in IMR slipped from 8 1n 1981 to 11 in 2001 and 2011. Again, in the case of the life expectancy at birth also the rank of the state slipped from 9th in 1992 to 10th in 2006, and with the LEB of 65.2 years, the state ranked 10th among the major 20 states in India. In short, this fastest growing state has experienced a deceleration in the rates of achievements as well as in its rank among the major states in the fields of health and education. As per the latest report of the Planning Commission, Government of India, the state has slipped in its HDI rank from 4th in 1981 to 7th in 2001 to 8th in 2008, and the value of its HDI increased by 0.061 during 2000-2008 state, putting the state on the 18th rank in improvement in the HDI. The recent reports of NFHS, Global Hunger (ICRISAT), and other NSSO data also show miserable performance of the state in human development sectors.

Under the state growth model (i.e. the neo-liberal policy framework) growth is expected to trickle down to the lower levels firstly through generation of large scale productive and remunerative employment and secondly through redistribution of the increased revenues of the government on social sectors for the masses and on infrastructure development, particularly in lagging areas to enable them to grow. In the first phase the focus is on raising the growth of SDP while the second phase focuses on distribution of the increased government revenue on social policies including cash transfers, poverty alleviation, social protection etc, ultimately leading to poverty reduction and human development.

Our recent study however shows that that Gujarat’s performance has been far from satisfactory in raising quantity and particularly quality of employment in the recent decades. Gujarat has a highest percentage of informal workers (and casual workers) who receive repressed wages (according to the latest NSSO data, Gujaratranks 10th and 14th in casual as well as in regular wage rates in rural and urban areas) and poor social protection. Trickling down of benefits of growth to the masses through productive employment has not happened in the state. The main burden of including the excluded therefore falls on redistribution of the revenues earned through the high rate of growth. This has again proven to be a difficult task, firstly because redistribution does not change the basic process of growth that is responsible for exclusion and marginalization, making redistribution efforts increasingly weaker. Secondly, the strong vested interests developed during the first phase of growth are not likely to permit the required level of redistribution in the second phase. The unholy alliance between the capitalist class and the state has made the state less pro-labour or even anti-labour. Thirdly, by gifting all kinds of favours to the corporate sector to promote rapid growth, the state seems to have promoted crony capitalism, under which the corporate sector has flourished in the state. Instead of free market forces, allocation of resources in the state is frequently influenced by the distorted prices of factors of production. This has promoted high capital intensity of growth with lower employment elasticity, and high inequalities in incomes and assets. It has also left relatively less funds for social sectors.

To sum up, the growth model in the state seems to have discouraged inclusion of the excluded in the growth process as well as in the redistribution process. Clearly, the model is not adequate to reach development goals like full employment with decent work conditions, rapid poverty reduction or rapid human development. It does not seem to have the capacity or the vision for including the excluded.

*Prof Hirway is director, Centre for Development Alternatives (CFDA), Ahmedabad

For Prof Bhagwati’s viewpoint, please see the Times of India, Gujarat growth on right track, top economist Bhagwati tells babus and Guj’s growth story perks up: Pips states like Kerala in human development. For his full video of Prof Bhagwati’s speech, click Desh Gujarat

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