Good governance in Gujarat is synonymous to removal of ‘bottlenecks’ like investment in labour, environment and social sector

ghanshyam shahBy Prof Ghanshyam Shah*

Gujarat is one of the industrialized states of India. It has on average 11 per cent industrial growth as against 9 per cent of all India; and contributes 14 per cent in India’s export. Not only in common parlance but also in academic discourse the term Gujarati (person) is synonymously used as a business entrepreneur; though vast majority of the population in Gujarat is not engaged in trade and commerce. Capital has been well-organized earlier in the form of guild and now in the form of modern associations. The state has a history of weak and fragmented socio-political movements of labour and deprived communities.

The Congress was in power till 1995 with a brief break—Janata Morcha (alliance of non-Congress parties, 1976–1980) and Janata-Bharatiya Janata Party (BJP) alliance (1989–1990). BJP rules the state since then. Approach to economic growth in the state has by and large remained the same irrespective of the party in power.

Pre-neoliberal phase: During the pre-neoliberal policy the state government evolved, what Aseema Sinha calls a ‘bureaucratic-liberalism’ model of strategic interaction with the central government to attract investment in Gujarat and also to guide investors. The actions of Gujarat’s bureaucracy unlike several other states embodied the classic developmental role of ‘guiding markets’.

The bureaucrats had a free hand to find out ways and means with the central government so as the state gets more licenses and private investment. They were functioning like entrepreneurs, taking initiative, risk, collecting and collating data related to market and industrial production. An autonomous agency for industrial promotion, Industrial Extension Bureau, called iNDEXTb 9 ‘i’ is small representing small ego, so is ‘b’ for bureaucracy, indicating de-bureaucratic approach (Sinha) was formed in 1977. Its financial source has been made independent of state budget to keep it free from bureaucratic and political constraints.

The Government of Gujarat (GoG) had set up offices not only in Delhi, but also in Mumbai, Kolkata, Chennai and South Africa to attract capital. The officers wooed the businessmen and encouraged them to invest in Gujarat. In several cases the officers worked on behalf of investors to expedite the process of procuring license from the Union government. In some cases to expedite the process, bureaucrats used to take first a license in the name of the GoG and shift it to the joint sector. Later, its full ownership was transferred to the private party.

Within a decade of its formation, Gujarat ‘made striking progress in its industrial economy’. Between 1974 and 1990 it was second highest in receiving the letters of intent. The state attained third position in terms of number of industries and production in 1984–1985. In 1984–1985, among the 200 top giant industries of India, 24 were located in Gujarat. Madhavsinh Solanki, the then Chief Minister, as media often reported, had an ambition to turn Gujarat into ‘mini-Japan’. Under his stewardship ‘Gujarat became the second most industrialized state in India, as his government, in cooperation with the private sector, launched many projects in power development, electronics, fertilizer and many other industries.’

Neo-liberal phase: Anticipating the change in the Government of India’s (GoI’s) economic policy in 1991, the GoG announced ‘Incentive Policy’ for the industries by executive order in the early 1980s, and repeated the same with modifications in 1986 and 1990. Later, three industrial policies (2000, 2003 and 2009) have been announced. The first policy declared its target to compete with Southeast and East Asian countries. In the post-2002 communal riots, under the Modi government, industry policy got blended with cultural uniqueness and pride: Gujarat has ‘cultural base’ where you ‘sow a rupee, reap a Dollar’. To boost up spirit of enterprising dominant Gujaratis, the state declares: ‘to provide business leadership to entire world’. The policy also announces, ‘Good Governance (is) a way of life for Government in Gujarat’.

All the three policies promise: (a) to remove all bottlenecks presumably obstructing investment, (b) to simplify procedures, speeding of process and develop single window system for clearance and other related matters; (c) to change rules and laws to facilitate transferring agriculture land to non-agriculture land for industrial purpose; (d) to reorient administration to take up new challenges of globalization and attract more investment throughout the world; (e) to strengthen e-governance, data bank and dissemination of information for selection of projects; (f) to develop physical as well as human infrastructure (roads, power, water etc., and skilled human-power) to meet the requirements of the industries.

These policies provide subsidy varying from 25 to 40 per cent to industries. Besides reducing their sales tax, the exemption in sales tax from six to ten years has been offered. The government promises ‘to reform the tax regime’ so as to make the state globally competitive. Number of categories in tax concessions increased from the first to the third policy period. Infrastructure development Act was passed in 1999 to facilitate private investment and to ensure co-ordination among various Government agencies a Board was setup. The Act has been amended in 2006 empowering the Government to extend the concession period beyond 35 years and to approve financial assistance up to 20 per cent cost of the project.

The state is actively engaged in acquiring land for industrial development. Gradually it has amended laws related to agriculture land to facilitate industries. First, restrictions on purchase of agriculture land for non-agriculture purpose were removed in 1994. Rules for converting agriculture land to non-agriculture purpose were relaxed. Second, with government order in 2005 the state began to offer public land—waste as well as grazing land—to ‘big industries and individual progressive farmers’. They were expected to develop that land for productive purpose with the use of technology. Such land was given not only on lease without any rent for the first five years but beneficiaries are also permitted to mortgage it to banks for loan. Third, under the Land Acquisition Act 1894, the state also acquires land from private farmers for ‘public purpose’, and hand over that to industries.

In Kutch and Saurashtra several hundred thousand hectares of government and private land has been given to big industries like Reliance and Adani. In fact, a few investors in the SEZ who got land on lease or at throwaway price have sold that land to others with high price. Moreover, besides cheap water and electricity, a few industries received gas from the Gujarat State Petroleum Corporation, at rates below its cost price. Such favours, according to Comptroller and Auditor General (2012) cost the state Rs 5,000 crore. Not only that, the government has violated environmental laws, converting a protected wildlife sanctuary Kutch for industry. It has also manoeuvred around Coastal Regulation Zone laws for a private port to be built for the export of cement.

The officers in the state industries department and different industrial corporations of GoG have been always business friendly. During the license-quota-raj they found out ways and means to woo investors. Their enthusiasm increased under the neo-liberal policy. Most of them come from upper strata of society; hence they can very easily build rapport with entrepreneurs. Money power and social networks of the entrepreneurs match with bureaucrats’ mindset. Businessmen believe in keeping the bureaucrats in good humour. On the whole the investors, in the past and today, are very happy with Gujarat’s bureaucracy and appreciate its efficiency.

Environmental concern: In the 1960s, Gujarat was known for production of textiles. At present Chemicals and Petrochemicals have become major industries with 62 per cent share in the total industrial production of the state. Medium and large industries have increased nearly eight-fold between 1980s and 1990s. In the last decade, on an average more than six hundred new projects were sanctioned to launch. The Industry Policy 2000 admitted that ‘the requirement of sustainable development entails the need to tighten the pollution control measures and environmental safety in the State’. It declares that ‘Along with strictly implementing the pollution and environment protection measures, the State would be striving to set right the irregularities in this regard, which has taken place in some industrial clusters’.

In the 1990s the government initiated and encouraged industries to develop Common Effluent Treatment Plants (CETPs). These plants are largely supported by the public funds: 25 per cent of the cost was state subsidy; 25 per cent central government subsidy; 30 per cent loans from the financial institutes; and remaining 20 per cent paid by the industries. Most of the plants do not meet the norms prescribed by the Ministry of Environment and Forest of Government of India.

CAG Report 2010–2011 noted that ‘treated’ waste water out of CETPs had four to ten times more toxic than Government’s own norms in terms of biological oxygen demand (BOD) value, three times higher in case of chemical oxygen demand (COD) values and four times higher in terms of total dissolved salts (TDS). This has caused ‘large-scale death of aqua stock in the rivers’ in the recent past. On 7 May 2004 the Supreme Court observed, ‘…due to indiscriminate dumping of hazardous waste due to non-existent or negligent practices together with lack of enforcement by authorities, the ground water and, therefore, drinking water supplies have been effected/damaged’.

Not that the government is unaware of increasing adverse and deadly effects of pollution on the vast population. But it does not have courage to displease industrialists. It has a fear that strictly enforcement of the pollution control norms would go against the interest of the factory owners. And, it is feared that they would go away from Gujarat and may also discourage new investors to come to the state. The government which is obsessed with high economic growth and to become front-runner in the market is caught with contradictions of its own making.

Like industry, agriculture in Gujarat is increasingly becoming capital—and technology—intensive. With infrastructure development in irrigation and power, agriculture production has increased. But small and marginal farmers are further marginalized and farm sector employment has declined. Rural labour is moving to non-farm sector where job opportunities have increased.

Neglect of labour: But as the industries are capital-intensive rate of employment in manufacturing sector is slow and erratic. Employment per factory has significantly declined, from 99 workers per factory in 1960–1961 to 62.40 persons in 1990–1991 and to 59.44 per cent in 2005. Whereas average invested capital per factory has increased 2.5 times in less than a last decade.

To attract investment the State has overtly and covertly undermined the existing labour laws which provide some protection to workers. The government has amended labour legislations to provide freedom to industry to employ labour on contract basis. Consequently, Ahmedabad has the lowest labour costs among the major cities in India, with labour costs less than 50 per cent of those in Delhi and 40 per cent below those in Pune. The wage bill for industry in Gujarat constitutes only 2.42 per cent of the invested capital. The same figure stands at 4.04 for Karnataka, 4.4 for Maharashtra, 4.94 for Andhra Pradesh, 5.42 for Haryana and 5.5 for Tamil Nadu.

Sizeable labour force is in informal sector without social security and other benefits under the labour laws. Stipulated minimum wages by the GoG are lower in all occupations in Gujarat than Maharashtra and several other states. Not only that but the Labour Commissioner’s office, whose responsibility is to implement labour laws and protect labourers’ interest, has been reduced in its strength—both in number and power. Its functioning is further weakened.

Under the neo-liberal economic reforms Gujarat was the first state to declare its industrial policy to increase incentives and support structure to private investment for industries. Inducements have been multiplied in the last two decades.

In the institutional structure capital investors are treated as the only stakeholders for industrial growth. They are involved in decision making and monitoring process. Labour has no place therein. Administrative procedures have gradually minimised. Bureaucrats are generally benign towards capitalist class. They are now professionalized and geared to follow the best practices of the corporate world into the government to accelerate economic growth euphemistically called ‘development’.

Nevertheless, from the perspective of neo-liberal economy such governance may be qualified as ‘good’. Gujarat however is not the only state with high growth trajectory. Maharashtra, Haryana and Andhra Pradesh are at par or even ahead of Gujarat in GDP, investment and per capita income. Tamil Nadu, Karnataka and Punjab are not far behind.

Nature of growth in Gujarat has led to deterioration of natural resources and environment. Gujarat has polluted areas affecting water and air, plantation, animal life and human health. The GoG has been ineffective in controlling the industries for violation of pollution control laws. In fact the government itself has violated its own environmental laws. In the pre-reform period the industry policy was in favour of both capital—as well as labour-intensive production. Several laws protecting interests and well-being of labour have been scrapped or made ineffective. As investment in industry is largely capital-intensive; rate of creating employment is slow. Moreover, regular employment has declined.

Social sector programmes are increasingly getting privatized under the garb of PPP. The objectives of the government and the private agencies in such partnership are not the same. The former focus on well-being of the people and for the latter the main concern is private profit. Moreover, the approach of the government towards people is that of ‘beneficiaries’, and not citizens having rights. Policymakers soft pedal with private partners. No effective mechanism to monitor the functioning of the private agencies has been evolved. The mainstream civil society in Gujarat is not geared to raise the issues of poverty and exploitation. And the civil society segments which have expertise and active engagement in health, education and livelihood issues are side-tracked or harassed by the government bureaucracy. Performance of GoG in social sector is poorer than the states with similar high growth trajectory.

*Abridged version of  Prof Shah’s article. For full article please click


One thought on “Good governance in Gujarat is synonymous to removal of ‘bottlenecks’ like investment in labour, environment and social sector

  1. Instead of simply referring to Tamil Nadu, Haryana and AP as equal or better than Gujarat you should have given comparative figures for those states regarding pollution control, agricultural land acquisition, whether in any of the other 3 states there is a flow of labor from industrial to agriculture ( since you seem to contend that flow of labor from agri to industrial is bad), the nature of subsidies, if any, given by the repspective Governments to attract capital and investment etc so that the reader may conclude for himself which system among those presented was the better one

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