Gujarat's economy

Gujrat, India's Guangdong

A north-western state offers a glimpse of a possible industrial future for India

Jul 7th 2011 | AHMEDABAD | from the print edition of the Economist

SO MANY things work properly in Gujarat that it hardly feels like http://www.blogger.com/img/blank.gifIndia. In a factory packed with kit from Germany and China, slabs of rubber and bags of carbon black are turned into tyres. After being X-rayed for imperfections, they will be distributed across India or sent for export within three days. Sandeep Bhatia, a manager for CEAT, the firm that owns the project, says it took only 24 months to complete, including the normally fraught process of buying land. There is constant electricity, gas and abundant water. The state government, he says, kept red tape to a minimum, did not ask for bribes, and does not interfere much now.

The tyre plant is not the only sign of prosperity in Gujarat. A nearby village may have fodder strewn all over its alleys and mice scuttling across shampoo sachets in the local store, but it also has satellite dishes poking up from the roofs and power metres on the wall of every house. Most of the men, the villagers say, work for small industrial firms for a wage about 50% higher than they would get in the fields. The road to Ahmedabad, Gujarat's main city, is privately operated and boasts four lanes. It passes through a countryside that is visibly industrialising.

With a long coastline and too little rain for decent farming, Gujarat has always been famous for its traders. When it was hived off from Bombay to form a separate state in 1960, "the question was how Gujarat would survive," says Narendra Modi, who has been chief minister since 2001. These days Gujarat accounts for 5% of India's population but 16% of its industrial output and 22% of its exports. Its growth has outpaced India's (see chart) and it wins accolades from business people. A recent comparison of Indian states by McKinsey, a consultancy, waxed lyrical about Gujarat. It might yet play the role of industrial locomotive for the country, as Guangdong province did for China in the 1990s. There is lots of excited talk about exporters switching from China to India. Sanjay Lalbhai, the chairman of Arvind, a textiles maker and clothing retailer based in Ahmedabad, says such a move is "imminent" in his industry.

Chinese-style, big-ticket projects are part of Gujarat's formula, including refineries and ports, but so are networks of smaller firms and foreign companies which have now achieved critical mass in industries such as cars and pharmaceuticals. The state government uses the usual tricks to try to jump-start growth, including special economic zones. But more important, it has provided the bog-standard things that businesses pray for across India but often do not get—less onerous labour laws, passable roads, reliable electricity and effective bureaucracy.

Against the charge that some people have been left behind, Gujarat can point to reasonable growth in agriculture, helped by irrigation schemes. But the state has a black spot, which dates back to 2002 and an outbreak of sectarian violence. As many as 2,000 people (the official toll is lower) were killed in a month of riots, most of them Muslims. Some say Mr Modi and the state government were complicit in the violence or could at least have done more to stop it.

Might prosperity help heal the wounds? In Juhapura, a district on the outskirts of Ahmedabad dominated by the Muslim minority, a young mason grows angry when asked if he feels lucky to make 250-300 rupees a day ($6-7), saying he only gets work for 15 days a month. Others are more content. A bearded man down the road says his party-decoration business is booming. Behind the till of a shop selling top-ups for mobile phones and stationery for the nearby school, a man in a skull cap says life has undoubtedly improved, although his 82-year-old father, sitting in a deckchair, complains that everything went to the dogs when the British left.

Gujarat could be a vision of India's future, in which manufacturing flourishes, soaking up rural labour. Its economy is expected to grow by double digits, even as India's rate slows to 7-8% this year. The state may also be a springboard for Mr Modi, who may contest the national leadership of the opposition Bharatiya Janata Party, perhaps after state elections due in 2012. Mr Modi is enigmatic on this subject. He has yet to shed his polarising image, but he has at least built up an enviable record on the economy.