The Gujarat model of
development:
What would it do to the Indian economy?
The cornerstone of Modi’s and the BJP’s campaign for the 2014 Lok
Sabha elections is that the UPA has ruined the Indian economy and the BJP led
by Modi will make it boom. These claims have been reinforced by corporate
adulation for Modi in his ‘Vibrant Gujarat’ summits [1] and surveys showing
that almost 75% of top corporate CEOs want him to be the PM [2]. How valid are
these claims?
The UPA’s performance
The economic reforms initiated by the Congress government in the
1990s raised the GDP growth rate from an average of around 3.5% per annum since
Independence to
more than 9% between 2005-06 and 2007-08 [3], before dropping to 6.7% in
2008-2009 as a result of the global crisis [4]. Global competition forced
manufacturers of products like electrical and electronic goods to improve the
quality and reduce the prices of their products. Computers, internet access and
mobile phones became much more widely available.
However, neoliberal policies that were part of the changes had
serious negative consequences. Privatisation was in many cases accompanied by
massive corruption (e.g. the CWG and 2G scams), as politicians and bureaucrats
received kickbacks from the corporates they favoured. In other cases, even if
there were no kickbacks, lack of adequate regulation allowed corporates to make
windfall profits, while public sector banks offered them generous loans without
exercising due diligence. The campaign by industrialists for the abolition of
protective labour laws reached a crescendo during the NDA regime. It stopped
when the UPA came to power, but the anti-labour atmosphere had already
influenced state labour departments and even the judiciary to such a degree
that workers struggling for their rights were seldom successful.
The result of these trends was a huge increase in inequality. At
the top, a few capitalists became dollar billionaires, joining the global rich.
Just below them, 10-15% of the population became a prosperous middle class. But
for the vast majority there was no improvement. Between the top and the bottom
there was an unbridgeable gulf.
These developments were not peculiar to India. A wave of neoliberalism was
sweeping through the world. What does this mean? The only interest of most
capitalists is to maximise their profits regardless of the damage they do to
the economy. If reducing wages below subsistence and destroying the environment
boosts profits, so be it; if gambling with worthless derivatives promises
trillions, then go for it. If privatisation of public utilities like
electricity and water offers huge profits to a few, then that is the way to go,
even if it reduces the profits of many others and imposes an intolerable burden
on non-coporate users. But normally the state, even if it supports capitalism,
takes a broader view. It may regulate the banking sector so that it is not
threatened with collapse if risky investments go wrong. It may nationalise
railways and public utilities so as to reduce costs for all capitalists. It may
even invest in health and education in the interests of a better labour force.
The peculiarity of a neoliberal regime is that the state takes the
standpoint of individual capitalists and allows them to do what they want
rather than protecting the system as a whole. The corruption unleashed by this
regime in countries like the US
has been phenomenal. Mortgage providers ramped up the housing market to
astronomical levels by offering large mortgages to buyers who would never be
able to pay them back. Investment banks then ‘bundled toxic mortgages into
complex financial instruments, got credit rating agencies to rate them as AAA
securities, and sold them to investors, magnifying and spreading risk
throughout the financial system, and all too often betting against the
instruments they sold…’ [5]. The outcome was the global crisis of 2008,
resulting in millions of homes, jobs and pensions lost on one side, while on
the other side gigantic fortunes were made. Years later, some of these banks
were penalised, but their CEOs were not [6]. Credit rating agencies too came
under fire for giving triple-A ratings to junk; Standard & Poors even faced
a civil suit [7]. Yet they too remained in operation.
This background is important in understanding what has been
happening in the Indian economy. The global crisis hit all countries across the
world. India,
because its economy was not fully neoliberalised, did better than most. Its
relatively well-regulated banking sector survived, though not unscathed:
generous loans given to corporates like Kingfisher Airlines without proper
scrutiny of their ability to repay piled up on the balance-sheets of the banks
as non-performing assets [8]. This has justifiably been seen as collusion
between bank managements and corporates to rob the public of over 3 lakh crores
over the past two years [9]. The Finance Ministry and Reserve Bank acknowledged
the scale of the problem in November 2013, and pledged to take steps to deal
with it [10]. Recession and austerity in developed countries hit exports from India, which in
turn hit employment, reducing wage expenditure and demand. Paradoxically NREGA,
which had been intiated before the crisis, acted as a stimulus package,
creating employment, helping to raise agricultural wages and preventing the
collapse of rural spending power. But the middle classes, who had been doing so
well before the crisis, saw their future and the future of their children
threatened.
The net result in India
has been a slow-down in economic growth and high rates of inflation, which are
causes for concern but not nearly as catastrophic as the slow-down in developed
countries. According to Shankar Sharma, a director at one of India’s leading investment brokers, First
Global, ‘India’s
current economic management is inarguably the best that we have… In the last
nine years, India
has grown at about seven and a half percent compounded. But more importantly,
in this ten years, debt to GDP has come down from 91 percent to 67 percent’
[11]. APCO Worldwide agrees with this assessment of the UPA’s economic
performance: ‘India
today is a trillion-dollar market with an enviable rate of GDP growth. India’s economy
is fueled by the combination of a large services sector, a strong and
diversified manufacturing base and a significant agricultural sector that
continues to provide a framework for the growth of the domestic economy. The
country’s resilience in weathering the recent global downturn and financial
crisis has made governments, policy-makers, economists, corporate houses and
fund managers believe that India can play a significant role in the recovery of
the global economy in the months and years ahead’ [12].
This is a very different picture from the constant BJP blitzkrieg
blaring the allegation that the UPA has made a mess of India’s
economy. Given that APCO is the PR firm hired by the state government of Gujarat from 2009 to 2013 at a reported cost of $ 25,000
a month to promote Modi’s Vibrant Gujarat [13], it can hardly be accused of
pro-Congress bias. Moreover, while rampant corruption during the UPA regime is
undeniable, it also enacted the Right to Information (RTI) Act, which played a
considerable role in exposing corruption. If the BJP’s anti-UPA propaganda is
economical with the truth, what about its pro-Gujarat propaganda?
Corruption, poverty and pollution in Vibrant
Gujarat
The average GDP growth rate in Gujarat over the past ten years has
been above the national average, but in line with the growth rates of
comparable large states like Maharashtra, Tamil Nadu and Delhi [14]. Gujarat’s growth has been
achieved at the cost of handing over complete control over the economy to
corporates, and wholesale privatisation: ‘Key sectors – traditionally held to
be the preserve of the state – such as ports, roads, rail and power have been
handed over to corporate capital. This has meant, inevitably, that the government
has abdicated all decision making powers, as well as functional and financial
control over such projects. Nowhere else in the country has this abdication of
responsibility been so total, nowhere else has the state given over the economy
so entirely to the corporates and private investors’. Infrastructure and access
to water and electricity favour industry over agriculture and individual
consumers. Employment growth in manufacturing and services turned negative in
the last five years, and even prior to that was concentrated in the informal
sector [15].
The Modi administration’s largesse to corporates can be judged by
two examples. One is the staggering subsidies offered to Tata for its Nano
plant and other projects. Against an investment of 2900 crores, Tata received a
loan of 9570 crores at 0.1% interest, to be paid back on a monthly basis after
20 years, in addition to land at much below market rates, with stamp duty,
registration charges and electricity paid for by the state. Tax breaks mean
that the people of Gujarat will not be getting
any of this money back in the near future [16]. All the rules were bent to
provide Adani with a power supply contract costing the state of Gujarat an
excess Rs 23,625 crores over 25 years [17], and other companies, including
Reliance Industries and Essar Steel, were extended similar favours [18]. So
when these companies praise Modi to the skies [1], support his candidature for
PM [2], use the media they own to promote Modi and silence criticism of him
[19], and put their aircraft at his disposal [20], this is merely quid pro quo.
Any objective definition of ‘corruption’ would include such
activities. The scale of corruption in Gujarat
is stupendous, and those who campaign against it have not fared well. With only
5% of India’s population,
22% of the murders and 20% of the assaults of RTI activists in recent years
have occurred in Gujarat, which has only two RTI Commissioners compared to
eight in Maharashtra and nine in Tamil Nadu
[21]. The post of Lokayukta (corruption watchdog) was not filled for ten years
since 2003. When the Governor and Chief Justice of the High Court selected
Justice R. A. Mehta for the post in 2011, as they were empowered to do
according to the Gujarat Lokayukta Act, Modi fought tooth and nail against the
appointment, reportedly spending Rs 45 crores to challenge it all the way up to
the Supreme Court. Even after the Supreme Court had upheld the appointment, the
state government refused to cooperate with Mehta, leading him to decline the
position [22]. Subsequently the state government amended the Lokayukta Act to
make it a toothless body under the control of the very government whose
corruption it was supposed to monitor [23]! Apparently Modi learned a lesson
from the fate of his friend Yedyurappa, former BJP Chief Minister of Karnataka,
who was forced to resign due to corruption charges against him initiated by the
Karnataka Lokayukta [24], and resolved never to give any Lokayukta the
opportunity to do the same to him.
The ordinary people of Gujarat have
paid a heavy price for its economic growth. Gujarat
has one of the highest poverty levels of all the Indian states. Huge swathes of
land allocated to corporates have displaced lakhs of farmers, fishermen,
pastoralists, agricultural workers, Dalits and Adivasis. During Modi’s tenure,
16,000 workers, farmers and farm labourers had committed suicide due to
economic distress by 2011 [25]. Gujarat has the highest prevalence of hunger
and lowest human development indices among states with comparable per capita
income, its implementation of NREGA is the worst among large states, and
Muslims, ‘in particular, fare poorly on parameters of poverty, hunger,
education and vulnerability on security issues’ [26]. Refuting Modi’s claim
that the high level of malnutrition in Gujarat is a consequence of
vegetarianism and figure-consciousness, an eminent scholar has pointed out that
the real reasons are extremely low wage rates, malfunctioning of nutrition
schemes, lack of potable water supplies, and lack of sanitation: the state
ranks 10th in the use of toilets, with more than 65% of households defecating
in the open, with resulting high levels of jaundice, diarrhoea, malaria and
other diseases [27]. Uncontrolled pollution has destroyed the livelihoods of
farmers and fishermen, and subjected the local populations to skin diseases,
asthma, TB, cancer and death [28].
Contrary to the myth that Gujarat is a powerhouse attracting large
FDI inflows, in 2012-13 its share in FDI was a meagre 2.38%, ranked 6th,
compared to Maharashtra’s 39.4% [29]. Most
damning of all, for a state that purports to provide a template for the whole
country’s economy, is the Modi government’s ‘lack of financial discipline. The Gujarat growth pattern relies on indebtedness. The
state’s debt increased from Rs 45,301 crore in 2002 to Rs. 1,38,978 crore in
2013... In terms of per capita indebtedness, the situation is even more
worrying, given the size of the state: each Gujarati carries a debt of Rs
23,163 if the population is taken to be 60 million’ [30].
The Gujarat economic model is a
more extreme version of neoliberalism than the version practised by the UPA,
which retains elements of regulation and social welfare. This is clearly the
reason why the majority of CEOs want him to be the PM. It bothers them that the
policy of endless credit from public sector banks has come under scrutiny by
the UPA, and billionaires like Sahara boss Subrata Roy can be arrested for
robbing small investors of Rs 20,000 crores [31]. They look forward to a Modi
regime where they can continue to loot the public unhindered by regulations,
where small concessions to working people like NREGA and the Food Security Act
can be shelved, and the NDA’s old programme of scrapping protective labour
legislation can finally be realised. Importers of gold and other luxury
consumption goods can’t wait to have a PM who is clueless about technicalities
like current account deficits and fiscal deficits and would allow the whole
country to become as indebted as Gujarat is today [32]. It is also instructive
that the very same ratings agencies and investment banks indicted for making
trillions by bringing down the US economy and causing a global crisis (see [5]
and [7]) have been busy downgrading the UPA economy [33] and batting for Modi
[34]. All these firms, Indian and international, would be least bothered if the
Indian economy were to crash; they would have parked their profits elsewhere by
then.
Modi’s policies are exactly the same as those which destroyed the
economy of the US,
the richest country in the world, resulting in the global crisis: wholesale
privatisation and deregulation, extreme disparities in wealth, and
unsustainable indebtedness. And they would have the same results in India, such as
massive job losses, and worse. The US dollar has maintained much of its value
because it is a global reserve currency, and other countries buy it in order to
maintain their currency reserves. The Indian rupee is not a global reserve
currency, and there is nothing to stop it from plummeting due to the rising
deficits, leading to runaway inflation many times worse than India has ever
experienced. Ironically, it is the same sections of the middle class who look
to Modi as their saviour who would be hardest hit, because they have so much
more to lose than the poor, who would also be hit.
Perhaps Modi would leave the economy to be handled by others in the BJP, but
who is competent to do it? Yashwant Sinha, the finance minister during the NDA
regime, does not exactly inspire confidence. ‘In 1990, Sinha was finance
minister in the government of Chandrashekhar, when the bottom fell out of the
Indian economy. The government’s policy response then was to ship all the gold
in the Reserve Bank of India’s
vaults off to the Bank of England as collateral for a loan… In 1998, by a
peculiar coincidence, Sinha was again finance minister, this time in the
BJP-led NDA coalition government… In March 2001, soon after Sinha presented his
Budget, India
experienced one of its worst market crashes: about $32 billion worth of market
capitalisation was wiped out that month… In the NDA era, a little less than $4
billion entered India
each year on average. Under the UPA, this number stands at a little less than
$25 billion, more than six times the NDA average’ [35]. According to investment
broker Shankar Sharma, ‘The BJP is the only mainstream political party that has
no economist. And the BJP rule between 1999 and 2004 had the worst nominal GDP
growth in the last 30 years in India,
the worst by far. They ran the country into a huge debt trap. India’s debt to
GDP ratio went from about 78 percent in 1999 to 91 percent by 2004. So again,
whatever GDP growth the BJP delivered in those five years, the growth was with
very high debt’ [11].
At a time of downturn and global crisis, putting India’s economy in the hands of a
party that has no competent economist is tantamount to economic suicide. In
accordance with their-frog-in-the-well perspective, Modi and the BJP never
mention the global crisis or inquire into its causes. Anyone who takes the trouble
to do so would realise that the ‘medicine’ they prescribe for the economy,
which is suffering from slow poisoning by neoliberalism, is a lethal dose of
the same poison.
Do the Left parties and the Aam Aadmi Party offer viable alternatives?
The Left parties failed to deliver a better model of development
during more than thirty years in power in West Bengal,
culminating in the Nandigram and Singur violence [36]. The Paschim Banga Khet
Mazoor Samity had been demanding a rural employment guarantee scheme for
decades, but the Left Front government refused even to consider it until NREGA
was enacted by the UPA. The lack of an alternative was demonstrated most
starkly over the issue of FDI in multibrand retail, where they formed a united
front with the NDA to oppose it [37] rather than thinking of anything more
principled and imaginative like forming consumer cooperatives which draw in
street vendors. The failure of the Left parties to offer any economic
alternative is particularly disappointing because they do have a critique of
neoliberalism, and can at least be counted on to oppose the wholesale
privatisation and deregulation of the economy or attempts to scrap protective
labour legislation and welfare schemes.
AAP has a one-point economic programme: eliminating corruption.
Their Jan Lokpal Bill, through which they hope to achieve this, sees all
corruption as emanating from the state, and affecting only corporates that have
a relationship with the state: a view entirely compatible with neoliberal World
Bank anti-corruption programmes [38]. Its economic model is neoliberalism
purged of corruption and ‘crony capitalism’. This comes through in their recent
speeches. Privatisation is good, because ‘Government has no business doing
business, it only has to govern. Business should all be held by the private
sector,’ according to Arvind Kejriwal, who made a point of saying that the
party disagreed with the economic views of Prashant Bhushan, the left-wing face
of AAP [39]. AAP objects to industrialists like the Ambanis getting favoured
treatment, but former banker Meera Sanyal clarified that they want to create
the conditions in which all ‘hard working entrepreneurial, highly innovative
people can feed themselves and their families’, suggesting that the state would
help all capitalists equally [40]. Yogendra Yadav said that ‘Food subsidies
should not be provided,’ and that the party stands for ‘clean politics,
pro-business deregulation, non-interference of the state and not to serve the
interests of crony capitalists’ [41].
This economic model is as neoliberal as Modi’s and more neoliberal
than the UPA model, which still has elements of regulation and social justice.
It offers nothing to workers and the poor, and would do nothing to reduce
inequality. With their exclusive focus on an extremely narrow definition of
corruption, AAP ignores the underlying disease of which it is a symptom –
extreme inequality resulting from neoliberalism – and their policies would in
fact exacerbate the basic problem. In theory, their model would be free of
‘crony capitalism’, but whether AAP can actually eliminate corruption is
questionable, given that much of the corruption during the UPA regime has been
the consequence of pro-business deregulation. Finally, their government’s grant
of electricity subsidies to supporters who had not paid their bills but not to
non-supporters who had paid their bills (subsequently stayed by the High Court)
[42] sounds suspiciously like quid pro quo: you vote for us, we give you
subsidies.
Conclusion
For years the BJP, Modi, the corporates which support him and the
media they control have bombarded us relentlessly with propaganda and lies
about the mess that the UPA has made of the economy and the shining success of
‘vibrant Gujarat’. In reality, we find that the UPA regime suffers from the
same problems as other neoliberal regimes and has done better than most, while
Modi’s policies would have catastrophic consequences for the Indian economy.
AAP’s policies would not be much better: they would benefit a wider layer of
entrepreneurs – say 3-5% of the population compared with Modi’s 0.1% – but
scrapping food subsidies would make the poor poorer, so inequality would be
greater than under the UPA. The UPA and Left parties seem to be the best of a
bad lot so far as economic policy is concerned.
Does this mean that there is no better alternative to current
policies? Far from it. Perhaps before the next Lok Sabha elections we will have
a party opposing sops and subsidies to the rich, loss of lives and livelihoods
due to expensive, dangerous and polluting nuclear power plants and weapons, the
privatisation of public utilities, education and health care, and much more. A
party which would stand for reducing inequality through (1) raising wages by
protecting the right of all employees, regardless of their place of work or
employment status, to unionise and bargain collectively without fear of
victimisation; (2) putting in place a comprehensive system of progressive
taxation to help fund the provision of education, health care and social
security for all; and (3) creating employment through various measures such as
(a) shortening statutory working hours to 40 per week and enforcing this
measure; (b) expanding NREGA and including new projects such as water
harvesting and rural electrification through small renewable energy projects;
and (c) supporting the formation of workers’ cooperatives in agriculture,
industry and services. Until then, mass movements have to continue fighting for
such goals.
Those who think these goals belong to an obsolete left-wing
economic model would do well to listen to Christine Lagarde: ‘Let me be frank:
in the past, economists have underestimated the importance of inequality. They
have focused on economic growth, on the size of the pie rather than its distribution.
Today, we are more keenly aware of the damage done by inequality. Put simply, a
severely skewed income distribution harms the pace and sustainability of growth
over the longer term. It leads to an economy of exclusion, and a wasteland of
discarded potential’ [43]. These are not the words of a left-winger but of the
head of the International Monetary Fund, the financial institution which, along
with the World Bank, has done the most to impose neoliberal policies on the
world. If she can see the writing on the wall for neoliberalism, it is high
time that policy-makers and the public in India followed suit.
