What is common between India, China, Germany, Japan, Israel and South Korea – all these countries were in a similar stage of development in late 1940s. But the comparison ends there. While others became global and regional economic superpowers, we are still struggling to set our basics right – poverty, illiteracy, unemployment, malnutrition, human/social indicators, and the list could go on. The fundamental reason for this economic disaster is the socialist policies adopted immediately after independence, which overextended public sector and strangled private enterprise. The two decades post liberalization showed us what a vibrant domestic business environment could do. Animal instincts of the economy were unleashed and we reduced unemployment significantly, registered unprecedented growth rate which lifted millions out of poverty and created the second biggest middle class population in the world.
The organized and unorganized private sector achieved what trillions spent on social welfare could not. And this is exactly the lesson current central government seems to have conveniently forgotten for short term electoral gains. Instead of clearing the bottlenecks of gaping infrastructure shortfall, archaic labor laws, human resource issues, red tape and bureaucratic inefficiency, it seems content with populist measures like food security bill, land acquisition act, NREGA, etc. As what has happened in the past, all these touted achievements will only result in more leakages, black market and corruption without accomplishing anything meaningful for its intended beneficiaries.
But fortunately, not everyone has lost the lesson. Gujarat is the first state that would come to one’s mind in any debate about the contribution of small and large businesses to economic prosperity. The philosophy of ‘Minimum Government, Maximum Governance’ is what Mr Modi has been articulating for quite some time now. Gujarat’s success story has been talk of the town, and one of the principal reasons for this has been the government’s conscious decision to play the role of an enabler while providing an environment extremely conducive to doing business. According to Assocham study, of the total outstanding investments attracted by Gujarat as of December 2012, private sector account for a staggering 73%. This is highest as compared to any state in India. When business confidence has sunk and companies across sectors are freezing their capex plans, this certainly provides a glimmer of hope.
Talk to any business house in India about some major impediments to doing business, and one issue they will invariably point to the country’s dismal infrastructure. So how has Gujarat addressed this problem? When power sector across the country is in disarray, Gujarat is the only state has registered a power surplus. This has achieved by sweeping reforms, plugging leakages, reducing T&D losses, and increasing the generation capacity manifold. Today, Jyotigram Yojna provides 24-hr three phase uninterrupted power supply to all the 18000 villages in the state. Just imagine the boost this gives to domestic entrepreneurs and local manufacturing. There has been a massive addition to the state’s cargo handling potential by significant increase in port capacity through private sector participation. Gujarat alone handled share of 72.2% of traffic in India’s non-minor ports and 26% of national cargo in 2011. This has been complemented by massive investments in roads, railways, urban infrastructure and water supply. Such far-sighted initiatives removed major bottlenecks in commerce and unleashed the entrepreneurial spirit of the state. As a result, Gujarat registered a double digit GDP growth consistently over the last decade and today accounts for 16% of India’s manufacturing output and 22% of its exports. This is a classic example of how business would automatically flourish if the government has the intent and capacity to provide the right environment.
An efficient bureaucracy backed by political resolve has certainly made it easier for doing business in the state. High completion rate of projects has been attributed to pro-activeness of Gujarat’s bureaucracy. Last five years saw a number of projects either commissioned or under various stages of development. Some of these include car plants of Tata Motors, Ford India and Maruti Suzuki as well as Teva-P&G joint venture plant for OTC products, Abbott India’s nutraceuticals manufacturing plant, Nestle India’s FMCG products facility and Colgate-Palmolive oral care products project to name a few. According to a senior officer involved closely with industrial projects quoted in business standard, “When a company signs a state support agreement (SSA) with the government, the timeline for implementation are clearly mentioned. On the whole, the average time for execution of such a project from land allotment to start of production at site is around three years.” Good governance in Gujarat is synonymous to removing red tape. About the swiftness in action and clearances, here is what the Business Today said about the experience of Bombardier (company that manufactures coaches for Delhi Metro) – “Once the decision to invest in Gujarat was made, the company saw Gujarat administration swing into action. It allotted land in a week and the company built a 160,000 sq m factory in 18 months flat. It was a record breaking experience in Bombardier’s 100-year history.”
Various big ticket investments through SEZs, industrial corridors, special investment regions (SIRs), and industrial parks are coming up, but strong governance with clear decision making has ensured that there are minimal issues relating to land and labor. Not surprisingly, the report titled ‘Economic Freedom of the States of India’ released last year puts Gujarat at the top of every other state. It mentions how Gujarat had major successes in agriculture, social welfare programmes, water resource management, etc. without an inordinate increase in the government’s size.
It is the mega projects that mostly generate headlines, but the SME businesses have got a major fillip too. MSME sector today accounted for 28% of the state GDP. The government laid out provisions in its industrial policy (2009), to aid the expansion of MSME sector. Recognizing the importance of ‘cluster based development’ to promote SMEs, special provisions were made to give financial assistance to development of such clusters. The Chief Minister has repeatedly emphasized the requirement to incorporate more technology, research and innovation to make our SMEs globally competitive.
To attract private sector investments, Narendra Modi pioneered the concept of an investor’s summit way back in 2003, and the biennial event has continuously grown in scope and size over the decade. The Vibrant Gujarat Global Investors Summit has been one of the flagship events of Gujarat government. It intends to bring together business leaders across the globe to showcase Gujarat as an investment destination by marketing its infrastructure, economic credentials, stable governance, pro-business policies and skilled manpower. The last event held this year saw participation from 121 countries, and over 55000 domestic delegates. Not even the central government has been able to organize something on this scale. Such event not only brings India’s business tycoons on one podium, but also induces a sense of pride and confidence amongst the masses and youth. In a scenario where business houses are running after politicians and bureaucrats to get their work done through an exasperating web of clearances and approvals, here we have a state government that is running after the entrepreneurs to encourage them to invest. Few years down the line when all these efforts begin to show results, the next generation will realize what a paradigm shift this was.
We are living in a knowledge economy and no business can sustain itself without a pool of skilled, trained employees. Persistent focus of the state government in education will certainly benefit business and commerce in the long run. Gujarat’s literacy level has gone from 69% to 79%, and number of college going students have increased from 3 lakh in 2001 to over 6.5 lakh in 2011. Number of universities, engineering and MBA colleges has increased fourfold. In a major effort to bridge the skill-gap between industry and education institutions, policy of declaring equivalence of industrial training institutes (ITIs) with SSC and HSC has also been introduced.
The importance Gujarat government attaches to entrepreneurship is evident from the creation of iCreate – a world class center of excellence in Enterpreneurship and Technology (with its own incubation center). Any individual willing to start his own venture but constrained by resources will get access to counseling, mentoring, money and markets. There is no doubt that success stories from iCreate will galvanize and inspire thousands of youth in the state to follow their entrepreneurial dream.
In India, it is said that good economics is not good politics, and good politics is not good economics. The initiatives cited above might not yield immediate electoral benefits, and the results are evident only in the long run. Such measures are therefore possible only under a government that focuses on next generation rather than next election.
Business-friendly Gujarati community has given a thumping referendum to this development model in last two elections. Modi has demonstrated time and again that elections can be won based on real development issues, and not just by promising cheap food, employment and television sets. India will need to emulate this model if it has to get out of the current mess.