Gujarat's growth story fails to buck India's macro gloom

Modi-led state slips on GDP charts and consumption growth

Economic growth in Narendra Modi’s Gujarat has slipped considerably in five years. Having grown 11 per cent in FY08, the state’s gross domestic product (GDP) rose eight per cent in FY13. Annual national GDP growth during the period declined to 4.5 per cent from 9.3 per cent.

Gujarat is now the country’s ninth fastest growing among states and Union Territories (UT), behind Bihar, Madhya Pradesh, Delhi, Uttarakhand, Tripura, Goa, Kerala and Odisha. The state’s rank improves to seventh if average growth for the past five years is taken into account. The analysis excludes smaller states and UTs such as Sikkim, Mizoram, Puducherry, Manipur and Andaman & Nicobar Islands.

Experts attribute Gujarat’s relative underperformance to its larger base, among other factors. In FY13, Gujarat had the fifth largest economy (Rs 4.27 lakh crore)  among all states, behind Maharashtra (Rs 8.44 lakh crore), Tamil Nadu (Rs 4.51 lakh crore), Uttar Pradesh (Rs 4.45 lakh crore) and Andhra Pradesh (Rs 4.42 lakh crore). In per capita terms, Gujarat is the eighth richest behind Goa, Delhi, Chandigarh, Puducherry, Sikkim, Maharashtra and Haryana, according to data from the Central Statistics Office (CSO).

“The industrial slowdown in India has affected Gujarat’s performance. But it still grew faster than the all-India average. The smaller states (in terms of the size of the economy) are better off due to their low base, but would need to put in a lot of effort through affirmative policy action and expenditure by the government to scale up the process once a critical size is reached. That will be the challenge going ahead,” says D R Dogra, managing director of CARE Ratings. The industrial slowdown has impacted economic growth in industrialised states, including Maharashtra and Tamil Nadu, he says.

Gujarat has, however, failed to translate its superior economic growth into higher consumption spending by households. In the four years ended FY12, rural monthly per capita consumption expenditure (MPCE) in Gujarat grew at a compounded annual growth rate (CAGR) of 15.1 per cent — lower than the national average rural MPCE growth of 16.7 per cent. Among major states, Gujarat was ranked 13th in terms of rural consumption growth with only Uttar Pradesh performing worse. During the same period, Gujarat’s per capita income at current prices grew at a CAGR of 14.9 per cent against the national average of 14.6 per cent.

Andhra Pradesh topped the chart with 21.1 per cent CAGR growth in rural MPCE, followed by Haryana (20.4 per cent), Tamil Nadu (19.4 per cent) and Rajasthan (18.8 per cent). Gujarat’s urban MPCE growth at 15.1 per cent also lags the all-India urban MPCE growth of 15.6 per cent during the period, according to survey data from the National Sample Survey Organisation (NSSO).

In September last year,  the “underdevelopment index” formulated by a panel under Raghuram Rajan, who was then the chief economic advisor in the finance ministry, had not placed Gujarat among the top-most developed states. Gujarat was, in fact,  in the second rung of developed states, that is, “less developed states”, along with West Bengal, Tripura, Manipur, Nagaland and Jammu & Kashmir, among others.  

The report was rejected by the Bharatiya Janata Party (BJP) The two other states whose development models the BJP is trying to cash in on — Madhya Pradesh and Chhattisgarh — were also kept in the bracket of least developed states. Keeping company were Bihar, Odisha, Jharkhand, Arunachal Pradesh, Assam, Meghalaya, UP and Rajasthan.

The new index, proposed by the Rajan committee, is based on averages of 10 sub-components — monthly per-capita consumption expenditure, education, health, household amenities, poverty rate, female literacy, share of Scheduled Castes and Scheduled Tribes in the total population, urbanisation rate, financial inclusion, and connectivity.