The Gujarat story: Modi's Operandi built on facts and sentiments

The Gujarat growth story has been guided by a mixture of fact and sentiment, no matter what model it has been based on. Those championing inclusive growth have for years heaped praises on the exponential growth of Gujarat enterprise.

On the other side of the spectrum, chief minister Narendra Modi's political and ideological opponents are closing ranks, heaping scorn on the ‘manufactured consent’ through saturation coverage of Modi’s achievements in the mass media. Modi, BJP’s prime ministerial aspirant, has tried to counter it with his own high-voltage and unabashedly populist PR campaigns.

The state’s impressive showing on the manufacturing and infrastructural fronts would tempt even the cynics to take note of Modi’s achievements. An NCAER report mentions that 90 per cent of roads in Gujarat are paved, 98 per cent villages fully electrified and 86 per cent have piped water. Corporate biggies, be it a Ratan Tata or a Mukesh Ambani, have repeatedly paid handsome tributes to Modi. Tata’s Nano project was dramatically shifted from West Bengal to Gujarat, finding an able proponent in Modi who gave the group 1,100 acres of prime land at Sanand, 30 km from Ahmedabad. Modi is now ready to allot 511 acres of land to Maruti in Hansalpur.

But is all the credit for wave upon wave of industrialisation and job creation misplaced? Says renowned economist Hemant Shah: “Modi does not deserve any credit for the development of Gujarat state. Higher growth rate was experienced by the state from 1980 to 2000. It was around 14.50 per cent then, whereas during the last decade it's just about 9.5 per cent.”

Try telling that to industrialists like Nischith Sheth who have reason to be elated. Sheth, who runs a manufacturing facility at Umbergaon on the state border since 2010, says that problems he faced in Maharashtra like alcoholism and demanding labour are non-existent in Modi's Gujarat. Sheth's facility produces metallic yarn used as raw material by the textiles industry. “Power and water supply have never been a problem with the Gujarat Industrial Development Corporation (GIDC) putting the fundamentals in place. This is a key reason for the high FDI charisma which Gujarat enjoys,” Sheth says.

But the FDI pipeline has sprung leaks on the way. Conversion rates (difference between FDI committed to projects and actual investments realised) from the prestigious Vibrant Gujarat Global Investors Summit (VGGIS), a biannual event, have been falling steadily since 2011.

Industrialists and industry bodies are aware that conversion rates from successive investment summits have been low since 2009. Says Param Shah of the Gujarat chapter of FICCI: “The conversion rate of VGGIS 2011 has been low at 11.5 per cent, but there are reasons.” MoUs signed at summits held till 2009 largely comprised manufacturing industries who could set up shop in the state faster. But the last two editions of VGGIS, including one held this year, have seen MoUs from mostly knowledge-based industries.

However, a cursory glance through MoUs signed at the 2011 edition of VGGIS reveals this is not really true. Moreover, key industrial township projects like the Special Investment Region (SIR) planned in Dholera have been delayed.

A source with knowledge of developments at the state’s industry ministry says that delays are only to be expected. “There is a gestation period for any industry. And, desired locations are often difficult to provide readily to investors, not to mention environmental clearances. Just because MoUs are signed doesn’t mean that industries can immediately swing into action and fully commit promised FDI into a project,” he said.

Logistical issues

Industry watchers say that matching the investor with the right land in Gujarat is not easy by any yardstick. Sanand, Gujarat's version of Detroit, is jampacked as its proximity to Ahmedabad makes it a huge draw among automobile majors and ancillaries. But land prices in Sanand have skyrocketed by more than 30 per cent in the past 15 years and new locations being promoted include Mundhra, Porbandar, Junagadh, Surat and Bhavnagar. “There are other locations available, but logistical issues, not to mention remoteness of many rural locations, are deterring prospective investors,” says an investment consultant who has advised the Gujarat government in the past.

While the chinks in Gujarat’s armour have been more than apparent, a section of economists continues to trash the development story. They say that a lot of the growth figures are just part of a larger numbers game. In the 2003, 2005, 2007 and 2009 Vibrant Gujarat summits, MoUs for FDI worth $426 billion were said to have been signed. If all that money -- from just four biannual investor meets -- indeed flowed into Gujarat, it would be over twice the FDI gained by China during 2011 and 2012.

Examples of lopsided development abound – key indices like literacy, primary healthcare and education have barely managed single-digit annual growth rates since 2001. Consequently, the critics are demanding Modi’s attention more often these days. They say that the share of industry in the State Domestic Product has remained largely the same in the last 12 years of Modi’s tenure. It was 38 per cent in 2001 and rose just 1 percentage point to 39 per cent by 2012.

Shah, however, notes that while the Central government has initiated schemes like the Dholera Special Investment Region, it is the state government which has been active in implementing them. And, Gujarat is indeed turning out to be the next big hub for car manufacturers. “Single window clearance has been a boon,” affirms State Finance Commission member Yamal Vyas. “As an investor, one knows who has to visit whom and for what purpose, the level of corruption is minimised and the process of going from one table to another has been reduced,” he says.

Vyas admits Gujarat has faced problems while implementing industrial zones in Ankleshwar, Vapi, Narol and Vatva of Ahmedabad, but once these are cleared it will set the stage for entry of more manufacturing companies, particularly pharmas. “If the Gujarat model (of industrial growth) was a failure why would the government of Goa want to implement it?” he asks. As a plan of action and the strategic will to act on development dreams, why not? But the growing perception of failure to ‘implement’ what has been crystallised on paper could make or break Gujarat's image as India’s model state.