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Sources of Economic Growth and Acceleration in Gujarat

This article examines the growth experience of Gujarat in 17 sectors during the pre-reform period of 1980-92 and the reform period of 1991-2004, identifying strengths and weaknesses. It identifies episodes of high economic growth in each sector in the state over the last two decades and then derives the plausibly optimistic growth potential of the state. In order to examine the feasibility of such optimistic growth targets, a preliminary attempt is made to estimate traditional sources of economic growth in Gujarat in the neoclassical growth accounting framework for the primary and non-primary sectors in the two sub-periods. The article also offers a strategy and policy changes necessary to ensure that higher growth in Gujarat does not take place at the cost of other states, but benefits the nation as a whole.

Sources of Economic Growth and Acceleration in Gujarat

This article examines the growth experience of Gujarat in 17 sectors during the pre-reform period of 1980-92 and the reform period of 1991-2004, identifying strengths and weaknesses. It identifies episodes of high economic growth in each sector in the state over the last two decades and then derives the plausibly optimistic growth potential of the state. In order to examine the feasibility of such optimistic growth targets, a preliminary attempt is made to estimate traditional sources of economic growth in Gujarat in the neoclassical growth accounting framework for the primary and non-primary sectors in the two sub-periods. The article also offers a strategy and policy changes necessary to ensure that higher growth in Gujarat does not take place at the cost of other states, but benefits the nation as a whole.

RAVINDRA H DHOLAKIA

G
ujarat has been a frontline state ever since the accelerated economic reforms began in India in 1991-92. Liberalisation and increasing globalisation benefited Gujarat more than most of the states in the country [Ahluwalia 2002; Dholakia 2000]. This was largely attributed to the entrepreneurial culture of ‘Gujaratis’ and the positive attitude of the state government to promote rather than curb private initiative and people’s participation in development efforts [Dholakia and Iyengar 2002; Dholakia 2003a; Parekh 2004]. It was also pointed out that Gujarat enjoyed several natural advantages of location like the longest coastline in the country and better access to oil and natural gas [Bajpai 2004]. Gujarat by now has a very welldiversified and dynamic structure of the economy with a large and expanding industrial sector, a high degree of commercialised agriculture and allied activities, and a relatively large degree of urbanisation. Rapid progress on various fronts in Gujarat is visible and the state economy is on a path of accelerated economic growth and development. The present paper attempts to examine the state’s growth experience by estimating sources of growth during the pre- and post-1991-92 periods to gain insights into the magnitude of the effort needed if the state were to achieve its growth potential already exhibited in the recent past.

The paper is divided into five sections. In the first section, Gujarat’s growth experience is compared with the national experience over the two sub-periods of 1980-92 and 1991-2004, and the better performing sectors are identified. Sectors contributing to the acceleration in growth both for the national and the state are also identified. The second section examines the medium- and long-term growth potential in state on the basis of the sectoral growth experience over the last 24 years in Gujarat. The third section makes a preliminary attempt to estimate the growth of capital, labour and land, and factor income distribution needed for the growth accounting exercise. The fourth section discusses the sources of growth and acceleration in Gujarat. The fifth section concludes with some suggestions for the growth strategy and policy changes.

I Growth Acceleration in Gujarat and India

The estimates of the gross domestic product (GDP) at the national level and the gross state domestic product at the state level are available for nine broad sectors and 17 sub-sectors. The most recent base year is 1993-94 for all these estimates at constant prices. Estimates of GDP at 1993-94 prices at the national level are available for earlier years in a consistent and comparable series [CSO 2005]. Similar estimates of GSDP for Gujarat, however, are not available officially. We have obtained them by splicing, i e, by taking the trend in GSDP at 1980-81 prices and applying it to the GSDP at 1993-94 prices to carry the GSDP series backward in each of the 17 sub-sectors. We then estimate the annual trend rates of growth during the last two decades in all these 17 sub-sectors in all-India and Gujarat. Appendix Tables 1 and 2 report the detailed results and Table 1 summarises the comparison.

Table 1 shows that Gujarat was not a better performing state than the nation in terms of economic growth during the 1980s. It lagged behind the nation in almost all sectors except fisheries, electricity, and transport and communication. However, with increased speed of economic policy reforms in the post 1991-92 period, Gujarat improved in its growth performance remarkably achieving an overall acceleration of 2.2 percentage points in its annual trend rate of growth compared to the acceleration of only 0.6 percentage points in the country as a whole. If growth acceleration in the post 1991-92 period is attributed to economic policy reforms at the national level, it is obvious that Gujarat has benefited from such reforms much more than other states.1

Table 1 also reveals that out of the 17 sub-sectors, the growth performance of Gujarat is better than the nation during the reform period in only eight sub-sectors. These sub-sectors are: forestry and logging; registered and unregistered manufacturing; electricity, gas and water supply; transport by other means; storage; trade and hotels; and other services. In the remaining nine sub-sectors, Gujarat lags behind the national economy. Thus, apart from the primary sub-sectors of agriculture, fishing and mining and quarrying, Gujarat’s growth performance during 1991-04 is not better than the nation in the secondary sub-sector of construction, and tertiary sub-sectors of railways, communication, banking and insurance, real estate and dwellings, and public administration. All these sub-sectors except public administration can be considered as relatively weak in Gujarat and represent areas requiring attention, improvement and reforms in the state government’s policies. It may, however, be noted that in the subsectors of construction, communication, and real estate and dwellings, Gujarat achieved a considerable acceleration in annual growth during 1991-04 over 1980-91. Thus, in these sectors, the state government has already initiated the policy reform efforts. It only needs to further step up the speed of reforms and tighten the implementation mechanism.

It is also clear from Table 1, that 11 out of 17 sub-sectors in Gujarat experienced considerable acceleration in annual growth during the reform period, thus contributing positively to the growth acceleration in the state and the nation. The sectors that experienced deceleration in their growth are fishing, mining and quarrying, electricity and gas, railways, and banking and insurance. These sectors have negatively contributed to the growth acceleration in Gujarat and hence need urgent attention and revitalising steps by the state government.

II Growth Potential in Gujarat

In order to examine the growth potential of the state in the immediate future, we need to consider a few similar efforts made for Gujarat. The Planning Commission (2002) had assigned the real growth target of 10.2 per cent per annum to Gujarat for the 10th Plan period. Although it does not provide the precise methodological basis for its targets to different states, it has decomposed its target into the primary, secondary and tertiary sectors. Accordingly, Gujarat should achieve annual real growth rates of 4.3 per cent, 12.23 per cent and 10.44 per cent respectively in the primary, secondary and tertiary sectors. The Agro-Vision 2010, prepared by the ministry of agriculture (2001) in Gujarat, on the other hand, puts a very optimistic target of 6.8 per cent per annum for the real growth in agricultural sector in the state. However, by considering the trends in area, yield and productivity of 30 crops over the last 30 years in Gujarat and other states in the country, it is possible to derive a plausibly optimistic growth target of about 5 per cent per annum for agriculture in Gujarat [Dholakia 2003b].

For the remaining sectors, we can derive the growth potential by considering the past performance of the state during the last two decades. In order to identify the best episodes of growth in each sector and sub-sector of the economy, we should consider periods of four and 10 consecutive years over the last two decades in the state. Such best growth episodes would reflect growth potential of the state in the medium term and long term respectively. Appendix Tables 3 and 4 report the annual growth rates over 4 and 10 consecutive years in different sectors in Gujarat over 1980-81 to 2003-04, and Table 2 gives the potential growth rates as the maximum observed in each sub-sector of the state.

It is clear from Table 2 that Gujarat has achieved an overall GSDP growth of 11.9 per cent per annum in the medium term and 8.9 per cent per annum in the long term. However, if we consider all the sectoral and sub-sectoral performances simultaneously, we find that the potential could be much higher for the state both in the medium term as well as in the long term. In order to get the idea about such an overall potential, we need to consider shares of the sub-sectors in total GSDP at factor cost as reported in Table 2. Considering the sectoral shares in the latest year as the weights and the maximum growth rates over four consecutive years achieved in the recent past, the overall growth potential of the state works out to 16.3 per cent per annum in the medium term and 10.9 per cent per annum in the long term. If we replace 5 per cent per annum growth potential for Gujarat’s agriculture over the next 10 years, the long run growth potential for Gujarat works out to 9.4 per cent per annum

Table 1: Comparison of Sectoral Trend Rates of Growth

(per cent per annum)

Sector 1980-81 to 1991-92 1991-92 to 2003-04 Gujarat India Gujarat India 1 2345

Agriculture – 3.1 – 2.5 Forestry and logging – – 1.7 1.5 Fishing 8.2 5.8 – 4.6 Mining and quarrying 6.2 7.4 1.0 4.4 Manufacturing 6.9 6.8 8.6 6.5 Electricity, gas and water 9.4 8.9 5.6 5.7 Construction 4.6 4.5 6.2 5.4 Trade and hotels 5.2 5.6 8.0 7.9 Transport and communication 7.1 5.6 9.7 9.3 Banking and insurance 13.5 11.9 7.0 9.2 Real estate and dwellings 3.0 8.1 5.5 6.0 Public administration 5.9 6.6 7.4 8.9 Other services 5.4 5.6 9.1 7.4 Total GDP 4.5 5.3 6.7 5.9

– implies statistical insignificance. Basic source: DES (June 2005); and NAS, 2005.

Table 2: GSDP Share and Observed Maximum Growth in Consecutive Years (Gujarat)

Sl Industry Share in Real Maximum Growth No Group GSDP (Potential Per Cent) 1980-81 2003-04 4 Years 10 Year

1 Agri and allied 0.4081 0.2009 14.62 11.48

1.1 Agriculture 0.3754 0.1888 15.70 12.32

1.2 Forestry and logging 0.0170 0.0050 2.67 1.96

1.3 Fishing 0.0116 0.0070 13.86 11.15 2 Mining and quarrying 0.0353 0.0172 9.30 6.41

Sub-total: primary 0.4545 0.2181 13.50 10.48 3 Manufacturing 0.1993 0.3190 20.09 11.03

3.1 Registered 0.1334 0.1999 22.13 10.35

3.2 Unregistered 0.0667 0.1191 15.20 11.91 4 Elec, gas and water 0.0156 0.0265 14.22 12.04 5 Construction 0.0511 0.0352 15.64 10.42

Sub-total: secondary 0.2639 0.3806 16.64 9.71 6 Trade and hotels 0.1064 0.1227 13.45 9.39 7 Tran, stor and comm. 0.0503 0.0796 14.28 9.41

7.1 Railways 0.0198 0.0091 5.11 4.39

7.2 Other transport 0.0259 0.0466 18.71 10.24

7.3 Storage 0.0004 0.0002 10.99 6.55

  • 7.4 Communication 0.0105 0.0236 21.40 16.21
  • Sub-total (6 and 7) 0.1554 0.2023 13.09 8.42 8 Finance sector 0.0898 0.1128 11.52 9.92
  • 8.1 Banking and insurance 0.0237 0.0592 22.59 16.64
  • 8.2 Real estate 0.0850 0.0535 7.91 5.97 9 Comm services 0.0801 0.0862 11.94 8.56
  • 9.1 Public administration 0.0294 0.0261 13.95 8.25
  • 9.2 Other services 0.0506 0.0800 12.35 9.74

    Sub-total: tertiary 0.3213 0.4012 9.31 8.20 10 Total GSDP 1.0 1.0 11.93 8.89

    These targets are certainly very optimistic though falling on the outer border of feasibility. The targets of 11.9 per cent per annum and 8.9 per cent per annum, on the other hand, are quite feasible considering that the state had actually achieved them in the recent past. Any targets in between may be plausibly optimistic and need examination for consistency with other macroeconomic parameters of the state economy.

    III Estimates of Factor Growth and Factor Shares

    If Gujarat has to achieve a faster rate of growth in future, we need to know what the major sources of growth have been in the recent past. What have been the sources of the significant acceleration (about 50 per cent) achieved in Gujarat? This would provide an idea of the required resources on one hand, and the broad strategy to follow on the other hand. It would also help us in critically examining the feasibility and plausibility of the growth targets. In order to address these questions, in the present section we attempt to prepare a preliminary estimate of some crucial aggregates. In the next section of the paper, we estimate the sources of growth and acceleration in the state.

    Neoclassical framework of growth accounting popularised by Denison (1962 and 1967) is most appropriate for empirically examining these questions. Given the importance of these concerns, we would expect that a large number of studies would have examined and estimated the sources of growth for all India and different states. Surprisingly however, there are no estimates for Indian states and only two serious efforts made at the national level by individual scholars in the recent past [Bakul Dholakia 2001 and Sivasubramonian 2004]. The reason perhaps is the state of data availability including issues of comparability over time. The required data on several variables in the exercise are simply not available for Indian states, and at the national level where they are available in the crude form, they require a lot of cleaning up before they can be meaningfully used. What is surprising, however, is the complete apathy and lack of interest shown by the Planning Commission in this regard. As a result, states have not been induced to take up these matters and the data issues have also not been resolved satisfactorily and officially. Under these circumstances, estimation of sources of growth in Gujarat would need a huge research project with considerable time and resources. However, given the constraints on time, effort and resources, we propose to prepare only preliminary estimates of the sources of growth in Gujarat in the spirit of making the first cut. These estimates can be refined, modified and sharpened with more careful research and data cleaning. Such efforts are always welcome, but our assumption is that they may not result in major modifications and reversal of broad direction and magnitude of our preliminary estimates.

    For estimating sources of economic growth we need estimates of the growth of income, the growth of primary factors of production, and relative factor shares in income. In Gujarat, we already have official estimates of growth of income at constant (1993-94) prices. However, we do not have any estimate of the growth of capital stock at constant (1993-94) prices; and no reliable and comparable estimate of growth of labour (employment) in the economy. Growth of land in real terms is obtainable, but relative factor shares in income are simply not available. We have tackled these estimation problems by making some bold assumptions. We describe briefly the method of deriving these basic estimates.

    We first consider estimation of the real capital stock in Gujarat. DES in Gujarat regularly prepares and publishes the estimates of GSDP and NSDP by 17 sub-sectors. The difference between the two is depreciation or capital consumption. The estimates of capital consumption by all sub-sectors for every year are provided by the CSO to all states for their use [DES 2005]. The CSO derives the estimates of capital consumption by all the subsectors for each state based on some basic criteria that are not revealed. However, the CSO has to be allocating the capital consumption estimated by it at the national level based on some rudimentary estimates of the capital stock at the state level. Since capital consumption estimates are generally based on the economic life of capital assets, we can work backwards to estimate the capital stock for each year for each sector for any given state, say Gujarat, from the estimates of depreciation. We have assumed that for each sub-sector in each year, the depreciation as a percentage of the net stock of fixed capital remains the same as at the national level. We readily have the estimates of both these aggregates at the national level [CSO 2005] and depreciation by sub-sectors for Gujarat. Thus, preliminary estimates of net stock of fixed capital at 1993-94 prices for Gujarat are derived in each of the 17 sub-sectors for each year. Recognising the approximation involved, we have grouped the estimates into three broad sectors of primary, secondary and tertiary sectors. These estimates are presented in Appendix Table 5. From these estimates, we can estimate the trend rates of growth of real fixed capital stock in Gujarat over the two periods, 1980-92 and 1991-04. These growth rates are presented in Table 3.

    We may note that difference between the net capital stock in two consecutive years is the net fixed capital investment. Thus, our estimates in Appendix Table 5 also generate estimates of net capital investment at 1993-94 factor cost in Gujarat by broad sectors. If we add the estimates of depreciation to the so obtained estimates of net investment, we would get the estimates of gross real investment by sectors in Gujarat.

    For the year 2002-03, our estimates of the real net capital stock imply the overall investment rate (at constant factor cost) of 30.6 per cent in Gujarat. It is significantly higher than the national rate. A recent study providing some preliminary estimates of regional accounts in Gujarat [Dholakia forthcoming] estimated the overall investment rate of 28 per cent in Gujarat at (current) market prices. If we account for the differences in the concepts

    – the former being at constant factor cost and the latter being

    Table 3: Annual Trend Rates of Growth in Net Fixed Capital Stock at 1993-94 Prices, Gujarat

    (in per cent)

    Sectors 1980-91 1991-04 Intercept Slope R2 Intercept Slope R2

    Primary 14.06 0.0378 0.99 14.53 0.0131 0.88 (1724.70) (34.15) (1166.7) (1270.79) (9.14) (83.6) Secondary 14.66 0.0705 0.98 15.34 0.1086 0.95

    (581.59) (20.59) (424.1) (248.82) (13.98) (195.5) Tertiary 15.11 0.0277 0.98 15.40 0.0411 0.99 (1819.54) (24.62) (606.4) (174.82) (36.15) (1306.9) Non-agriculture 15.60 0.0472 0.99 16.05 0.0812 0.96

    (1211.37) (26.94) (725.9) (428.06) (17.18) (295.3) Total 15.81 0.0463 0.85 16.31 0.0647 0.89

    (342.94) (7.40) (54.8) (302.09) (9.51) (90.5)

    Note: Figures in parentheses are t-statistics for intercept and slope and F-statistics for R2.

    at current market prices, these two estimates of the overall investment rate in Gujarat may be considered broadly comparable and close.

    We may now consider the growth of labour or employment in Gujarat. It is very well recognised in the literature that the Census data on working force are not strictly comparable across censuses on account of changing definitions of a worker [Sivasubramonian 2004]. However, all the incomparabilities arise largely for the marginal workers rather than the main workers. The main workers estimated in 1981 Census, 1991 Census and 2001 Census are broadly comparable since their definition has remained the same. Several researchers [e g, Chadha and Sahu 2002] still prefer to ignore the census data on workers and depend on the National Sample Survey (NSS) data on employment collected through quinquennial surveys. Since the NSS surveys are designed with stratification for rural-urban and male-female categories, their results have to be adjusted for the trends in population intrapolated based on two censuses. While Sivasubramonian (2004) did not adjust for the proper population weights obtained from the 2001 census, Chadha and Sahu (2002) made the necessary adjustments to derive the growth of labour by states and broad sectors in India. Such population adjustments do make substantial changes in the magnitude and even direction of the estimated growth of labour at broad sectoral level. It is indeed very difficult to say which of the two data sets is better for estimating growth of labour at a state level. We present estimates of growth of labour in Gujarat by both the sets of data in Table 4.

    We can see from Table 4 that the two sources of data on employment differ sharply in capturing even the trend and direction of changes in the growth of labour in Gujarat. Having flagged this issue about the data quality and availability for growth of labour, however, we follow other researchers and accept the sample survey data for further analysis. Thus, we accept the implication that Gujarat experienced acceleration in its employment growth after 1991-92, only on account of employment in agriculture, because the employment growth decelerated in non-agricultural sector after 1991-92.

    For estimating the growth of land in Gujarat, we broadly follow the practice well-accepted in the literature [B Dholakia 2001 and Sivasubramonian 2004]. Accordingly, the basic source of data is the land utilisation statistics. For the non-agricultural sector, the common practice is to consider the land area put to nonagricultural uses and take its growth over time. However, for the agricultural sector, the land input can be defined in two ways. One is to take addition of the net area sown and current fallow land; and the other is to add gross cropped area and the current fallow land. Since we have considered primary (agriculture) and non-primary (non-agricultural) sectors for analytical purposes, we have modified the definition of land in the primary sector to include forest land, cultivable waste, permanent pasture and grazing land, and land under miscellaneous tree crops and other groves not included in the cultivated area, besides the net or gross area sown depending on narrow or broad definition of land. Since gross area represents intensity of factor use, ideally it should be considered a part of “the residual” in the neo-classical growth accounting framework. But, if our intension is to reduce the residual as much as we can with available information, we should consider gross cropped area rather than the net sown area. Table 5 presents estimates of annual compound rates of growth of land input in Gujarat.

    Table 5 shows that land input in the non-primary sectors grew at only 0.5 per cent per annum during the 1980s. The growth during the 1990s was only a third of the growth during the 1980s. The non-primary sectors in Gujarat are increasingly facing constraints on the availability of land input. In the primary sector, the land input as per the narrow definition is almost stagnant. However, the broad definition of land shows variation in the land input over the past two decades. During the 1980s, it shows positive growth and during the 1990s, it shows almost the same magnitude of a negative growth. We consider the broader definition of land input in the primary sector for our purpose in this study.

    As a next step, we have estimated the trend rates of growth in NSDP by sectors for the two sub-periods, 1980-92 and 1991-04. Table 6 reports the estimates of the time trends fitted. For the agricultural (primary) sector, since the time trends were not statistically significant, we have considered average annual compound rates of growth with the averages of trienniums around the end points. The estimate of the overall acceleration during the 1990s is the same as in the case of GSDP.

    Finally, we consider estimation of factor income distribution in Gujarat into three broad factors – labour, capital and land in the primary and non-primary sectors. There are practically no estimates available for these parameters for even one year. At the national level also, what is available officially is the distribution of income by labour, capital, land and mixed income. However, at the national level, B Dholakia (2001) and Sivasubramonian (2004) have estimated the required factor income shares by sectors for recent years. The estimates in both the studies differ substantially. B Dholakia’s study provides the average estimates for two sub-periods, 1960-86 and 1985-2001, whereas Sivasubramonian (2004) provides detailed estimates for each year over the period 1950-2000. We have, therefore, considered the latter for deriving the relevant parameters. For the primary and non-primary sectors, we have derived the estimates of interest rate and rent implied by the estimates of factor shares for each year by Sivasubramonian (2004). This can be derived easily by taking the ratio of absolute share of capital to the stock of capital and the ratio of absolute share of land to the value of land. Thus,

    Table 4: Estimates of Growth of Labour in Gujarat by Census(Main Workers) and NSS Surveys (Usual Status)

    (in per cent)

    Annual Compound Sectors
    Growth Rate during Primary Non-Agriculture All Sectors
    1 1981-91 2.01 3.34 2.53
    2 1991-2001 (–) 0.22 4.47 1.91
    3 1983-93 0.52 4.70 1.89
    4 1993-99 2.39 2.01 2.19

    Notes: Rows 1 and 2 are based on main workers from Censuses 1981, 1991 and 2001. Rows 3 and 4 are based on NSS Survey adjusted for population weights by Chadha and Sahu (2002).

    Table 5: Annual Compound Growth Rate of Land Input in Gujarat, 1980-81 to 2000-01

    (in per cent)

    Period Primary Sector
    Narrow Definition Broad Definition Non-Primary Sector
    1980-91 0.08 0.18 0.50
    1990-2001 0.01 (–) 0.16 0.18

    both the interest rate and rent in every year in the primary and non-primary sectors for all India are estimated and are presented in Table 7.

    We can see that within each broad sector, the rates of interest and rent are taken as the same in a year. However, this assumption has not been made explicit by Sivasubramonian (2004). What is surprising is that both interest and rent rates are consistently higher in the agricultural sector than the non-agricultural nonresidential sector. These rates do show variation over the years and display a rising trend over time. We do not intend to question these estimates, but use them as a basis to derive the factor shares in Gujarat. We assume that these implicit average interest and rent rates apply to Gujarat in each year. Then, with the help of the estimate of the stock of capital and value of land in Gujarat in the respective year, we can obtain the estimates of absolute factor share in Gujarat. Dividing them by NSDP, we obtain relative factor shares.

    In order to derive estimates of the stock of capital, we need estimates of the stock of inventories since we already have the estimated net fixed capital stock (NFCS) by sectors in Gujarat. Sivasubramonian (2004) provides the estimates of the proportion of the stock of inventories in NFCS for the two broad sectors for each year (pp 220 and 326-27). We have assumed that these proportions would be valid for Gujarat and estimated the capital stock for the state. Similarly, we have taken the estimates of land value per hectare of agricultural land and non-agricultural land used by Sivasubramonian (2004, pp 238-89) in his study to apply to Gujarat and estimated the total land value in the state for different years.2 Finally, NSDP originating in the residential dwellings part of the sub-sector called “Residential Dwellings, Real Estates and Business and Legal Services” is separated and taken as the rental value in the non-agricultural sector. Assuming that the 1999-2000 rates and proportion apply to the subsequent years, we have derived factor shares for later years. The labour share is derived as a residual in both the broad sectors. Thus, the problem of non-comparability and non-availability of reliable estimates of labour force is avoided for our purpose. Moreover, we have taken three yearly averages of relative factor shares at the end-points of our sub-periods to avoid undue annual fluctuations in factor shares. The estimates, so derived for Gujarat are presented in Table 8.

    IV Sources of Economic Growth and Acceleration in Gujarat

    Now, we can attempt to present preliminary estimates of the sources of economic growth in the growth accounting framework in Gujarat for two sub-periods, 1980-92 and 1991-04. The wellknown neoclassical growth equation is written as: GY = RKGK + RLGL + RNGN + residual ...(1) Where G stands for annual growth; and R for relative factor share; and sub-scripts Y for real income (NSDP), K for capital, L for labour and N for land (For details, Dholakia and Dholakia, 1998). RKGK represent absolute contribution of capital, RLGL of labour, and RNGN of land. Table 9 present these estimates.

    Table 9 shows that capital is playing an increasingly important role in Gujarat’s economic growth and contributes about 49 per cent of the growth acceleration in the state during the reform period. However, absolute as well as relative contribution of capital input sharply declined in the primary sector. This happened only due to sharp decline in the agricultural investments during the reform period (Table 3) because the share of capital showed marked increase over time in the primary sector (Table 8). This became possible because of sharp increase in the price of capital (Table 7). Similarly, land in agriculture in Gujarat also marginally

    Table 6: Time-Trend Regressions for NSDP of Gujarat at1993-94 Prices

    Sectors 1980-81 to 1991-92 1991-91 to 2003-04 Intercept Slope Coeff R2 Intercept Slope Coeff R2

    Primary – 0.0117 – – 0.0255 – Secondary 13.143 0.0658 0.904 13.960 0.0704 0.855

    263.252 9.702 94.127 201.010 8.041 64.655 Tertiary 13.501 0.0608 0.981 14.106 0.0817 0.996

    693.231 22.990 528.521 1109.387 51.011 2602.143 Non Agri 14.031 0.0629 0.962 14.730 0.0766 0.967

    485.096 16.004 256.128 437.682 18.061 326.211 Total 14.702 0.0411 0.752 15.122 0.0631 0.910

    266.971 5.499 30.242 318.899 10.560 111.516

    Note: Both the regressions in primary sectors are statistically insignificant. Therefore, the annual compound rates are calculated by taking three year averages at the end points.

    Table 7: Rates of Interest and Rent (in per cent) Implicit in Factor Income Distribution (All-India)

    Years Primary Sector Non-Primary Sectors Interest Rent Interest Rent

    1980-81 9.19 9.19 8.58 8.58 1981-82 9.33 9.33 9.07 9.08 1982-83 9.02 9.02 8.54 8.55 1990-91 10.44 10.44 9.67 9.67 1991-92 10.22 10.22 9.56 9.56 1992-93 9.86 9.86 9.22 9.22 1998-99 15.51 15.51 11.73 11.73 1999-00 15.52 15.52 12.06 12.06

    Source: Derived from Sivasubramonian (2004), pp. 328 to 334, 238, 342 and 346.

    Table 8: Estimates of Relative Factor Shares in Gujarat

    (in Per cent)

    Period Primary Sector Non-Primary Sector Capital Land Labour Capital Land Labour

    1980-83 12.27 25.28 62.45 45.98 6.37 47.65 1990-93 18.04 25.09 56.87 42.40 6.16 51.44 2001-04 25.72 27.35 46.93 52.42 6.03 41.55 1980-92 15.16 25.19 59.65 44.19 6.27 49.54 1991-04 21.88 26.22 51.90 47.41 6.10 46.49

    Source: See the text.

    Table 9: Preliminary Estimates of Sources of Economic Growthand Acceleration in Gujarat, 1980-2004

    Source Absolute Contribution Relative Contribution 1980-92 1991-04 Acceleration 1980-92 1991-04 Acceleration

    Primary Sector Capital Input 0.57 0.29 (– ) 0.20 48.7 11.4 (– ) 20.3 Land Input 0.05 (– ) 0.04 (– ) 0.09 4.3 (– ) 1.6 (– ) 6.5 Labour Input 0.31 1.24 0.93 26.5 48.6 67.4 Residual 0.24 1.06 0.82 20.5 41.6 59.4 NSDP 1.17 2.55 1.38 100 100 100

    Non-Primary Sector Capital Input 2.09 3.85 1.76 33.2 50.3 128.5 Land Input 0.03 0.01 (– ) 0.02 0.5 0.1 (– ) 1.5 Labour Input 2.33 0.93 (– ) 1.40 37.0 12.1 (– ) 102.2 Residual 1.84 2.87 1.03 29.3 37.5 75.2 NSDP 6.29 7.66 1.37 100 100 100

    All Sectors Capital Input 1.55 2.63 1.08 37.7 41.7 49.1 Land Input 0.04 (– ) 0.02 (– ) 0.06 1.0 (– ) 0.3 (– ) 2.7 Labour Input 1.01 1.05 0.04 24.6 16.6 1.8 Residual 1.51 2.65 1.14 36.7 42.0 51.8 NSDP 4.11 6.31 2.20 100 100 100

    Source: Tables 3 to 8 above.

    declined making its contribution negative not only in agricultural a substantial increase in the total factor productivity growth growth but also in the whole economy during the reform period. during the reform period although the growth of land and capital

    Labour, on the other hand, had the same contribution in absolute sharply declined. The non-agricultural sector in Gujarat experiterms to growth in the pre-reform period as during the reform enced a substantial fall in the contribution of labour during the period. In relative terms, however, its contribution declined reform period compared to the pre-reform period. As a result, during the reform period and as a result, labour has a negligible labour turned out to be the single most negative contributor to role to play in accounting for the growth acceleration in Gujarat. the growth acceleration in the sector. The non-agricultural sector However, these economy-wide estimates hide the substantial in Gujarat had substantially higher contribution from capital input swings in the sectoral growth pattern. In agriculture, labour’s due largely to higher investments. Thus, the non-agricultural absolute contribution showed a four-fold increase, accounting sector in Gujarat became increasingly more capital-intensive for two-thirds of the growth acceleration in the sector in the state. during economic reforms than before. Simultaneously, the sector Thus, during the reform period, Gujarat agriculture became also experienced increasing total factor productivity growth. In significantly more labour intensive than before. It also experienced fact, our estimates in Table 8 show that technology improvement

    Appendix Table 1: Estimation of Trend Rates of Growth forAppendix Table 2: Estimation of Trend Rates of Growth forGujarat GSDP at 1993-94 Prices Gujarat GSDP at 1993-94 Prices

    1980-81 to 1991-92 1991-92 to 2003-04

    1980-81 to 1991-92 1991-92 to 2003-04 No Dependent Intercept Slope Intercept Slope No of Dependent Intercept Slope Intercept Slope Variable a b1 R2 a b1 R2 Variable a B1 R2 a b1 R2

    1 Agri and allied 13.90 -0.0048 0.01 14.01 0.0211 0.14 1 Agri and allied 11.96 0.0299 0.91 12.32 0.0255 0.89 (-93.81) (-0.240) (-0.06) (110.73) (1.326) (1.76)

    (–537.66) (-9.990) (–97.96) (537.63) (9.661) (93.34)

    1.1 Agriculture 13.84 -0.0090 0.02 13.91 0.0224 0.132

    1.1 Agricultire 11.85 0.0313 0.90 12.24 0.0252 0.87 (-84.44) (-0.407) (-0.17) (100.91) (1.292) (1.67)

    (-501.30) (-9.748) (-95.02) (531.04) (8.669) (75.15)

    1.2 Forest and log 10.66 -0.0028 0.07 10.63 0.0167 0.96

    1.2 Forest and log 9.38 -0.0029 0.10 9.32 0.0148 0.90

    (-445.64) (-0.869) (-0.75)(1315.49) (16.373) (268.09)

    (-461.88) (-1.065) (-1.13) (784.09) (9.893) (97.87)

    1.3 Fishing 10.08 0.0821 0.92 11.27 0.0003 0.00

    1.3 Fishing 8.20 0.0575 0.96 8.90 0.0479 0.94

    (-177.37) (-10.640) (-113.22) (252.24) (0.055) (0.003)

    (-319.71) (-16.516) (-272.79) (319.82) (13.652) (186.38)

    2 Mining and 11.19 0.0615 0.92 11.91 0.0105 0.50

    2 Mining and quarry 8.99 0.0739 0.98 9.82 0.0440 0.98

    Quarry (-266.04) (-10.754) (-115.65) (475.69) (3.314) (10.98)

    (-362.59) (-21.957) (-482.11) (694.12) (24.683) (609.24)

    1+2 Sub-total primary 13.96 0.0016 0.00 12.40 0.0272 0.92

    3 Manufacturing 10.87 0.0681 0.99 14.13 0.0201 0.15

    (-106.06) (-0.091) (-0.01) (660.000 (11.472) (131.60)

    (-567.37) (-26.176) (-685.17) (123.01) (1.386) (1.92)

    3 Manufacturing 13.11 0.0687 0.88 13.92 0.0862 0.90

    3.1 Registered 10.34 0.0757 0.98 11.59 0.0646 0.96

    (-219.70) (-8.484) (-71.98) (204.35) (10.053) (101.06) (-410.10) (-22.092) (-488.05) (374.38) (16.563) (274.34)

    3.1 Registered 12.71 0.0714 0.85 13.58 0.0785 0.80 (-183.49) (-7.593) (-57.65) (145.17) (6.666) (44.43)

    3.2 Unregistered 9.98 0.0562 0.97 11.16 0.0661 0.95

    (-442.27) (-18.340) (-336.49) (293.63) (13.802) (190.49)

    3.2 Un registered 12.01 0.0632 0.92 12.67 0.1011 0.96

    (-275.65) (-10.688) (-114.24) (259.36) (16.419) (269.57) 4 Elect, gas, water 8.71 0.0889 1.00 10.55 0.0619 0.98

    4 Elect, gas, water 10.41 0.0938 0.99 11.63 0.0704 0.96 (-941.81) (-70.750)(-5005.57) (470.10) (21.920) (480.50) (-389.27) (-25.806) (-665.96) (356.21) (17.128) (293.36) 5 Construction 9.99 0.0448 0.91 9.74 0.0538 0.99 5 Construction 11.59 0.0461 0.75 12.15 0.0564 0.74 (-304.07) (-10.050) (-101.05) (627.39) (27.498) (756.12) (-189.00) (-5.539) (-30.68) (151.97) (5.600) (31.37) 6 Trade, hotel, 10.74 0.0556 0.99 10.46 0.0569 0.98 3+4+5 Sub-total, 13.36 0.0671 0.94 11.98 0.0618 0.98 rest (-1152.67) (-43.950)(-1931.56) (599.91) (25.906) (671.13) second (-330.91) (-12.236) (-149.74) (616.01) (25.206) (635.34) 6.1 Trade 1.69 0.0554 0.99 14.16 0.0813 0.93 6 Trade,hotel, rest 12.47 0.0523 0.93 12.99 0.0799 0.96 (-1120.17) (-42.743)(-1826.94) (263.80) (12.019) (144.46) (-359.53) (-11.112) (-123.48) (341.04) (16.634) (276.9) 6.2 Hotel and rest 7.84 0.0597 0.99 11.31 0.0789 0.99 7 Tran, storage (-457.43) (-25.660) (-658.58) (687.99) (38.092)(1450.99) Comm 11.85 0.0710 0.89 12.44 0.0969 0.99 7 Tran, storage, 10.05 0.0561 1.00 11.17 0.0925 1.00 (-206.20) (-9.091) (-82.64) (523.93)(32.395)(1049.43) comm (-1194.46) (-49.132)(-2413.94) (505.08) (62.580)(3916.25)

    7.1 Railway 10.75 0.0307 0.87 11.03 0.0289 (0.79)

    7.1 Railway 8.65 0.0467 0.95 9.08 0.0412 0.93 (-387.49) (-8.155) (-66.50) (315.43) 6.565 (43.11)

    (-360.23) (-14.326) (-205.25) (335.97) (12.101) (146.43)

    7.2 Other trans 11.13 0.0948 0.81 11.91 0.0961 0.99

    7.2 Other trans 9.50 0.0601 0.99 10.17 0.0682 0.99

    (-104.12) (-6.531) (-42.66) (454.34) (29.088) (846.13)

    (-838.44) (-39.055)(-1525.29) (637.84) (33.974)(1154.23)

    7.3 Storage 6.99 0.0269 0.50 7.01 0.0479 0.78

    7.3 Storage 6.09 0.0290 0.88 6.42 0.0113 0.51

    (-111.25) (-3.154) (-9.95) (115.49) (6.262) (39.22)

    (-238.91) (-8.382) (-70.26) (241.12) (3.383) (11.44)

    7.4 Communication 10.11 0.0624 0.99 10.70 0.1443 0.98

    7.4 Communication 8.21 0.0577 0.99 8.62 0.1761 0.99

    (-641.02) (-29.149) (-849.67) (219.35) (23.471) (550.87)

    (-1103.42) (-57.137)(-3264.68) (202.52) (32.830)(1077.79)

    8 Fin ins real estate 12.39 0.0633 0.98 13.15 0.0621 0.98

    8 Fin ins, 10.06 0.0960 0.99 11.16 0.0754 0.99

    (-532.42) (-20.030) (-401.19) (578.68) (21.692) (470.56)

    real estate (-1397.35) (-98.228)(-9648.76) (1397.35) (41.586)(1729.41)

    8.1 Banking insurance 10.71 0.1350 0.96 12.43 0.0699 0.91

    8.1 Banking insurance 8.97 0.1191 0.99 10.36 0.0917 0.98

    (-163.68) (-15.184) (-230.54) (238.15) (10.633) (113.06)

    (-476.95) (-46.630)(-2174.56) (304.77) (21.401) (458.01)

    8.2 Real estate 12.23 0.0303 1.00 12.47 0.0547 0.97

    8.2 Real estate 9.66 0.0809 0.99 10.57 0.0596 0.99

    (-6258.18)(-114.120)(-13023.11) (499.76) (17.412) (303.16) 9 Commu service 12.16 0.0560 0.97 12.67 0.0853 0.98

    (-2773.90) (-171.08)-29268.48 (1008.79) (45.140)(2037.59)

    (-537.99) (-18.231) (-332.37) (396.73) (21.198) (449.37) 9 Commu service 10.67 0.0604 0.99 11.23 0.0877 0.34

    9.1 Pub admn 11.68 0.0588 0.86 11.71 0.0737 0.88 (-1011.42) (-42.200)(-1780.38) (1016.31) (2.397) (5.75) (-205.78) (-7.948) (-63.18) (180.81) (9.030) (81.54) 9.1 Pub admin 9.88 0.0656 0.98 10.50 0.0885 0.21

    9.2 Other services 11.68 0.0540 0.98 12.18 0.0911 0.99 (-518.64) (-25.383) (-644.32) (25.86) (1.731) (2.99) (-679.07) (-23.136) (-535.28) (502.83) (29.852) (891.16) 9.2 Other services 10.06 0.5589 0.99 10.57 0.0741 0.97 6+7+8+9(-963.56) (-39.384)(-1551.06) (313.95) (17.471) (305.24) Sub-total 13.63 0.0598 0.98 12.49 0.0862 0.70 6+7+8+9 Total 11.82 0.0658 0.99 14.23 0.0789 1.00 territory (-773.07) (-24.966) (-623.29) (93.47) (5.118) (26.19) services (-1720.25) (-70.508)(-4971.39) (1150.65) (50.613)(2561.64)

    10 Total GSDP 14.77 0.0445 0.82 15.25 0.0671 0.93 10 GDP at FC 12.84 0.0528 0.99 13.41 0.0592 0.99 (-320.84) (-6.643) (-44.13) (345.78) (12.072) (145.74) (-1088.02) (-32.967)(-1086.83) (1586.50) (55.652)(3097.19)

    Note: The trend rates are based on regression: lnY = a+bt. Note: The trend rates are based on regression: lnY = a+bt. Source: DES (June 2005): SDP of Gujarat state 2003-04. Source: CSO (2005): NAS .

    or the total factor productivity growth was a significant factor of 10.31 per cent. Land and labour would not make any substantial contributing to growth as well as growth acceleration during the contribution to growth acceleration; and technology or total factor reform period in both the agricultural and the non-agricultural productivity growth would contribute 2.07 percentage points sectors in Gujarat. making its absolute contribution 4.72 percentage points out of

    Given these findings, we may now speculate how Gujarat can the 10.36 per cent growth per annum Assuming that the relative achieve a further acceleration in its economic growth by 4 share of capital would remain the same as the average over the percentage points. If the recent pattern observed in the sources period 1991-92 to 2003-04 (40.72 per cent), the required annual of growth acceleration is taken to apply for the future 10 years, growth of capital input would be 11.27 per cent. This would imply capital input will have to contribute an additional 1.96 percentage a gross investment rate of more than 41 per cent of GSDP in the points out of the acceleration of 4 percentage points in economic state. Compared to the current investment rate of around 28 per growth. Thus, the total absolute contribution of capital input cent to 30 per cent in the state as found earlier, the requirement should be 4.59 percentage points out of the overall future growth is more by almost 35 to 40 per cent. In a short time span, this

    Appendix Table 3: Average Annual Compound Growth Rates in Four Consecutive Years in Gujarat, 1980-04

    (in per cent)

    Sl Industry Group 1980-1981-1982-1983-1984-1985-1986-1987-1988-1989-1990-1991-1992-1993-1994-1995-1996-1997-1998-1999-Max No 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 20002001200220032004 Gr

    1 Agri and allied 5.67 -4.71 -1.23 -17.95 2.08 5.63 4.28 14.67 1.05 -2.34 7.64 8.76 6.37 10.84 3.34 -1.71 -11.45 -3.71 -8.38 13.37 14.67

    1.1 Agriculture 5.82 -5.42 -1.77 -19.94 2.14 6.01 4.14 15.70 0.47 -3.29 7.90 9.54 6.75 11.72 3.70 -2.13 -12.39 -3.83 -9.24 14.79 15.70

    1.2 Forestry and logging 0.64 2.17 0.60 -1.47 -2.12 -2.09 -1.52 1.93 1.60 1.00 2.18 1.54 1.62 2.48 1.47 0.87 1.77 1.01 1.84 2.67 2.67

    1.3 Fishing 7.49 8.21 11.80 8.93 4.43 5.08 11.93 12.82 13.86 12.29 6.67 2.55 2.22 3.07 -2.14 3.08 -3.14 -4.26 0.65 -4.09 13.86 2 Mining and quarrying 2.12 4.89 7.60 7.45 6.56 8.32 9.30 7.16 4.87 1.40 1.37 2.34 2.61 1.84 0.20 -1.23 -1.69 -0.44 2.16 3.39 9.30

    Sub-total:primary 5.40 -3.96 -0.51 -15.48 2.41 5.90 4.81 13.50 1.39 -1.93 6.96 7.96 6.03 9.87 3.05 -1.65 -10.51 -3.40 -7.34 12.39 13.50 3 Manufacturing 8.55 10.99 10.59 3.76 9.93 5.66 6.50 1.64 8.81 9.15 10.46 19.95 11.44 10.99 8.37 6.34 2.67 4.32 8.40 7.87 19.95

    3.1 Registered 9.10 12.44 11.50 3.38 9.85 6.13 6.68 1.02 8.48 8.24 11.15 22.13 13.75 12.76 8.47 5.48 -1.44 0.35 5.94 5.19 22.13

    3.2 Unregistered 7.40 8.06 8.73 4.59 10.09 4.62 6.11 2.91 9.49 11.19 8.89 15.20 6.25 6.95 8.12 8.41 11.76 12.98 13.81 13.26 15.20 4 Elec, gas and water 7.05 6.76 8.49 9.74 10.93 12.12 12.17 11.23 14.22 13.90 11.20 12.09 7.65 6.85 8.61 6.13 5.73 4.03 7.44 6.33 14.22 5 Construction -1.03 4.98 5.53 9.72 7.41 2.45 0.84 7.07 2.69 8.91 8.93 1.81 7.45 7.29 10.28 15.64 10.59 1.94 0.00 -3.93 15.64

    Sub-total: second 6.81 9.75 9.69 4.92 9.64 5.61 6.12 3.20 8.44 9.47 10.34 16.64 10.77 10.21 8.60 7.40 3.70 4.04 7.46 6.34 16.64 6 Trade and hotels 5.65 4.20 5.11 1.82 7.19 8.24 6.11 5.99 4.83 2.14 5.83 10.55 10.46 13.45 10.18 6.37 3.97 3.91 5.99 10.25 13.45 7 Tran, stor and comm 18.71 17.09 17.61 10.38 9.40 10.50 1.06 -0.34 -0.45 -1.08 8.38 9.55 9.93 12.66 11.14 12.80 11.96 8.14 8.53 6.30 18.71

    7.1 Railways 0.06 0.70 4.41 4.93 5.11 3.99 2.21 2.94 -0.84 1.95 2.71 2.85 4.52 1.41 2.16 0.48 2.87 3.75 3.32 4.80 5.11

    7.2 Other transport 18.71 17.09 17.61 10.38 9.40 10.50 1.06 -0.34 -0.45 -1.08 8.38 9.55 9.93 12.66 11.14 12.80 11.96 8.14 8.53 6.30 18.71

    7.3 Storage -0.28 5.37 1.06 10.99 4.93 0.62 1.45 -3.83 -0.71 -1.65 -6.96 0.73 2.11 4.83 7.87 3.01 3.21 5.46 8.51 10.67 10.99

  • 7.4 Communication 6.72 4.70 6.12 7.92 5.86 8.54 6.69 5.42 8.60 7.56 10.42 17.17 15.41 21.40 18.71 16.48 18.12 13.21 13.98 8.60 21.40 8 Finance sector 4.11 4.42 5.15 6.23 8.81 8.63 8.36 7.62 6.92 8.58 7.80 8.73 4.84 4.86 5.61 7.09 7.19 5.92 6.51 5.20 8.81
  • 8.1 Banking and insurance 7.18 8.24 10.49 15.01 22.59 21.41 19.03 15.59 12.21 15.61 13.71 15.24 7.00 5.42 6.09 7.77 6.52 4.82 5.79 3.43 22.59
  • 8.2 Real estate 3.20 3.25 3.31 3.00 2.96 2.92 2.95 3.01 2.99 2.97 2.80 2.80 2.72 4.25 5.07 6.26 7.91 7.11 7.31 7.35 7.91 9 Comm services 7.32 8.57 7.12 6.71 4.73 4.64 3.67 3.87 3.16 5.17 6.77 6.91 8.65 7.60 9.81 12.96 12.03 10.36 7.22 4.06 12.96
  • 9.1 Public administration 9.64 10.63 7.38 9.55 6.09 5.63 1.67 -0.37 -1.11 3.30 6.68 7.92 8.50 5.98 11.85 13.95 12.16 8.35 1.16 -2.10 13.95
  • 9.2 Other services 5.89 7.33 6.94 4.82 3.80 3.98 4.94 6.71 5.97 6.41 6.82 6.33 8.74 8.57 8.57 12.35 11.96 11.44 10.72 7.45 12.35

    Sub-total: tertiary 6.45 6.25 6.72 5.49 7.23 7.62 5.51 5.10 4.42 4.55 6.93 9.00 8.26 9.31 8.88 9.02 8.23 6.87 7.07 6.68 9.31 10 Total GSDP 6.50 3.71 5.46 -1.08 6.56 6.79 5.72 6.38 5.00 4.72 8.61 11.93 8.71 9.78 7.16 6.01 2.07 3.45 4.14 7.67 11.93

    Basic source: DES (2005): State Domestic Product, Gujarat State, 2003-04; GoG, June.

    Appendix Table 4: Average Annual Compound Growth Rates in Ten Consecutive Years in Gujarat, 1980-04

    (in per cent)

    Sl Industry Group 1980-91 1981-92 1982-93 1983-94 1984-95 1985-96 1986-97 1987-98 1988-99 1989-00 1990-01 1991-02 1992-03 1993-04 Max No Gr

    1 Agri and allied 1.37 -1.96 3.33 -1.14 2.12 3.36 6.44 11.50 2.62 0.43 -0.30 3.98 -1.33 6.61 11.50

    1.1 Agriculture 1.13 -2.55 3.14 -1.70 1.91 3.34 6.63 12.32 2.53 0.10 -0.50 4.31 -1.56 7.20 12.32

    1.2 Forestry and logging -0.34 0.22 -0.01 0.37 0.27 -0.03 0.40 1.96 1.73 1.17 1.73 1.59 1.82 1.83 1.96

    1.3 Fishing 8.56 8.86 11.15 10.00 8.22 6.54 7.24 7.60 5.45 5.73 1.22 0.76 0.37 -0.73 11.15 2 Mining and quarrying 5.71 5.77 6.41 5.86 5.40 4.74 4.41 3.61 2.83 0.94 0.08 0.60 1.76 1.73 6.41

    Sub-total: Primary 1.78 -1.23 3.58 -0.53 2.38 3.50 6.25 10.48 2.64 0.49 -0.26 3.58 -0.99 6.12 10.48 3 Manufacturing 8.39 5.97 9.35 6.39 9.15 9.32 9.69 9.30 8.52 9.59 8.09 10.45 8.36 9.08 10.45

    3.1 Registered 8.76 6.16 9.47 6.18 9.57 9.73 10.35 9.94 9.01 9.46 6.91 9.64 7.98 8.22 10.35

    3.2 Unregistered 7.61 5.62 9.11 6.85 8.20 8.36 8.11 7.81 7.42 9.91 10.37 11.91 9.10 10.72 11.91 4 Elec, gas and water 9.48 9.88 11.61 11.58 11.16 12.04 11.27 10.39 10.23 9.61 8.66 7.48 7.56 6.63 12.04 5 Construction 2.06 6.50 4.03 6.69 6.05 5.20 4.79 5.74 7.17 10.42 8.73 3.68 6.04 5.01 10.42

    Sub-total: Second 7.48 6.35 8.78 6.77 8.89 8.97 9.21 8.89 8.47 9.71 8.21 9.24 8.08 8.44 9.71 6 Trade and hotels 6.21 4.34 5.35 4.56 6.28 6.84 7.46 9.18 7.45 6.10 6.58 8.32 7.93 9.39 9.39 7 Tran, stor and comm 6.77 6.18 6.48 5.49 5.46 6.04 5.86 6.98 6.77 7.21 9.88 10.13 10.23 9.64 10.23

    7.1 Railways 2.79 2.59 1.54 3.19 3.87 3.46 1.58 1.79 2.69 2.05 1.85 2.11 4.39 3.18 4.39

    7.2 Other transport 9.24 8.39 8.71 5.79 5.33 5.54 5.81 6.66 6.00 6.42 10.24 10.20 9.72 9.53 10.24

    7.3 Storage 2.98 2.52 -0.41 1.81 0.16 0.69 0.00 -0.49 1.28 1.64 0.69 3.25 4.94 6.55 6.55

  • 7.4 Communication 6.52 5.89 7.06 7.75 7.99 10.77 10.72 12.95 13.05 13.94 15.32 16.21 15.26 14.38 16.21 8 Finance sector 6.24 6.41 7.07 7.77 7.73 8.14 6.94 7.21 6.45 7.53 6.48 6.53 6.29 6.18 8.14
  • 8.1 Banking and Insurance13.45 13.75 14.87 16.45 16.17 16.64 13.41 12.47 9.65 11.21 8.48 8.16 7.09 6.36 16.64
  • 8.2 Real estate 3.10 3.08 3.07 2.98 2.94 2.90 2.83 3.48 3.78 4.22 4.78 5.11 5.50 5.97 5.97 9 Comm services 5.59 5.86 4.78 5.69 5.38 5.22 5.38 6.05 7.39 8.48 8.70 8.65 9.06 8.02 9.06
  • 9.1 Public adm 5.68 5.71 3.65 5.63 4.53 4.67 4.08 4.24 6.76 7.90 8.25 7.79 7.74 5.60 8.25
  • 9.2 Other services 5.54 5.95 5.47 5.73 5.91 5.56 6.17 7.23 7.83 8.87 8.96 9.10 9.74 9.30 9.74

    Sub-total: Tertiary 6.17 5.63 5.95 5.96 6.36 6.72 6.56 7.48 7.01 7.27 7.65 8.20 8.09 8.14 8.20 10 Total GSDP 5.32 3.68 6.38 4.45 6.15 6.89 7.67 8.89 6.39 6.58 6.17 7.69 6.04 7.77 8.89

    Basic source: DES (2005): State Domestic Product, Gujarat State, 2003-04; GoG, June.

    is a real challenging task. However, as estimated in a recent study, Gujarat’s saving rate is around 38 per cent of GSDP [Dholakia, forthcoming]; and the 41 per cent investment rate then may not appear unattainable. But, it requires a huge government effort to retain savings in the state, reverse the flow and attract net investment from outside the state to the tune of 3 to 4 per cent of GSDP. This calls forth a very well directed effort by the state government at various administrative and economic reforms. Even then, accelerated growth in Gujarat may not result in an overall acceleration of growth in the country because it would largely be achieved by diverting the investment and growth from elsewhere.

    Secondly, the implication of the required rate of growth of the total factor productivity on the targeted internal rate of return (IRR) on projects in the state can be worked out from these estimates following the well laid out methodology [See, Dholakia 1986; and Dholakia 1988]. Accordingly, the absolute contribution of the residual of 4.72 percentage points and investment rate of about 41 per cent, the internal value of return (IRR) target consistent with 10.36 per cent economic growth would be about 22 per cent in real terms. This is indeed a tall order. It implies that all future projects in Gujarat should have a payback period of three years or less. The above analysis based on the assumption of continuation of the past pattern of growth acceleration recently observed in the state, therefore, needs to be replaced with some clear policy oriented changes in the sources of growth and their patterns. Labour and land are too important as sources of growth to be neglected. The future growth has to be labour- and landintensive – rather than increasingly capital-intensive as is the case recently. There is moreover, a need to bring down the interest rate in the economy – particularly on loans for the unregistered and informal sector by improving the institutional credit delivery. Similarly, the skill and educational levels need to improve among the workers increasing their productivity and wage rates. This coupled with labour-intensive methods and technology in the farm and non-farm sectors would bring down the incremental capital-output ratio without increasing IRR for the projects. Actually, the required IRR should fall from 22 per cent to around 17 to 18 per cent.

    Appendix Table 5: Estimation of Net Fixed Capital Stock at1993-94 Prices in Gujarat, 1980-81 to 2003-04

    (Rs in lakh)

    Years Primary Secondary Tertiary Non-Agri Total

    1980-81 1325004 2444886 3663306 6108192 7433196 1981-82 1397623 2518242 3846268 6364509 7762133 1982-83 1426438 2894383 4021076 6915459 8341897 1983-84 1476134 3245138 4175957 7421095 8897229 1984-85 1527586 3330379 4247109 7577487 9105073 1985-86 1568360 3662634 4352465 8015098 9583459 1986-87 1636716 3997226 4393107 8390333 12669856 1987-88 1767764 4265605 4624856 8890461 10658225 1988-89 1814151 4546464 4685194 9231658 11045809 1989-90 1868881 4756422 4823616 9580037 11448918 1990-91 1926565 4940360 4931066 9871426 11797991 1991-92 1999797 5115898 5080572 10196470 12196268 1992-93 2049124 5483894 5245850 10729745 17174812 1993-94 2221543 7112590 5553060 12665651 14887194 1994-95 2133461 5610949 5625243 11236192 13369653 1995-96 2199200 7569160 5888356 13457516 15656716 1996-97 2206390 8628178 6243790 14871968 17078359 1997-98 2233425 10907032 6590461 17497493 19730918 1998-99 2271548 12180757 6961618 19142375 21413923 1999-00 2315597 12935890 7192669 20128559 22444156 2000-01 2321238 14608928 7350238 21959165 24280403 2001-02 2349352 15327543 7643281 22970824 25320176 2002-03 2352199 15857632 7857031 23714664 26066863 2003-04 2401098 16684643 8208154 24892797 27293895

    Source: See the text.

    V Conclusion and Suggestions

    The paper examined the areas of strengths and weaknesses of the Gujarat’s economy in comparison to the national economy. Agriculture, fishing, mining and quarrying, construction, railways, communications, banking and insurance and real estate and dwellings are the weaker sectors in Gujarat, where special attention needs to be focused to achieve better performance. Policy reforms in these sectors need urgent attention both in terms of their timely introduction and effective implementation. If Gujarat has to achieve a growth acceleration of about 4 percentage points to attain a double digit growth rate comparable to the best performers in the world, the required rate of capital investment is about 35 to 40 per cent higher than what it is right now. This is based on the continuation of the trends in recent past. The implications of such an investment rate in Gujarat would be that Gujarat’s growth would be at the cost of other areas in the country. Under such circumstances, the country does not gain from Gujarat’s growth. The only sensible solution is that Gujarat concentrates on land and labour-intensive growth and does not encourage increasing capital intensity in its growth strategy. Skill formation, educational development, and land-intensive production aided by water availability would help controlling and reducing the incremental capital output ratio in the state without raising the required IRR of projects above 18 per cent. A growth acceleration of about 60 to 66 per cent can be achieved in Gujarat only by systematically managing technology and its change. Labour and land have stopped contributing substantially to growth in Gujarat because in both these areas the required economic and administrative reforms are seriously lagging behind. Appropriate policy actions like stamp duty reforms, land revenue administrative reforms, land market oriented growth facilitating policy reforms, etc. are urgently needed if Gujarat has to attract and capitalise on the liberal stance of the central government on the FDI in the real estate sector. Labour reforms and public sector restructuring can go a long way to promote labour employment and labour intensity in the state’s export sector. Making institutional credit available effectively and efficiently to small and medium enterprises at a reasonable cost and in right time is critical to bringing down the ICOR and generating more employment growth in the state. Land and estate development is another activity in the state with great potential for attracting FDI and expanding softer infrastructure in health, education, culture, tourism and supportive services to generate labour intensive rapid growth.

    In summing up, it seems that Gujarat can grow at a rate higher than 10 per cent per annum in the long term without diverting growth from other states in the country only if it takes initiatives in bold policy decisions and innovative designs to help small and medium sized entrepreneurs; leadership in providing efficient and transparent administration; and constant vigilance and alertness in providing the most friendly policy environment to business in the state. Guaranteeing quality of soft infrastructure, valuing high skilled professionals and entrepreneurs, and providing basic amenities to the masses is the key to achieving labour and land-intensive high growth in the state that would contribute significantly to the national growth.

    EPW

    Notes

    [This is a revised version of the paper presented at Dr I G Patel Memorial Seminar held at M S University of Baroda on February 11, 2006. I am thankful to Shreekant Iyengar for computational assistance.]

    1 Gujarat’s share in the nation is 4.94 per cent in population, 5.03 per cent in land area, and 6.8 per cent in income.

    2 The land value per hectare of agricultural land and non-agricultural land at 1993-94 prices implied by Sivasubramonian’s (2004) estimates work out to be Rs 17,743 and Rs 7,611 respectively.

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    Oxford University

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