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November 23, 2012

Gujarat, governance and growth

An extract from Gujarat: Governance for Growth and Development

Growth

There is a remarkable lack of objectivity in discussing Gujarat and governance, growth and development there. The economics gets enmeshed in the politics and the politics gets entangled with the economics. While this is perhaps inevitable and unavoidable, this book is about the economics. What has happened in Gujarat? Is there a story there? Why has it happened? Is this is a story that can be replicated elsewhere in India? Is there a lesson for other States?

The first broad-brush growth story is as follows. Compared to 1994-95 to 2004-05, from 2004-05 to 2011-12, real GSDP (gross State domestic product) growth rates have increased, from an all-India average of 6.16% to an all-India average of 8.28%. Second, with an increase from 6.45% to 10.08%, the increase has been more for Gujarat than for all-India. Third, since 2004-05, there are other States that have also grown fast and Bihar, Maharashtra, Sikkim, Tamil Nadu, Uttarakhand, Chandigarh and Delhi are examples. That growth story in other States is sometimes used as an argument against the Gujarat growth story and that’s a bit strange. After all, Gujarat accounts for an estimated 7.5% of Indian GDP. If all-India averages have gone up that much, it is unreasonable to expect growth has been pulled up by Gujarat alone. However, in making inter-State comparisons, there is a legitimate question one should ask. Should small States be compared with large States? Should special category States be compared with non-special category States? Smaller States tend to be more homogeneous, with relatively fewer backward geographical regions and districts. Chandigarh, Delhi, Puducherry, Goa and Sikkim aren’t quite comparable with larger States. With that caveat, it is also true that there has been a growth pickup in Bihar, Maharashtra, Tamil Nadu and Uttarakhand as well. There has been a discernible pick-up in Gujarat’s growth performance since the 10th Plan (2002-07), the five-year Plans being natural periods for breaking up the time-line. It’s tempting to argue that there is nothing exceptional in this. Gujarat grew fast during the 8th Plan (1992-97) too. While that’s true, one should accept that as development occurs, it becomes more difficult to sustain higher rates of growth. Among larger and relatively richer States like Maharashtra, Haryana, Gujarat, Kerala, Punjab, Tamil Nadu and Karnataka, it is more difficult to find sources of growth. Growth tends to taper off. Relatively poorer States like Bihar, Orissa, Madhya Pradesh, Assam and Jharkhand find it easier to catch up. Had historical trends alone provided the momentum for growth, Karnataka should have also grown extremely fast. Fifth, too often, discussions focus on growth trends alone. Moving to a higher growth trajectory is important. But reducing the volatility of growth is no less important. Growth rates in Gujarat have become much less volatile. Given Indian conditions, volatility is fundamentally a function of what has been happening to the agricultural sector.

Equity

In line with all-India trends, overall poverty and urban poverty have declined in Gujarat between 2004-05 and 2009-10. But the real story is in rural Gujarat, where there has been a very sharp drop in poverty, significantly more than all-India trends. In rural Gujarat, the benefits of growth have trickled down. Subject to all those problems about data and measuring inequality, there is no evidence that inequality has increased.

Fiscal consolidation

Elimination of deprivation requires public intervention and expenditure, over and above a State’s role in providing an enabling environment for private entrepreneurship to bloom and flourish and ensuring rule of law. This requires public expenditure and fiscal consolidation. Historically, the problem has been with the revenue deficit, especially after 2008, both because revenue receipts have been lower and because revenue expenditure has been higher. However, since 2011-12, the revenue deficit numbers have also begun to look respectable and the deficit numbers are marginally better than what the 13th Finance Commission envisaged. One of the building blocks of the Gujarat model, so to speak, is to free up space for private sector expenditure in capital formation. One cannot expect capital expenditure, as a share, to increase overnight. The bulk (76%) of capital expenditure is developmental, with social services accounting for 55.2%. Of the total expenditure, 66.41% is also developmental. 63.2% of revenue expenditure is developmental. To the extent this reveals a prioritization according to sectors, the major ones are education, sports, art and culture and water supply, sanitation, housing and urban development, in that order. The fiscal consolidation and fiscal space created has enabled Gujarat to plug the gaps in Central sector and Centrally sponsored schemes with State-level schemes. The story isn’t that much about increasing public expenditure. It is more about creating an environment for private expenditure. Apart from private expenditure, the story is about increasing the efficiency of public expenditure, more bang for the buck, so to speak.

Physical infrastructure

In the power sector, the background is partly the Gujarat Electricity Industry (Reorganization and Regulation) Act of 2003. This allowed the transfer of assets and liabilities of the former Gujarat Electricity Board (GEB). Generation assets were transferred to Gujarat State Electricity Corporation Limited (GSECL). Transmission assets were transferred to Gujarat Transmission Corporation Limited (GETCO). Four different distribution entities were formed – Uttar Gujarat Vij Company Limited (UGVCL), Dakshin Gujarat Vij Company Limited (DGVCL), Pashchim Gujarat Vij Company Limited (PGVCL) and Madhya Gujarat Vij Company Limited (MGVCL). Gujarat Urja Vikas Nigam Limited (GUVNL) had residuary functions, including that of power trading. GUVNL was the holding company. The Gujarat Electricity Regulatory Commission had been set up in 1998 and was brought under the purview of the Electricity Act of 2003. Generation became exempt from licensing, including through non-conventional sources. Open access was allowed to transmission and distribution and distribution franchisees were introduced for distribution zones like Bhavnagar, Junagadh, Rajkot, Vishwamitri, Lalbaug, Bharuch, Anand and Mehsana. Metering became mandatory. In 2001, Gujarat was a power deficit State, by roughly around 2,000 MW. By the end of 2012, Gujarat will have a power surplus, though expected increases in GSDP growth also increase the demand for power. However, the Gujarat success story isn’t just about the macro generation situation. It is also about reduction in T&D losses, down from 35.90% in 2002-03 to 22.20% in 2006-07. It is 20.13% in 2010-11. This is partly because T&D losses aren’t actually transmission and distribution losses. They are also about theft and unmetered supply. Other than metering, theft of electricity became a criminal offence and the law was enforced, with distributors insulated from political pressures. There were special checking squads for checking installation, especially for HT connections, and ex-army personnel were roped in. In Sabarmati, Surat, Rajkot, Bhavnagar and Baroda, there were special police stations for power theft. Provisions were made for sealed meters that were tamper-proof. Through an e-Urja project, electronic billing and payment was introduced. Faulty meters were replaced. Unauthorized connections were regularized through one-time settlements. The Jyotigram Yojana (JGY) ensures 3-phase power supply to all villages. The key was a bifurcation of supply lines into dedicated agricultural feeders. For agricultural use, one would thus be ensured continuous power for 8 hours a day, at pre-determined times. For other rural loads (domestic, commercial and industrial), there would be 24/7 power. 24/7 3-phase supply was provided to JGY feeders. These then provided 8 hours of 3-phase continuous supply to agricultural feeders and 1-phase 24/7 power to other rural uses. The argument about people wanting subsidized power and refusing to pay higher tariffs is misplaced. People are prepared to pay, provided that the quality of power supply improves. It was no different for JGY. Once power at pre-determined hours was available, there was less of an incentive to divert subsidized power for agriculture to domestic household use. JGY helped reduce T&D losses. It also helped reduce transformer failures. More importantly, it led to all villages being electrified, without load-shedding, and this had positive socio-economic multiplier benefits.

If power is important to better people’s lives, water is no less so. The overall picture is that Gujarat is a water scarce State. there are several strands in the water sector reforms – inter-basin transfer of water from surplus areas to deficit areas like north Gujarat, Saurashtra and Kachchh; the linking of canals; water conservation; participatory irrigation management; micro-irrigation; check dams and smaller dams (such as through the Sardar Patel Water Conservation Programme); deepening of ponds; cleaning and restoration of step wells; community management of water supply in villages through WASMO (Water and Sanitation Management Organization); and the Sujalam Suphalam Yojana (SSY). Water has both a drinking water and an irrigation water component. Something like SSY covers both. While the State has certainly gained because of Sardar Sarovar, that wouldn’t have been possible without the State-wide water supply grid.

In terms of affecting people’s lives for the better, roads are just as important as electricity and water. Compared to many other States, Gujarat has always had relatively better road infrastructure. 98.27% of State Highways and 96.93% of major district roads possess asphalt surfaces. 85.63% of other district roads and village roads also possess asphalt surfaces. 98.84% of villages are connected by “pucca” roads. Gujarat has also benefited from NHDP. Given the base, the focus has thus been more on upgradation and maintenance, improving access in relatively disadvantaged regions, while simultaneously tapping the proposed dedicated freight corridor (DFC) between Delhi and Mumbai and the Delhi-Mumbai Industrial Corridor (DMIC). In so far as relatively disadvantaged regions are concerned, the emphasis has been on all-weather connectivity, particularly in coastal, tribal and border areas. There have been several PPP projects, sometimes externally-aided, with provisions for tolls. The Gujarat Highways Bill of 2007 facilitated PPP projects. There is also a Pragati Path Yojana, for improvement of State Highways, part of which has been completed. In addition, for major projects, third party inspection and monitoring has been introduced. Maintenance guarantees of 3 to 5 years are incorporated in contracts. IT tools have been used for physical monitoring, registration of contractors, court cases and departmental enquiries. In high rainfall districts like Navasari and Surat, village roads have been constructed with cement/concrete.

A point was made earlier about Gujarat’s ability to plug gaps in Central schemes with State-level ones. In the context or urban planning, the relevant ones are the Garib Samruddhi Yojana (GSY) and the SJMMSVY (Swarnim Jayanti Mukhya Mantri Shaheri Vikas Yojana). While on the subject of urban planning, or planning in general, it is odd that one of Gujarat’s remarkable successes doesn’t get written about that much. This is the use of GIS maps in decision making. This is through the Bhaskaracharya Institute for Space Applications and Geo- Informatics (BISAG), a State-level nodal agency set up in 1997 and renamed BISAG in 2003. BISAG also conducts training programmes and workshops and is involved in delivering over the Gujarat SATCOM network. But more importantly, it uses remote sensing and GIS to facilitate planning. These GIS maps with several layers have already been introduced in all the municipalities. Among other things, this is certainly one initiative that other States should replicate.


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