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LATEST NEWS UPDATES | The Truth Behind the Gujarat Growth Model -Indira Hirway

The Truth Behind the Gujarat Growth Model -Indira Hirway

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published Published on Dec 9, 2017   modified Modified on Dec 9, 2017
-TheWire.in

After huge incentives to corporate units, the Gujarat government is left with limited funds for education, health, environment and employment for the masses.

What is the Gujarat model? In simple terms, it refers to a period from 2002-03 to 20011-12 during which Gujarat experienced a quantum jump in its growth rate. The driving force was the then chief minister Narendra Modi’s innovative interpretation of neoliberal policies.

The growth strategy had three major components: quantum jump in infrastructure to facilitate inflow of corporate investment; quantum jump in governance to address the requirements of corporate units; and unprecedented rise in incentives and subsidies on investments to the corporate sector to attract investments. Infrastructure development focused on roads, airports and power – and through reforms, 24-hour availability of power.

Governance focused on quick disposal of investment proposals with a single window, easy access to bank credit and if required, other escort services to corporate units and their core staff. The concerned departments were aggressive in expediting the procedures to facilitate investment flows. The incentives to corporate investment included mainly sales tax subsidies till 2006-07 (till the Centre banned it). Forty percent of the revenue from sales tax – the main source of revenue for state governments – was forgone.

Thereafter, the government introduced subsidies on capital, interest, infrastructure as well as heavy subsidies on land, water supply and natural resources. The rates of subsidies were larger for larger investments. For mega industries, there was no fixed rate and each case was assessed separately. For example, Tata-Nano got totally Rs 30,000 crores subsidies (like Suzuki, Hyundai etc). Land was acquired from common grazing land, denotified protected areas, national parks and from irrigated fertile lands. The price started from Re 1 per acre, and increased during the last years of the model  but still was less than the market price.

What also helped the growth was expanding global markets. Gujarat pushed up the exports from all major industries: petrochemicals-chemicals, pharmaceuticals-drugs, textiles and garments, leather, machine tools and electronics, gems and jewellery, and agricultural crops by setting up a number of SEZs, industry parks and special export promotion measures.

Gujarat also experienced high agricultural growth (7-8%) during this period thanks to continuous good rainfall for almost nine years, and policies of the government on improved seeds (Bt cotton was the main winner), extension through Krushi Rath, modern agricultural practices and 24-hour electricity for farmers.

However, after 2011-12, droughts and water crisis brought down the rate to 3.7% with high fluctuations. In addition, agriculture is suffering from low minimum support price (cost of cultivation is much higher), poor crop insurance (even in good areas the coverage is 10-12%) and declining public investment in agriculture. In addition, this growth is neither sustainable (ground water, a major source of irrigation is depleting badly without adequate efforts in recharge) nor equitable (marginal farmers did not receive much benefits) and agricultural wages for the rising number of agricultural labour are almost lowest in the country).

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TheWire.in, 8 December, 2017, https://thewire.in/202952/the-truth-behind-the-gujarat-growth-model/


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