two to three years, the Gas Grid is expected to reach all the 25 districts of ... north Gujarat, Bhavnagar in Saurashtra, and Surat, Navsari and Valsad in south.
1 ABSTRACT The art icle examines growt h experience in various sect ors of t he st at e and analyzes t he medium and long t erm growt h pot ent ial of t he economy. Sectorwise performance of Guj arat economy is analyzed wit h a focus on key engines of growt h and t he effect ive role of t hese growt h engines in macro economic accelerat ion of Guj arat Economy. During t he ninet ies, Guj arat improved it s economic performance remarkably in almost all secondary and t ert iary sect ors. While Guj arat has very st rong performance in t he manufact uring, elect ricit y, const ruct ion, t ransport & communicat ion, and services sect or, it s maj or weaknesses is in t he primary sect or. The art icle at t empt s t o ident ify principal drivers of t he economy in t he st at e and t heir cont ribut ion t o economic growt h. The sect ors are- Energy, Oil & Gas, Agro &food processing, Text iles, Diamonds, Pet rochemicals, SEZ et c. Concluding sect ion highlight s policy recommendat ions for sust ained economic growt h including land reform, invest ment in educat ion and infrast ruct ure, port s, more FDI, t ransparency and efficiency in administ rat ion, at t aining social cohesion, macro economic management etc
Drivers of Economic Growth in Gujarat Sudha Menon Ever since it s incept ion in 1960, Guj arat has followed a st rat egy focused on indust rializat ion and urbanizat ion wit h an open door policy. Economic reform measures int roduced by t he Cent ral Government wit h an explicit emphasis on t rade and indust ry have considerably benefit ed Guj arat , making it s economic performance outstanding. Guj arat has only 5% of India’ s populat ion, but has remained t he st rong-arm of nat ion’ s indust rial and t rade performance, account ing for about a sevent h of India’ s indust rial out put and around a fift h of it s indust rial invest ment . It is expect ed t hat wit h successful implement at ion of Narmada Proj ect , Guj arat would be ready for a second green revolut ion and t his revolut ion would involve value addit ions in t he form of agro-based and food processing indust ries. The Planning Commission has projected Gujarat as one of the fastest growing states in t he t ent h plan. In t he post -reforms period, Guj arat , in part icular, has wit nessed high growt h in sect ors like, chemicals and pet rochemicals, engineering, agro and food processing. Demographic t rends in Guj arat , especially a slowing population growth rate and a rising share of the population of working age, contribute to rising per capita income.
2 The specific inst rument s used by t he St at e Government of Guj arat t o promot e economic growt h t hrough t he privat e sect or include t ax and cost -related incent ives, provision of infrast ruct ure & input supplies, approvals and clearances for indust ries and land market reforms. However, t here is an urgent need t o pay at t ent ion t o manufact uring and IT sect ors of t he st at e, which have remained stagnant during recent years. Against this context, the present article attempts to analyze growth experience in various sect ors of t he st at e and analyzes t he medium and long t erm growt h pot ent ial of t he economy. Sector-wise performance of Guj arat economy is analyzed wit h a focus on key engines of growt h and t he effect ive role of t hese growt h engines in macro economic accelerat ion of Guj arat Economy. The art icle at t empt s t o ident ify principal drivers of t he economy in t he st at e and their contribution to economic growth. The sectors are- Energy, Oil & Gas, Agro &food processing, Text iles, Diamonds, Pet rochemicals, Engineering, SEZ, Medical Tourism, Biot echnology and IT. Concluding sect ion highlight s policy recommendat ions for sust ained economic growt h including land reform, invest ment in educat ion and infrast ruct ure, port s, more FDI, t ransparency and efficiency in administ rat ion, at t aining social cohesion, macro economic management etc Growth Experience in Various sectors Guj arat always played a vit al role in India’ s economic development . Though Guj arat account s for only 6% of India’ s geographical area and 5 % of t he populat ion, 21% of our export s and 6.4% of GDP is cont ribut ed by Guj arat . The st at e has achieved remarkable success in indust rial development which makes t he st at e parallel t o Singapore and Malaysia. This was part icularly so aft er liberalization era in which Guj arat improved it s economic performance remarkably in almost all secondary and t ert iary sect ors. Though, Guj arat has very st rong performance in t he manufact uring, elect ricit y, const ruct ion, t ransport & communicat ion, and services sect or, it s maj or weaknesses is in the primary sector. Guj arat ranks 2nd in st at e-wise percent age share of Net Value Added by manufact uring in t he fact ory sect or of India according t o t he Annual Survey of Indust ries (2002-03). Guj arat ’ s rat e of growt h of indust rial out put is 18% (200304). Guj arat has been a front runner in indust ries including t ext iles, chemicals, pet rochemicals, pharmaceut icals, engineering, oil and gas, ceramics, gems and j ewellery and agro-based product s. There are around 168 indust rial est at es in Gujarat. The services sect or cont ribut ed 42.4% t o t he st at e’ s GDP in t he year 2004-05. Services included t rade, hot els, t ransport , communicat ion and financial services In t he last Economic survey of Guj arat published in 2007, t he growt h of GSDP was est imat ed as 5.1%. The growt h rat e in secondary sect or was recorded as 9.3 % and t ert iary sect or as 8.6%. The share of Primary, Secondary and Tertiary
3 sect ors has been report ed t o be as 18.5, 39.1 and 42.4 per cent respect ively of t he t ot al GSDP (Rs.107033 crore) in 2004-05 at const ant (1993-94) prices1. The share of t hese sect ors in t he base year 1993-94 had been report ed t o be as 25.5, 35.8 and 38.8 per cent respect ively. The share of Primary, Secondary and Tert iary sect ors has been report ed t o be as 19.0, 38.4 and 42.6 per cent respectively of the total GSDP Rs. 179544 crore) in 2004-05 at current prices. However t he growt h rat e in primary sect or was low by 8.9 % which give alarming signal t o t he economic prosperit y of Guj arat . The following t able shows sector-wise trends in growth during the last 2 decades.
Table 1 Comparison of Sectoral Trends [% Per year] Sector Agriculture Manufacturing Electricity, Gas &Water Construction Trade& Hotels Transport & Communication Finance & Estates Other services Total GDP
1981-1992 2 6.9 9.4 4.6 5.2 7.1
1992-2002 4 10.1 7.6 6.2 8.3 9.9
6.3 5.4 4.2
5.7 5.7 7.0
Source: Directorate of Economics and Statistics, Government of India. From t he Table it is clear t hat Guj arat has achieved great success in secondary and t ert iary sect ors during t he last decade. Elect ricit y, const ruct ion and hospit alit y sect ors had achieved t remendous growt h where as agricult ure sect or st ill lag behind. Manufact uring sect or also wit nessed high growt h rat e during t his period. The above t able furt her shows t hat t he long t erm growt h pot ent ial of Guj arat economy depends on secondary and t ert iary sect or wit h special emphasis on communicat ion, infrast ruct ure and const ruct ion and manufact uring. At t he same t ime st at e should focus on a pragmat ic st rat egy t o revive t he agricult ure because maj orit y of t he rural people st ill depends on agricult ure and allied act ivit ies for livelihood. Hence Guj arat economy can not at t ain a sust ainable growt h wit h equit y wit hout realizing t he significance of agricult ure in economic development t hough it s cont ribut ion t o GSDP is low. The following table shows contribution of major industrial sectors in Gujarat.
1
Socio-Economic Survey of Gujarat, 2006.
4
Table 2 Gujarat- Major Industrial Sectors
Sector Refined Petroleum Chemicals including Pharma Engineering Food and beverages Metallurgical Textiles Non-metallic mineral Plastic Paper
Share in Gujarat [%] 30.8 26.7
Share in India[%] 38 30
9.5 9.2 7.4 7.2 2.4 1.9 1.2
7 9 11 15 12 10 11
Source: Vibrant Gujarat Documents
As on August 31, 2005, Guj arat account s for t he highest invest ment in India 16.75 per cent , amount ing t o a whopping Rs. 2.74 t rillion, and account ing for nearly 7,500 proj ect s. Over t he last five years (2000-2005), t he st at e has at t ract ed t he highest invest ment s among all st at es in India - a record Rs. 943.57 billion. Since t he long t erm growt h model ident ified by Guj arat put more emphasis on indust rial sect or it would be int erest ing t o ident ify t he principal movers or engines of growt h. Policies pert aining t o all t hese sect ors would have direct bearing on growth of the economy2.The following paragraphs discuss the role of the prime engines of growth in detail. Drivers of Economy The economy of Guj arat shows t hat it is one of t he most prosperous st at es of t he count ry, having a per-capit a GDP 2.47 t imes India's average. Of all t he st at es, Guj arat cont rols some of t he largest businesses in India. According t o t he dat a published by "Cent er for Monit oring Indian Economy" or CMIE, Guj arat ranked t hird among all t he st at es of India in 2004, approximat ely same as Punjab and Maharashtra, at Rs. 15,8003.
2 3
.
Ravindra Dholakia, Macro economic framework for development in Gujarat,CGSD Working Papers. www.wikipedia.org/gujarat
5 Guj arat ranks first nat ionwide in gas-based t hermal elect ricit y generat ion wit h nat ional market share of over 18% and second nat ionwide in nuclear elect ricit y generat ion wit h nat ional market share of over 16%.Over 4% of t he S&P CNX 500 conglomerat es have corporat e offices in Guj arat . During t he period 1960-90, Guj arat est ablished it self as a leader in various indust rial sect ors - Text iles, Engineering, Chemicals, and Pet rochemicals, Drugs & Pharmaceut icals, Dairy, Cement & Ceramics. Gems & Jewellery, et c. These sect ors are oft en regarded as the chief engines of growth in Gujarat economy. Energy: Energy is t he engine of growt h for indust ries. The government has t aken a number of st eps t o ensure cheap and regular supply of elect ricit y for t he indust ry.Wit h t he presence of MNCs and Big corporat e players of t he count ry, Guj arat holds a st rat egic posit ion in t he Indian power indust ry. It has been ranked 2nd in t he Power Sect or rat ing Report (2005) of CRISIL-ICRA submit t ed t o t he Minist ry Of Power, India. Guj arat has inst alled capacit y of 9288 MW with the proj ect ed peak demand of 10605 MW. The expect ed addit ion of 536 MW by the end of 2007 will still result into the deficit of almost 2652 MW in t he inst alled capacit y by t he year end. This depict s t he growt h prospect s in t he power sect or of t he st at e. Per capit a consumpt ion of elect ricit y of Guj arat is also double of that of the average for India. The State Electricity Board (SEB) of Guj arat is one of t he bet t er performers as compared t o ot her St at e Elect ricit y Boards (CRISIL, Jan 2003). The ‘ Gram Jyot i’ proj ect provide singlephase cont inuous elect ricit y t o villages wit h populat ion of over 3,000 has been implemented in Gujarat successfully. Oil & Gas Sect or: Guj arat governs a command over t he on shore product ion of t he crude in India by cont ribut ing almost 54% of t he t ot al product ion. The government of Guj arat proposes Guj arat as energy hub, since it has unique feat ure of having St at e Wise Gas Grid and Mult i Gas Supplier. It is Guj arat t hat has given India it s largest Nat ural Gas discovery of 20 TCF at t he KG basin and has already st art ed implement ing a 2200 km st at e-wide gas grid – t o connect t he demand and supply cent res. Out of t his, 750 km net work is already operat ional and anot her 650 km pipeline is under implement at ion. In t he next t wo t o t hree years, t he Gas Grid is expect ed t o reach all t he 25 dist rict s of Guj arat and cat er t o t he requirement s of indust rial, commercial and domest ic sectors. Refineries in Guj arat are account able for 46% of refining capacit y of t he count ry. The privat e and public sect or ent erprises like Adani, Brit ish Gas along wit h GAIL, GSPC, BPCL are involved in gas dist ribut ion. Hazira and Palej are t he only t wo LNG t erminals in India, ment ioning t he pot ent ial of Guj arat t o be a st at e who can lead India in t he development and growt h in oil and gas sector. Guj arat has t aken a pioneering role in ut ilizing Nat ural Gas for power generat ion, fert ilizer product ion, manufact uring and t ransport at ion. Wit h an increasing presence of upst ream mult inat ionals, downst ream giant s and midstream companies in Gujarat, the state has emerged as the Petro-Capital of India and leading t he count ry t owards energy sufficiency and int o an excit ing hydrocarbon economy. Wit h an upcoming Special Economic Zone dedicat ed t o Oil and Gas sector, an unprecedented growth is envisaged.
6
Textiles: Text ile also plays a vit al role in economy of Guj arat and it cont ribut es around 7.2% of st at e GDP. Guj arat is famous for t radit ional t ext ile giant s like Arvind Mills. The lift ing of quotas and incent ive schemes such as t he Technology Up-gradation Fund has improved the prospect s of textile clusters of Guj arat . The government has lined up 13 proj ect s for t he sect or, wit h an invest ment of Rs 1,128.6 crore. All t he proj ect s are likely t o come up in Ahmedabad, Surat and Valsad in t he upcoming int egrat ed t ext ile parks. An apparel t raining inst it ut e is also being planned wit h an int ake of 700 st udent s in Surendranagar. Gems & j ewellery: Guj arat is one of t he world’ s largest producers of gems and jewellery. Guj arat cont ribut es about 72 per cent of t he t ot al export s of India. The st at e wit h it s diamond and j ewellery unit s at Ahmedabad and Palanpur in nort h Guj arat , Bhavnagar in Saurasht ra, and Surat , Navsari and Valsad in sout h Guj arat is one of t he main cont ribut ors t o t he gems and j ewellery indust ry in India. Gujarat accounts for about 80 per cent of the diamonds processed and 90 per cent of t he diamond export from India. Surat has 65 per cent share in India's diamond trade. Diamonds wort h $9 billion are being processed in Guj arat , account ing for 80 percent of India's t ot al diamond export s, according t o official dat a. The Ahmedabad area, which specializes in manufact ure of gold j ewellery, has about 4,000 skilled workers. The labor product ivit y of t his clust er is around 50 grams of product ion per day per workman, which is t he highest in India, according to industry estimates. Facing st iff challenges from Maharasht ra and Tamil Nadu in t he diamond and j ewellery business, Guj arat is now evolving new st rat egies t o ret ain it s supremacy in the sector. As part of the new strategy, Gujarat is looking beyond Surat for diamond polishing. It is ident ifying places in ot her part s of t he st at e where low cost diamond polishing zones could come up. A global diamondt rading hub is also being t hought t o enable domest ic and foreign buyers t o buy diamonds. Chemicals & Petro-Chemicals: The indust ry is viewed as a maj or growt h engine of t he St at e Economy. Chemical and Pet rochemical Indust ry occupies an import ant place in t he count ry’ s economy, as t he Chemical indust ry has grown at a pace out performing t he overall growt h of t he indust ry. The Chemical Industry produces a wide spectrum of products, which include Pharmaceuticals, Dyes, Man-made Fibers, Plast ics, Pest icides, Fert ilizers, Cosmet ics and Toiletries, Paint , Auxiliary Chemicals and wide range of Organic and Inorganic compounds for applicat ions ranging from aut omobiles, t ext ile indust ry, engineering indust ry, const ruct ion chemicals and food addit ives t o vet erinary and health care products. The Chemical Industry in Gujarat comprises of about 500 large and medium scale indust rial unit s, about 16,000 of small-scale industrial units and other factory sector units.
7 Since August 1991, chemical and allied sect or account s for an invest ment of Rs.1531 billion which is 50.3% of t ot al invest ment of t he st at e. Similarly 1324 proj ect s of t he chemical and allied sect or involving an invest ment of Rs. 531 Billion have been commissioned/ concluded, account ing for about 59.6% share in invest ment of t he t ot al proj ect s commissioned. Also 616 proj ect s envisaging an invest ment of Rs. 429 Billion are under implement at ion in Chemicals and Allied Indust ry. The Small Scale and Fact ory Sect or indust ry in Chemical and allied field has also shown an impressive cont ribut ion in t he sub-sect ors of Dyest uff and Pharmaceut icals, Paint s and Fine Chemicals producing large number of value added products. The maj or reasons which could be at t ribut ed t o such a spect acular growt h of t his sect or in t he st at e are a st rong base of pet rochemical indust ry, increasing availabilit y of basic feed st ock, relat ively low overhead cost , availabilit y of necessary infrast ruct ure, t rained and t echnical manpower and high degree of ent repreneurship. Guj arat Indust rial Development Corporat ion (GIDC) has set up mega estates, particularly for chemicals at Ankleshwar, Panoli, Vapi, Vatwa, Jhagadia, Vilayat and Dahej to facilitate further development and growth Food Processing: Guj arat has st rengt hs in agro-based indust ry in t erms of nat ural resources, est ablished indust rial infrast ruct ure, vast pool of t echnically skilled manpower, hard working and ent erprising farmers, est ablished net work of Agriculture Produce Markets (APMCs) and well developed co-operative sector for providing various farm input s including agricult ure credit . The st at e government at t empt s t o make an invest ment of about Rs 350 crore from 24 different proj ect s. Terminal market s envisage offering a one-st op solut ion cleaning facilit y, grading, sort ing, packaging and pallet izat ion of fresh horticulture produce. On t he basis of fruit s and veget ables and locat ions for development , t he market s have been proposed at Ahmedabad and Surat . Tot al proj ect cost is est imat ed t o be Rs 95 crore. This will be in line wit h cropspecific clust er development for agricult ure and hort icult ure crops cult ivat ed in Guj arat . It may have a Food Park wit h a clust er of 40-50 unit s at one locat ion. Est imat ed cost of t he ent ire proj ect is Rs 56 crore. Government feels t hat t hrough t hese proj ect s t he food processing indust ry can provide rich dividends to overall economic development of the economy. SEZ: Since t he incept ion of t he Special Economic Zone (SEZ) concept in India, Guj arat has always been on t he cards. The first SEZ of t he count ry was est ablished at Kandla, Kut ch dist rict in 1965. Since t hen on a consist ent basis SEZs are being developed in t he st at e owing t o it s vast resource of skilled and unskilled labor, t echnological and infrast ruct ural facilit ies, coast line of 1600 km longest in the country, and most importantly the spirit of entrepreneurship, which is found at a lower scale in ot her part s of t he count ry. The st at e has chalked out plans t o draw invest ment s of over Rs 41,000 crore from various port-based proj ect s. While a special economic zone at Dholera on t he lines of the state's dream of transforming Ahmedabad into a port-based city is all set to
8 come up, various green-field proj ect s at Mit hivirdi, Vansi Borsi and Bedi are also in the pipeline. The state government is planning to set up three projects under t he t it le of ship building/ ship repairing yard wit h an est imat ed invest ment of Rs 900 crore each. A mult i-proj ect SEZ, which will cat er t o t he chemical and pet rochemical unit s, is likely t o come up at Dahej wit h an invest ment of about Rs 900 crore. In t he Vibrant Guj arat Global Invest ors Summit 2007 SEZ was t he focus. 26 Memorandum of Underst andings were signed for an invest ment of Rs.1.4 lakhs crores however all were wit h local SEZ developers but no foreign investors.
Conclusion and Policy Recommendation The above analysis of t he main economic drivers of Guj arat reveals t hat t he st at e has very high growt h pot ent ial in near fut ure. The st at e has successfully carved out a formidable posit ion in indust rial and manufact uring sect or t oget her wit h service sect or. However t he main drawback of t he Guj arat model is it s negligible performance in agricult ural sect or and regional imbalance in development . The fruit s of high growt h rat e and development are limit ed t o t he main land Guj arat . The t ribal region of sout h and nort h Guj arat is lagging behind ot her part s in t erms of economic and indust rial development . Furt her t he st at e cannot achieve remarkable success in social and human development indicat ors. The public invest ment in educat ion and ot her social sect ors are low. Absence of English educat ed young populat ion has indeed affected flow of FDI also. The ent erprising and commercial mind set in Guj arat has brought t he st at e a fore runner in economic development . The st at e has not only acquired and maint ained it s fort h rank in per capit a NSDP, but it has also t aken quant um j ump in t he post liberalizat ion period by at t ract ing highest indust rial development . The progress in economic diversificat ion however doesn’ t seem t o be sust ainable as t he primary sect or has lagged far behind dist ort ing t he agricult ure indust ry linkages. Along wit h t his t he rapid indust rializat ion has affected environment also. The limit ed achievement of t he st at e in t he field of employment and povert y as well as human development are closely linked t o t he macro development pat h. So t he st at e needs a correct ive pat h t o make it equit able and sust ainable. The alt ernat ive is t o broaden t he base of development t hrough environment friendly and employment int ensive development pat h. Only an inclusive model can make economic growt h and development sustainable. References 1. Indira Hirway etall. Dynamics of development in Gujarat, 1998. 2. SP Kashyap and Niti Mehta, Gujarat 2020: Viewpoints & A Vision, www.gdnet.org
9 3. Dholakia, Ravindra (2006) “Growth acceleration and Potential in Gujarat” Working Paper No. 2006-02-02, Indian Institute of Management, Ahmedabad. 4. Dholakia, Ravindra (2004) “ Macro-Economic Framework for Development in Guj arat ” ,Working Paper No. 2004-02-02, Indian Inst it ut e of Management, Ahmedabad. 5. Dholakia, Ravindra (2001) “ Liberalisat ion in Guj arat : Review of recent Experience”,Anvesak, 31(1&2). 6. Ghosh, M (2006)”Economic Growth and Human Development in Indian States”,Economic & Political Weekly, 40(30). 7. Government of Guj arat (2000 and 2001): Guj arat St at e: Socio-economic Review,1998-99, 1999-2000 and 2000-01,2005-06 Budget Publicat ion No. 30. 8. Official website of government of Gujarat
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