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Labour and Employment under Globalisation: The Case of Gujarat

On examining the dynamics of the processes of change in the status of labour and employment in the rapidly globalising state of Gujarat in India, this study shows that the rapid growth in the state has not been shared by labour. This has resulted in the state slipping in poverty reduction, human development and in hunger removal. This study also argues that an unfair deal to labour need not be a part of neo-liberal economic reforms and that providing a just share to labour can contribute towards promoting labour-intensive and equitable growth in the state.


Labour and Employment under Globalisation: The Case of Gujarat

Indira Hirway, Neha Shah

On examining the dynamics of the processes of change in the status of labour and employment in the rapidly globalising state of Gujarat in India, this study shows that the rapid growth in the state has not been shared by labour. This has resulted in the state slipping in poverty reduction, human development and in hunger removal. This study also argues that an unfair deal to labour need not be a part of neo-liberal economic reforms and that providing a just share to labour can contribute towards promoting labour-intensive and equitable growth in the state.

The authors are thankful to Rajiv Sharma for his research support.

Indira Hirway ( is with the Centre for Development Alternatives, Ahmedabad and Neha Shah (nehakabir00@ is with the L J Institute of Management Studies, Ahmedabad.

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eo-liberal policies do not directly address labour and employment in the sense that these factors are not at their core. Instead, their benefits were expected to trickle down to labour through the functioning of the labour market. It was thought that the growth promoted by economic reforms would raise labour productivity, employment and wages in the economy, which in turn would contribute significantly towards poverty reduction and human development. As is well known now, the trickle-down theory has not worked well in most developing countries, including India. But what is not so well known is why and how labour has not received a fair share of growth.

This paper tries to understand the dynamics of the processes that have been responsible for changes in the status of labour and employment in Gujarat, one of the rapidly globalising states in India. The selection of Gujarat is important because it is seen as a “model state” that has reaped the most from neo-liberal policies in the past decade and a half and is considered an example worth emulating by several aspiring states in the country.

Labour Processes under Economic Reforms

There have been several studies on the impact of neo-liberal policies on labour and employment. This field has been explored by a large number of economists (Harriss-White and Sinha 2007; Seguino 1997; Guenseli and Rodgers 2007; Hirway 2009a, b, 2010; Kantor, Rani and Unni 2006; Nathan 2007). These studies have identified several labour processes taking place in economies after the introduction of neo-liberal policies.

To start with, it is observed that gross domestic product (GDP) growth has been achieved by adopting highly capital-intensive technologies and that the higher the jump an economy has taken in technology, the higher the growth it has achieved. This is primarily because production units have adopted the latest, frontier technologies, which are usually capital-intensive in nature, to be competitive in the global labour market, and also because the increased inflow of foreign direct investment (FDI) has brought in highly capitalintensive technologies prevailing in the countries from where the funds come. As a result, the employment generated per unit of output has been declining drastically in these economies. There is nothing wrong in this if the jump in technology is accessible to all sectors of the economy. But this has not happened for want of resources and markets. So one observes a sharp dualism in these economies, where there is a small modern sector enjoying highly capital-intensive technology and high incomes and a large traditional (or non-tradable) sector with low skills, low productivity and low incomes. Apart from being politically and socially unsustainable, this growth is not sustainable economically as well because it is likely to result in an aggregate demand deficiency sooner than later. Alternatively, the growth of the modern sector becomes increasingly dependent on global markets, disregarding the domestic market.

Another labour process identified by experts is that the growth of labour-intensive exports has increased employment opportunities in many developing countries but that the quality of employment is poor. This is because the global market, dominated by global production networks, is under the control of multinational corporations, which keep core activities such as sale, design and finance with themselves while distributing labourintensive production processes among developing countries. These countries, forced to globalise at the lowest end of the value chain, cut their labour costs by reducing wages and not providing social protection so as to survive cut-throat competition and acquire orders from multinational corporations.

Third, rapid industrial growth is usually achieved through destruction of natural resources (that is, overusing natural resources without adequate replenishment) and pollution of air, water and land (in the absence of proper regulation). The adverse impact on natural resources hurts the livelihoods of people as more than 60% of the population in these countries still depend on natural resources for their livelihoods. Finally, the vulnerability of labour has increased considerably under globalisation because the volatility of the global market does not ensure stable jobs to workers and increased competition in the domestic labour market results in closures, down-sizing and restructuring of units. As the International Labour Organisation (ILO) has pointed out, society at present in developing countries is “a risk society” (2004) because most groups, particularly those at the bottom, are exposed to uncertainty and risks that emanate from new policy regimes. Their insecurity is multidimensional – related to employment, income, work, job, and skills.

These labour processes call for carefully designed labour and employment policies to address their negative effects and to promote adequate employment with “decent work”. As the ILO has observed, if the benefits of increase in labour productivity are not passed on to workers, it is likely to create a severe aggregate demand deficiency sooner or later in economies (2010). This paper examines the case of Gujarat, one of the most rapidly growing states in India, to understand the status of labour and employment in the context of the above discussion.

The Case of Gujarat

Gujarat has emerged as one of the fastest growing states under globalisation in India, particularly after 2000, when the rate of growth of state domestic product (SDP) began shooting up. From 2000 to 2008, India’s GDP grew at 7.68 compound annual rate of growth (CARG) while Gujarat’s SDP rose at 10.76 CARG. The secondary sector in the state grew at 11.16% and the tertiary sector at 10.27% during this period, against the corresponding all-India rates of 8.31% and 7.68%. What is worth noting is that agriculture in the state showed a more than 12% annual growth rate during 2000-08 while India struggled hard to achieve even a 3% rate of growth in this sector (Table 1). This growth rate in agriculture has been described by several scholars as a “miracle” and a consequence of “structural changes” in the sector (Shah et al 2009; Datta and Dholakia 2010).

Table 1: GSDP – Compound Annual Rate of Growth (in %)

Industry Group Gujarat GSDP CARG India GSDP CARG 1993-2000 2000-08 1993-2008 1993-2000 2000-08 1993-2008

Agriculture 0.26 12.83 6.36 2.78 3.31 3.04

Primary 0.24 11.1 5.53 2.96 3.46 3.21

Manufacturing 6.97 11.06 8.99 7.02 7.64 7.33

Secondary 7.03 11.16 9.08 6.77 8.31 7.54

Service industries 9.49 13.32 1.39 8.81 11.23 10.01

Tertiary 7.9 10.27 9.08 8.07 9.67 8.87

Total GSDP 5.92 10.76 8.31 6.20 7.68 6.94

Per capita Income (Rs) 3.78 8.95 6.34 4.20 6.00 5.09

Source: Various issues of Socio-Economic Review, an annual publication of the Government of Gujarat, and Economic Surveys 2007-2009.

How has the distribution of the benefits of growth been to the different sections of the population in general and to labour in particular? The first question that has to be tackled is whether the structural changes in the sources of SDP are reflected in changes in the structure of employment. Table 2, which presents the relevant data, shows that the higher shares of the non-primary sectors in the SDP are not accompanied by structural transformation in the workforce. Though more than 85% of the SDP comes from non-primary sectors, these sectors provide employment to only about 45% of the workforce (2008-09). That is, the primary sector has 54.4% of the workforce but contributes less than 15% of the SDP. There is a huge gap between the labour productivities in the primary and non-primary sectors, implying that 1% of gross state domestic product (GSDP) is produced by 3.34% of the workforce in the primary sector whereas 1% of GSDP is produced by 0.54% of the workforce in the non-primary sectors (almost one-seventh that of the primary sector).

Table 2: Sectoral Shares in State Domestic Product and State Employment in 2004-05 and 2008-09

No Sector Gujarat SDP % Share Gujarat % Share in India % Share in
Employment (P + SS) Employment
2004-05 2008-09 2004-05 2008-09 2004-05 2008-09
1 Primary 18.33 14.8 49.9 54.4 54.09 57.3
2 Secondary 37.98 37.1 24.4 22.3 19.64 18.7
3 Tertiary 43.69 48.1 25.7 23.3 26.29 24.1

P + SS: principal and subsidiary status. Source: National Sample Surveys (NSS) of 2004-05 and 2008-09 and Socio-Economic Review, Gujarat, February 2010.

The changes that have occurred in the structure of employment and sources of incomes between 2004-05 and 2008-09 are quite striking: Though the share of the primary sector declined from 20.57%1 in 2004-05 to 16.30% in 2008-09 in net state domestic product (NSDP), the share of the primary sector in employment has increased from 49.90% to 54.40% during the same period. This indicates a widening of the productivity gap between the primary and secondary sectors. In spite of the high growth rate of the state economy and of the agricultural sector, the Lewisian transfer of the workforce from the primary to the non-primary sectors is still a distant dream.

Characteristics of Labour Force

Workforce Participation Rates in Gujarat and India: Gujarat’s workforce participation rates (WPR) were clearly better than India’s (Table 3). In 2007-08, the rural WPR (principal and subsidiary status) in Gujarat was 48.7% against 42.2% in India. Similarly,

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Table 3: Worker Participation Rate in Gujarat and India (1993-2008, in %) not reflected all that much in employment sta-
Male Principal Female Gujarat Total Male P + SS Female Total Male Principal Female India Total Male P + SS Female Total tus in Gujarat. In the case of urban areas, one observes an almost stagnant situation in India,
1993-94 while there was a decline in self-employment
Rural 56.5 25.4 41.5 57.4 39.6 48.8 53.8 23.4 39.0 55.3 32.8 44.4 and an increase in wage labour in Gujarat. Both
Urban Total 2004-05 Rural 52.8 -57.7 9.8 -26.3 32.3 -42.5 53.5 -57.9 14.2 -37.8 34.7 -48.2 51.3 -53.7 12.1 -22.4 32.7 -38.4 52.1 -54.9 15.5 -31.0 34.7 -43.3 regular as well as casual wage labour increased in urban Gujarat. In short, the above trends indicate that
Urban 57.5 9.3 35.2 57.7 12.5 36.8 53.4 12.1 33.6 54.0 14.3 35.0 Gujarat is relatively better off in terms of over
Total 57.6 20.9 40.1 57.9 29.8 44.5 53.6 19.9 37.3 54.7 27.0 41.3 all levels of employment than India as a whole.
Rural 59.6 24.4 42.9 60.2 35.9 48.7 53.8 21.6 38.1 54.8 28.9 42.2 Issues in Quality of Employment
Urban Total 59.1 59.4 9.9 19.1 36.1 40.4 59.3 59.9 13.1 29.6 37.7 44.7 55.0 54.1 11.8 19.0 34.2 37.1 55.4 55.0 13.8 27.0 35.440.4 More than inadequacy of employment, poor

P +SS: principal and subsidiary status. Source: Relevant National Sample Survey Organisation (NSSO) rounds.

the urban WPR was 37.7% in Gujarat against 35.4% in India. A larger proportion of urban female workers worked as marginal workers in Gujarat compared to India.

Between 1993-94 and 2007-08, the rural WPR in Gujarat remained almost stagnant at 48.7%, while it declined in India from 44.4% in 1993-94 to 42.2% in 2007-08. The urban WPR increased in Gujarat (from 34.7% in 1993-94 to 37.7% in 2007-08) as well as in India (from 34.7% in 1993-94 to 35.4% in 2007-08), the increase in Gujarat being much higher than that in all India.

Unemployment Rates: Gujarat had lower unemployment rates compared to those of India. The rural rates were particularly much lower, 6.0%, 1.0% and 4.0%, respectively for men, women and for both, against the corresponding all-India rates of 10.1%, 4.1%

Table 4: Unemployment Rates in Gujarat and 7.1%, respectively (Table 4). (Principal and Subsidiary Status (in %)

Urban unemployment rates in

Gujarat India

Gujarat, though much higher


Male 6.0 10.1than those in rural areas, were

Female 1.0 4.1lower than the corresponding

Total 4.0 7.1

all-India rates. The higher urban


rates can be explained by the

Male 18.0 22.0

fact that people in rural areas

Female 4.0 11.0

were able to take up some work

Total 12.0 17.0 Source: NSSO round 2007-08. or the other involving land, animals or forests (residual sectors) while those in urban areas did not have many residual sectors they could be employed in.

Employment Status of Workforce: Gujarat was in a relatively better position than India with a marginally higher percentage of regular workers among its total workers (2007-08). In the case of urban workers, 42.0% were regular workers against 41.2% in India, and in the case of rural workers, these were 8.0% and 7.3% respectively for Gujarat and India. There was not much difference between the shares of the self-employed and casual workers in Gujarat and India, the shares in India being marginally higher than those in Gujarat.

Between 2004-05 and 2007-08, one finds broadly similar trends in employment status in Gujarat and India (Table 5). In rural areas, a marginal decline in regular workers, an increase in casual workers and a decline in self-employment, all indicating an increase in the share of wage earners. The high rate of growth in agriculture was

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quality of employment seems to be a major problem in Gujarat.

Share of Informal Workers in Total Workers: As is well known, there is a huge gap between the wages, terms of employment and working conditions of formal and informal workers. Formal or organised workers are covered by labour laws that provide social security such as provident funds and pensions, gratuities or severance benefits, medical leave and services under the Employees State Insurance Scheme (ESIS), maternity benefits and bonuses. Laws govern working conditions to ensure safety and security in the workplace and the workers come under the Industrial Relations Act and the Industrial Disputes Act. On the other hand, informal workers are covered only by some scattered labour laws, the benefits of which are low and uncertain. These laws have poor content and coverage and are implemented indifferently by the authorities.

The share of informal workers in total workers in India is 90.68%, 95.93% and 92.38% for men, women and both respectively. The corresponding figures in Gujarat are 88.60%, 97.59% and 91.59%, which implies that though the state is slightly better in the overall share of informal workers in total workers, it lags behind India in terms of women’s share of informal workers in total women workers. Only 2.4% of women workers were in formal employment in Gujarat against 4.07% in India (NCEUS 2008). Kerala was at the top and far ahead of other states with an 81% share of informal workers, followed by Jammu and Kashmir (88%) and Maharashtra (89%). Gujarat, the fastest growing state, ranked 11 among the 20 major states in India in this respect.

It is important to note that formal employment in the public sector has declined in absolute terms in Gujarat, from 8.24 lakh in 2003-04 to 7.98 lakh in 2008-09. This decline has been primarily because the state government has almost frozen recruitment of

Table 5: Employment Status in Gujarat and India (percentage distribution)

Rural Workers Urban Workers
Self - Regular Casual Self- Regular Casual
employment Workers Workers employment Workers Workers
1993-94 50.2 6.8 43.0 38.3 40.9 20.8
2004-05 59.8 8.7 31.5 44.3 38.9 16.8
2007-08 56.0 8.0 35.9 40.6 42.0 17.4
1993-94 58.1 6.6 35.3 42.4 39.5 18.1
2004-05 58.7 7.9 33.5 42.6 41.4 15.7
2007-08 56.4 7.3 36.3 42.7 41.2 16.1
Source: Various NSSO rounds.

staff to reduce public expenditure. As we shall see later, this policy has resulted in a severe shortage of staff in implementing labour laws and labour-related schemes and programmes in the state. Organised or formal employment in the private sector increased in the state from 8.36 lakh in 2003-04 to 11.06 lakh in 2008-09. The overall annual growth of organised employment in the state was only 0.5% during 1995-2008 against a more than 8% growth rate in SDP, and during the high growth period (2000-08), it was 1.6% (Table 6). Though the performance of the private sector during the past five to six years has been positive, the high growth rate in SDP was not really reflected in the growth of organised employment in the state.

Table 6: Employment Growth in Organised Sector in Gujarat (in %)

Industrial Classification CAGR CAGR CAGR 1995-2000 2001-2008 1995-2008

Agri, hunting, forestry and fishing -4.7 3.0 0

Mining and quarrying -3.1 -2.4 -3.5

Manufacturing 0.3 2.3 1.0

Electric, gas and water 0.4 2.8 1.6

Construction -0.5 -2.8 -2.4

Transport, storage and communications -0.2 -2.9 -1.7

Financing, insurance, real estate and business services 0.2 4.4 2.4

Community, social and personal services -0.8 1.4 0.1

Total -0.3 1.6 0.5

Source: Socio-Economic Survey 2008-09.

Rapidly Rising Capital Intensity of Economic Growth: The increasing capital intensity of the industrial sector is another striking feature in Gujarat. In 2007-08, Gujarat was ranked first among the 20 major Indian states in terms of fixed capital investment, second in terms of total invested capital and fourth in terms of total number of factories, but its rank was 18 in labourcapital ratio. The employment generated per crore of capital investment as well as the employment generated per crore of output in the industrial sector (Annual Survey of Industries or ASI) has consistently fallen in the state. In the factory sector, where fixed capital investment grew by 7.7% annually during 1998-2008 and the total invested capital by 9.1%, the number of workers increased only by 2.8% (Table 7).

The decline in the number of factories by 0.23% in spite of a 9.1% increase in the total invested capital per year indicates that the average invested capital per factory has increased 2.5 times in less than a decade, from Rs 566.93 crore in 1998-99 to Rs 1,387.16 crore in 2007-08. During the same period, the share of wages as a percentage of net value added declined by 3.25% per year, from 11.83% in 1998-2000 to 8.5% in 2007-08. That is, organised workers in the ASI sector received only 8.5% of the value added and the rest went largely to profits. It is important to note that Gujarat is ranked 15 in the share

Table 7: Industrial Growth, Employment and Share of Wages in the ASI Sector

of wages in the net value added in the ASI sector. Kerala is at the top with 22.47% share of wages, followed by West Bengal (21.89%), Tamil Nadu (16.37%) and Punjab (15.27%). Clearly, the gains in productivity are not passed on to ASI sector workers in Gujarat.

Wages in the Organised and Unorganised Sectors: The rapid growth of SDP in Gujarat has been accompanied by a very low increase in wages, implying once again that the gains of rising productivity have not been passed on to workers.

In 2007-08, the daily wage rate of casual male workers in rural areas, who constituted 92% of the total workforce in rural areas, was Rs 68.53 and of casual female workers, who constituted 97% of the total female workforce in rural areas, was Rs 58.97 (Table 8). The corresponding rates in India were Rs 75.30 and Rs 62.26. In spite of the “miracle” growth rate in agriculture during this period,

Table 8: Daily Wages Rates of Casual and Regular Workers in Rural and Urban Areas by Sex (15-59 years, in Rs)

Gujarat India
1999-2000 2007-08 2005-06 2007-08
Casual workers
Rural male 43.91 68.53 44.84 75.30
Rank 9 14 - -
Rural female 34.43 58.97 29.01 51.17
Rank 8 8 - -
Urban male 67.13 108.76 62.26 104.63
Rank 8 8 - -
Urban female 40.12 55.75 37.71 59.57
Rank 9 14 - -
Regular workers
Rural male 152.07 175.3
Rank 17
Rural female 107.60 108.14
Rank 9
Urban male 215.02 276.04
Rank 18
Urban female 181.95 212.86
Rank 13

(1) Wage rates are in nominal terms; (2) Rank of Gujarat is among the 20 major states in India. Source: NSSO Reports, 1999-2000 and 2007-08.

in 2007-08, Gujarat slipped in rank and stood 14th with respect to the male wage rate and 8th with respect to the female wage rate among the 20 major states in India. In the case of urban casual workers, the state ranked 7th with respect to male workers and 14th with respect to female workers in 2007-08. Gujarat slipped from the 9th rank in 1999-2000 to the 14th rank in the case of female workers and maintained its 8th rank in the case of urban casual workers. It is important to note that in the case of the daily wage rate of casual male workers, Gujarat’s rate is lower than that in India as a whole.

In the case of regular workers, the situation was slightly better.

Regular workers in rural areas constituted

1998-99 2001-02 2003-04 2005-06 2007-08 CARD 1998-08 about 8% of the total workforce and were em-

Number of factories 15,455 13,950 12,795 14,055 15,107 -0.23 ployed mainly in non-agricultural ventures,

Fixed capital investment many in skilled or semi-skilled jobs. In the case in industry (Rs) 69,47,655 87,07,855 85,78,858 1,19,53,996 1,45,40,034 7.7

of urban areas, they were usually in skilled and

Total invested capital (Rs) 87,61,928 1,11,06,001 1,15,02,721 1,63,97,187 2,09,55,836 9.1

semi-skilled jobs. In 2007-08, the average daily

Workers in factory sector 6,07,763 5,21,528 5,38,080 6,69,324 7,97,443 2.8

wage rate of rural regular workers was

Capital invested per worker (Rs) 11.43 16.69 15.94 17.85 18.23

Rs 152.07 for male workers and Rs 107.60 for

Labour/capital 0.07 0.05 0.05 0.04 0.04 -5.83

female workers, with the state ranking 17 in the

Wages as % of net value added 11.83 14.96 9.66 7.67 8.52 -3.25 Source: Reports of Annual Survey of Industries. case of male workers and nine in the case of

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female workers among the 20 major states in India. The corresponding rates for urban areas were Rs 215.02 and Rs 181.95 for male and female workers respectively, with the state ranking 18 and 13 for male and female workers respectively among the 20 major states in India.

In brief, the fastest growing state in India has shown one of the poorest performances as far as wages are concerned.

Recent Amendments in Labour Laws

Though no major reforms have taken place in labour laws in India or in Gujarat since the economic reforms were initiated, some changes in enforcement have been made through Supreme Court judgments as well as changes in some rules, standing orders, and the like by both the central and state governments. These seem to have had a significant impact on labour.

Self-certification cum Consolidated Annual Return Scheme:

The Government of India introduced a provision (December 2003) permitting self-certification by units covered under labour laws. Under this, a unit can make a “self-declaration” in front of a Class II officer that it “follows all the concerned labour laws”. Such units get freedom from routine inspections by the labour department. The main objective behind this provision is to avoid an “inspector raj” and “unnecessary” litigation and to promote a friendly relationship between the labour department and units. As a senior labour officer in Gujarat put it, the government wanted to be a friend, philosopher and guide to the units and promote a healthy relationship.

Under this provision, the labour department in Gujarat is expected to check units every two years to see whether they are complying with labour laws. The department can also receive complaints from workers or the parties concerned if the laws are violated. So far, only 232 of about 35,000 factories and 12 lakh units in the state registered under the Shops and Establishment Act have opted for “self-certification”. It appears that self-certification is not very popular in Gujarat (and also in India), whatever be the reasons. So “inspection” remains a major task for the government and it needs an adequate number of officers and staff for this purpose.

Labour Judiciary: No Work, No Pay: Another major change with far-reaching consequences has come through a judgment of the Supreme Court regarding termination of employment. According to this, if a worker is terminated illegally and reinstated by the employer after an order of a labour court, he or she is not entitled to any payment for the period for which he or she was terminated. That is, “no work, no pay” even for an illegally terminated worker. This is not justifiable because units can now throw workers out illegally without worrying about the payment of back wages if they are reinstated. What is worse, workers are not likely to go to the labour court because they do not have enough money to pay a lawyer. In other words, no worker is in a position to fight if he or she is illegally terminated.

This judgment has also weakened trade unions because workers do not have the money to pay unions to protect their rights. The only beneficiary is the management, which has the freedom of throwing workers out without worrying about their reinstatement.

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Amendment to Industrial Dispute Act 1947 for SEZs: A major amendment has been made to Chapter V-D of the Industrial Dispute Act 1947. According to this, workers employed in special economic zones (SEZs) do not have the right to complain if they are thrown out of their jobs. However, they will get retrenchment compensation of 45 days for a year of work rather than the 15 days given to other workers. This amendment gives units in SEZs the freedom to get rid of workers when it suits them and also weakens the power of workers to fight against illegal retrenchment.

Insertion of the Term ‘Fixed Term Employment’ in the Industrial Employment (Standing Orders) Act 1946: According to an amendment to the Standing Orders, a new term “fixed term employment” has been introduced in the Industrial Employment Act. It allows units to employ workers for “fixed terms”. These workers are not “contract workers” but are still workers employed on contracts. The permission given to employers to appoint workers for fixed terms implies that the earlier employment security of workers is no longer there. The amendment is reasonable if one considers that units frequently need workers for short periods and not on a permanent basis. However, with no employment security, workers need adequate opportunities to find alternative employment in the labour market.

Reduction in the Number of Registers to be Kept under Labour Laws: Another major change is the reduction in the number of registers to be maintained under labour laws to two. This is meant to reduce the number of “inspectors” and weaken “inspector raj”.

On the whole, the above amendments provide more flexibility to production units in the state and favour employers more than employees.

Enforcement of Labour Laws: Labour Department

One observes that the capability of the labour department in Gujarat to enforce labour laws is far from adequate. It has declined considerably in the past two decades. The Directorate of Industrial Safety and Occupational Health, the organisation in charge of enforcement of labour laws in both the organised and unorganised sectors, suffers from a severe shortage of staff. The requirement of labour officers for only the factory sector in the state, as per ILO norms, is 232 (one labour officer per 150 factories, and there are 34,860 factories). Against this, the sanctioned posts are 154 (Class I and II) officers, which is two-thirds of the requirement. Of these, 46 posts (30% of the sanctioned posts) have been vacant for the past year or more (2010). With the ever rising number of factories, as well as the expanded purview of the directorate over unorganised units and its mandate to pay special attention to chemical factories in the state, the existing staff strength is far from adequate. There is also a severe shortage of Class III and IV staff, where 30% of the sanctioned posts are vacant (2010). As was pointed out by a senior officer, their job is now “fire fighting” and “crisis management”, not enforcing labour laws.

In spite of the rising number of factories and non-factory industrial units in Bhavnagar and Junagadh divisions, for example, there is no full-time labour officer in these divisions (2010). Similarly, Surat and its surrounding region is a major industrial centre

with units such as those engaged in diamond cutting and polish and he or she is expected to conduct 100 inspections a month to
ing, brocade and embroidery, power looms and textiles, and food enforce a labour law. Assessed against this norm, the number of
processing. The office of the Assistant Director of Industrial Safety inspections carried out in Gujarat is woefully inadequate.
and Health in Surat division has only 19 sanctioned posts (the The Minimum Wages Act 1948 is important because it enforces
requirement is more than 50), of which six are filled and 13 are legally fixed wage rates in different occupations. The Gujarat
vacant (2010). The deputy labour commissioner’s office, Surat city, government has fixed minimum wages, by ordinances, for 51
has only three officers, including the deputy labour commissioner. scheduled occupations, which cover agriculture, and other occu-
In 1993, there were nine officers, but after the rapid growth of in pations in the primary, secondary and territory sectors. The total
dustries in Surat, the number declined to three. The day we visited workers covered are more than 140 lakh, including 85-90 lakh
the office, the entire staff was away on census duty. As the boss sit rural workers. The Rural Labour Commissionerate enforces min
ting in the office pointed out, “Closing the labour department will imum wages in 13 rural sectors, including agriculture, while the
not make any difference to labour in the city.” In Navsari and Vapi Labour Commissionerate enforces the wages in 38 occupations
divisions (two major industrial centres in south Gujarat), there are that cover about 35 to 40 lakh workers.
two sanctioned posts each. However, one post was vacant in each The number of inspections conducted under this Act was
of the divisions. In Valsad, another major industrial centre, there 12,398 in 2008 (14,901 in 2006 and 18,430 in 2004) against the
was only one sanctioned post and it was vacant (2010). required number of 4,20,000. The number of prosecutions
The department of labour is therefore not in a position to con launched was 2,633 and the number of beneficiaries was 9,227 in
duct inspections. It is not even in a position to attend to com the same year. Similarly, the number of inspections made under
plaints, let alone enforce labour laws. Its officers and staff are the Contract Workers Act (5,629 in 2008) was inadequate. The
unmotivated and frustrated, and have little enthusiasm to en number of prosecutions launched under the Act was 351 and the
force labour laws. In addition, there are political pressures fre total number of beneficiaries was 11,201.
quently working on them.2 Many of them have become corrupt in As for Child Labour (Prohibition and Regulation) Act 1986 and
this environment.3 the Child Labour (Prohibition and Regulation) Rules, 10,242 in
spections were carried out, 235 prosecutions were launched and
Labour Laws for Unorganised Workers 31 cases were disposed of. There are no estimates available on
There are several special labour laws enacted by Government of child labour in the state if one goes strictly by the definition under-
India for unorganised or informal workers. Though these laws lying the Act or by the definition of the ILO.5 A Public Hearing on
are not comprehensive in the sense that they fail to cover all as- Child Labour (My Story-My Dream), organised by Child’s Rights
pects of regulation, they do cover several important dimensions Collective Gujarat, Save the Children, and Campaign against
of employing unorganised workers. The major labour laws here Child Labour, in December 2010 in Ahmedabad gave a startling
are the Minimum Wages Act 1948, the Contract Labour (Regula picture of child labour in the state. A study of 882 villages in four
tion and Abolition) Act 1972, the Inter-State Migrant Workers districts of Gujarat conducted by Child’s Rights Collective Gujarat
(Regulation of Employment and Conditions of Services) Act 1979, showed that there were 35,582 children in the age group of seven
the Equal Remuneration Act 1976 and the Child Labour Act (Pro to 14 years who were out of school and working in different areas.
hibition and Regulation) 1986. The labour department in Gujarat That included activities such as BT cotton cultivation (a star crop
is expected to enforce these laws for unorganised workers, who in Gujarat’s rapid agricultural growth),6 cutting sugar cane,
constitute 92% of the total workers in the state. animal husbandry, gathering salt, rag picking, home-based acti-
It is clear that these workers with no security of employment vities such as incense stick manufacturing, garment making and
are not likely to complain about non-payment of minimum wages bidi rolling, collecting forest products, fishing and processing
or violation of labour laws. So, regular inspections by labour and other unskilled casual work in the agricultural and non
officers would be a major way of enforcing these labour laws. agricultural sectors. The number of children came to 21% of the
Table 9 presents the number of inspections conducted by the total children in the seven to 14 age group who did not go to
Labour Commissionerate in Gujarat. school (CRC 2010).
Table 9: Number of Inspections Made Under the Different Labour Laws (2008) The Inter-State Migrant Workers Act is another important law
Labour Law Number of Number of Number of TotalProsecutions Launched Beneficiaries for unorganised workers. It has been observed that Gujarat
Inspections Minimum Wages Act 12,398 2,633 9,227 Contract Labour Act 5,629 351 11,201 Child Labour Act 10,242 235 31 Inter-State Migrant Workers Act 428 21 42 attracts a large number of workers from not only neighbouring states such as Rajasthan, Madhya Pradesh and Maharashtra but also distant ones such as Bihar, Orissa, Uttar Pradesh, Chhattisgarh and Jharkhand. There is also considerable intra-state migra-
Equal Remuneration Act 2,093 45 7 tion to areas of high growth. In 2008, 428 inspections were car-
Source: The website of the Labour Commissioner’s office, Government of Gujarat (2010). ried out under the Act, no prosecution was launched and no con-
There are no clear norms for the labour department on how victions were made. The number of prosecutions was nine in
many inspections are necessary for enforcing these labour laws.4 2002, 10 in 2005, three in 2007, 21 in 2007 and zero in 2008. The
But if one goes by the norms recommended by the Satem Com number of inspections conducted under the Equal Remuneration
mittee for unorganised workers set up by the Government of Act 1976 was 1,186 in 2009. Under it, 563 prosecutions were
India in 1980, one labour officer is needed for 10,000 workers launched and six cases were disposed of.
62 may 28, 2011 vol xlvi no 22 Economic & Political Weekly

To summarise, the labour department has accomplished only a fraction of what it was required to.

Unorganised Workers’ Board

The government of Gujarat is one of the few state governments in India to set up an Unorganised Workers Board for unorganised or informal workers in the state. This board was set up in 2007 with the objective of protecting the interests of workers employed in nonagricultural units in the state. It covers more than 30 lakh workers employed in a variety of unorganised ventures in the state. The budget of the board was Rs 50 lakh in 2007-08 and Rs 16.70 lakh in 2009-10. The total number of sanctioned posts of officers under this board was 66, 11 in the head office at Ahmedabad and 55 in the four divisions in the state. In 2010, the sanctioned posts were 106, against which only 66 were filled (Government of Gujarat website).

The main task of the board, as decided officially, is to help workers in accessing schemes related to health, providing health checkups in health camps, helping skill development (up to Rs 1,000 per worker) and providing tool kit assistance (up to Rs 300 per worker). So far 42,447 workers have been registered under the board. In all, Rs 27.7 lakh was spent on 3,247 workers (Rs 853 per worker) in 2008-09 and Rs 28.67 lakh on 7,408 workers in 2009-10 (Rs 387.03 per worker). It is very evident that the board has not yet been able to make much of an impact on unorganised workers in the state.

Table 10: Activities of Unorganised Workers’ Board

Total Beneficiaries Total Expenditure (in Rs)
Total Registration 42,447 2008-09 2009-10 2008-09 2009-10
Efficient development training 1,556 2,341 14,82,320 20,44,590
Security equipment kit 1,533 4,813 11,39,732.50 5,66,600
Medical grant 158 254 1,49,962 2,55,976

Source: Website of Labour Commissionerate, Government of Gujarat (2010).

Rural Labour Commissionerate

Once again, Gujarat was one of the first states in India to set up a Rural Labour Commissionerate in 1981 to take various measures “to improve the conditions of unorganised rural labour and to protect them against exploitation and malpractices of their employers” (RLC website). The Rural Workers Welfare Board was set up under the Commissionerate to carry out its activities in an autonomous manner. In the initial years, the board was entrusted with a number of activities, which included enforcing the relevant labour laws, implementing different social security and welfare schemes and promoting organisations of rural workers. Honorary rural organisers were appointed to educate and promote organisation of workers, to enforce labour laws and implement welfare schemes through Rural Workers Welfare Centres set up all over the state. At present, however, the Rural Workers Welfare Board is no more involved in activities to organise workers. It has 359 Rural Workers Welfare Centres spread over the state, each headed by an honorary worker (45 centres do not have a head now). An honorary worker is not a full-time worker, and his or her job is to help rural labour in accessing social security schemes.7

The Rural Labour Commissionerate is entrusted with the responsibility of implementing the following Acts in rural areas – the Minimum Wages Act 1948, the Bonded Labour (Abolition) Act 1976, the Equal Remuneration Act 1976, the Child Labour (Prohibition and Regulation) Act 1986 and Inter-State Migrant

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may 28, 2011 vol xlvi no 22

Workers (Regulation of Employment and Conditions of Services) Act 1979. In 1981, according to the norms, a government labour officer (GLO) was appointed at the district level and one assistant GLO at the block level under the assumption that there were about 10,000 agricultural labourers in each block. At present, there are 26 districts and 225 blocks and about 85 lakh agricultural workers in the state. However, there are only 20 GLOs and 92 assistant GLOs against the 26 GLOs and 225 assistant GLOs required (or 850 as per the norms of the Satem Committee).

The Minimum Wages Act covers 13 occupations in rural areas, which include more than 85 lakh workers. The prevalent average daily wage rate of Rs 68 for casual workers (NSSO 2007-08) against the legal rate of Rs 100 a day8 clearly indicates large-scale violation of the Act. However, the total inspections carried out were 84,610 in 2009-10 (91,921 in 2008-09), which again was a minuscule part of what was required. In all, 46 prosecutions were launched in the case of agricultural workers and 104 for other rural workers. No evaluation has been conducted on the enforcement of minimum wages in rural areas (and in all the state) by an official or outside agency. No data on prevailing wage rates are collected by the government through its agencies or non-government ones.

The activities of the Rural Labour Commissionerate have been on a subdued scale. During the Tenth Five-Year Plan (2002-07), Rs 2,127 lakh was spent and 2,073 workers were benefited through different schemes. In the Eleventh Plan, the total outlay of the Rural Labour Commissionerate is Rs 2,550 lakh. In a nutshell, with limited funds and limited staff, not much is being done in terms of either enforcing labour laws or implementing welfare schemes.

Global Crisis and the Diamond Industry

It would be useful in this context to examine how unprotected (global) workers in the state managed during the recent global crisis (2009). A study on the impact of the global crisis on workers and small producers in the diamond cutting and polishing industry in Gujarat (Hirway 2009a, b) is used here for the purpose. Diamond cutting and polishing is one of the most globalised industries in India as its main raw material, raw diamond, is imported and 75% to 80% of the polished diamonds are exported. The share of diamonds in the total commodity exports from India is 12.4% (Centre for Monitoring Indian Economy 2008). About 80% of the diamond cutting and polishing in the country is done in Gujarat. Since this industry exports a large part of the finished diamonds to the European Union and North America, the global crisis severely affected it and its workers.

The study showed that about 45% of the industry’s workers lost their jobs while 55% had less work at lower wages in the same industry (Hirway 2009a, b). Though one-third of the workers who lost jobs took up whatever alternative work was available, the remaining remained unemployed. Their wages fell by 48% and monthly incomes by about 50%. In the process, many workers experienced a decline in their employment status (from regular workers to casual workers) and moved from skilled to unskilled work, implying a loss of skills for the economy. The help received from the government, the industry association and non-governmental organisations (NGOs) in this crisis was limited in both content and coverage. Though 30% of the workers received some assistance in cash or kind, it was far from adequate. Help in finding new jobs was available to hardly 10% of the workers, that too through friends and relatives. In sum, the vast majority of these unprotected workers were left to fend for themselves.

The coping strategies of these workers included pawning or selling assets and borrowing at high rates of interest. When this proved inadequate, they drastically cut down on consumption. About 80% of the households reduced their food consumption; 84% reduced expenses on education by withdrawing children (mainly girls) from school or sending children to cheaper schools; and two-thirds of the households reduced their health expenditure by avoiding going to hospitals. The workers suffered from not eating enough, leading to increased poverty and a slow down in human development. About 25% of the workers, who migrated back to their villages, found themselves worse off with few employment opportunities, lower wage rates and lower incomes, and poor infrastructure for their families. Besides, they were depressing village economies by not sending remittances and depressing local wage rates by competing for jobs. The projects under the National Rural Employment Guarantee Act (NREGA) did not offer them much relief.

Women bore the brunt of the crisis. More than two-thirds of the households sent women members to work, 17% for part-time work and 51% for full-time work. Most of these women took up whatever work was available, which meant low productivity, low-wage work. About a fourth of the households reported an increase in unpaid work by women – a number of market activities entered the domestic sphere, significantly increasing the burden of women. In addition, women were subject to increased tensions, domestic violence and depression. There was neither data nor measures to bail out women, who, as producers, wage earners and home makers, endured a heavy burden during the crisis.

Small producers suffered the most among the producers because they were the worst hit by the credit crunch. Since they did not directly deal with exports and imports, the crisis was passed on to them by large producers. Hirway’s 2009(a,b) study draws attention to the plight of workers in this globalised sector in a globalised state. It exposes the weaknesses and critical gaps in the policies pertaining to labour and small producers on the one hand and in trade and industrial policies on the other hand.

The absence of data became an obstacle to reaching affected workers because there were no proper records of diamond units or workers with the government. Though there were more than 7,000 to 10,000 diamond cutting and polishing units in Gujarat and though by an order of the Gujarat High Court they were all covered by the Factories Act, only 521 units were registered under the Factories Act. The main reason for this is that producers did not want to give their workers the benefits of social protection and did not want working conditions to be regulated by the government.

Even after the crisis, the state government has done nothing in this area. Perhaps the most impressive achievement was that the number of registered diamond units increased insignificantly from 532 to 555 in 2009. The important point is that with improving global markets, the diamond industry has begun growing again but no lesson has been learnt. There has been no providing social protection to workers, no ensuring them a right to basic education and primary health and no minimum support for small producers.

Emerging Issues

The discussion above has drawn attention to the plight of labour, in both the formal and informal sectors, in globalising Gujarat. It is clear that labour in the state is basically viewed as a mere factor of production to promote economic growth – and to inflate the profit margins of the corporate sector and promote reinvestment of savings. However, this has adversely affected the economy and the well-being of people in multiple ways, raising several critical issues for policymakers.

Slipping in Poverty Reduction, Human Development and Hunger Indices: There is now enough evidence to show that Gujarat’s performance in poverty reduction and human development in the recent years has been quite poor compared to other Indian states, which are growing at a much lower rate than it is. Though the WPR in Gujarat is better compared to other states, the employment generated is of poor quality, resulting in the state slipping in poverty reduction and human development.

According to official data, the elasticity of poverty reduction to growth was -0.32 in Gujarat during 1993-2005, with the state ranking 14 among the 20 major states in poverty reduction. That is, 13 states were ahead of Gujarat in poverty reduction though they were behind it in growth of SDP. The state slipped from the 8th to 12th rank in rural poverty and from 6th to 8th rank in overall poverty (Planning Commission 2009). In the human development index, the state slipped from the 5th rank in 1996 (HDI of 0.550) to the 9th rank in 2006 (HDI of 0.643) (Government of India 2008). In the health index, the state slipped from the 9th rank to 10th, while in the education index it slipped from the 7th rank to 8th among the 20 major states in India.

The relatively high percentage of working poor in the state is also reflected in the hunger index. According to the recently released report on Global Hunger Index brought out by the International Food Policy Research Institute (IFPRI), Washington DC, India ranks 66 among the 88 countries for which the index has been prepared. The report also notes that the five worst performing states in India are Gujarat, Bihar, Madhya Pradesh, Chhattisgarh and Jharkhand. Gujarat is in the “alarming Category”, and ranks 13 among 17 major Indian states for which the index has been compiled (IFPRI 2009).

Rising Inequalities and Sustainability of Economic Growth:

Another major consequence of the unfair deal to labour in Gujarat is high inequalities of income with the rapidly rising share of profits in the economy. According to the National Council for Applied Economic Research (NCAER), the Gini coefficient of incomes in Gujarat is 0.47, which is extremely high (Shukla 2010). This high inequality can have serious social and political consequences, which create threats to law and order situation in the state.

In addition, the declining share of wages in SDP can create aggregate demand deficiency because the purchasing power of the workforce is low and the propensity to consume among those who receive the major benefits of growth is also low. Aggregate demand

may 28, 2011 vol xlvi no 22

deficiency will adversely affect the sustainability of growth. Alternatively, it will increase the dependence of the economy on export markets, pushing it into the trap of a vicious circle of exports and growth.

Denying a Fair Share to Labour and Providing Extra Incentives to Capital: In the final analysis, it appears that economic reforms in Gujarat have been translated into denying a fair share to labour and providing extra incentives to capital. As the different industrial policies declared by the Gujarat government from time to time show (it is interesting to note that the state government has announced an industrial policy every few years to attract investments – the Gujarat Industrial Policy 2000, Gujarat Industrial Policy 2003, Gujarat Industrial Policy 2009 and the proposed Gujarat Industrial Policy 2011), industries in the state are entitled to a large number of incentives, subsidies and other benefits, such as sales tax subsidy, capital cash subsidy, interest subsidy, infrastructure subsidy, support in land conversion, access to water supply, and so on (website of the Industry Commissioner, Gujarat). The official data show that between 1991 and 2004-05 the state government gave sales tax subsidies worth Rs 52,477 crore and capital subsidies of Rs 769 crore to private industries. In addition, Rs 5,040 crore was given as subsidy under the “Kachchh package”. It is difficult to say whether these incentives were market-friendly or whether they reflected crony capitalism, generally understood to be a system under which the success of private business is determined not by a free market but by favouritism extended by the state in the form of tax breaks, grants and other incentives.

Fair Deal to Labour Could Be a Major Macroeconomic Strategy to Equitable Growth: It needs to be underlined that ensuring a just share of returns to labour is not rejected by any neo-liberal policy. Providing a just share to labour by ensuring workers minimum (or fair) wages, safe working conditions and minimum social protection will have several positive macroeconomic effects on the economy. Apart from ensuring the well-being of workers, which has its own intrinsic value, these policies will expand the domestic market and promote growth in the state; promote labour-intensive growth since this growth will expand the markets for wage goods; and ensure an equitable growth that is socially and politically sustainable. That is, a fair deal to labour will be an important strategy for improving the quality of growth.

While concluding this essay, it is important to note that the distortions in the Gujarat model are also there in the Indian growth model. The only difference is that the distortions in Gujarat are very conspicuous because the state has a rich, enterprising population and a government committed to supporting the corporate sector. And it is obvious that the Gujarat model is neither sustainable nor a “role model” for other states.


1 This does not mean any decline in the primary sector’s contribution to NSDP (agriculture grew at a high rate during this period). It only means that the non-primary sectors have grown much faster, resulting in a decline in the share of the primary sector in NSDP.

2 Based on our discussions with senior officials of the Labour Commissionerate, Gandhinagar, and of the Divisional Offices of the Labour Commissionerate in Surat, Valsad and Vapi.

3 Ibid.

4 Based on our discussions with senior officers of the Labour Commissionerate and the Rural Labour Commissionerate in Gandhinagar and Ahmedabad. 5 According to ILO Recommendation 190, child labour includes, among other things, “(a) work which exposes children to physical, psychological or sexual abuse; (b) work underground, under water, at dangerous heights or in confined spaces;

(c) work with dangerous machinery, equipment and tools, or which involves the manual handling or transport of heavy loads; (d) work in an unhealthy environment which may, for example, expose children to hazardous substances, agents or processes, or to temperatures, noise levels, or vibrations damaging to their health; (e) work under particularly difficult conditions such as work for long hours or during the night or work where the child is unreasonably confined to the premises of the employer.”

6 See the “Report of Save the Children on Child Labour in Agriculture in Gujarat: The Price of Childhood”, a discussion paper, Save the Children, New Delhi.

7 This includes old age pension schemes, maternity schemes, schemes for treatment of critical illnesses such as cancer and heart and kidney conditions, and welfare schemes for salt workers as well as the Swasthya Bima Yojana for below poverty line households and a group insurance scheme for agricultural workers.

8 According to the revised minimum wages in July 2008, the daily wage rate is Rs 100 (this was Rs 50 till July 2008), Rs 36,500 is the annual wage rate for permanent workers and Rs 170 a day for workers cutting sugar cane. Also see Government of Gujarat (2010).


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Government of Gujarat: Gujarat Industrial Policy Declarations in 2000, 2003 and 2009, Department of Industry, Government of Gujarat, Gandhinagar.

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    International Labour Organisation (2004): “Economic Security for a Better World”, ILO Socio-economic Security Programme, ILO report, Geneva.

    – (2010): “Building on Employment-Oriented Framework for Strong, Sustainable and BalancedGrowth”, paper presented at the ILO-IMF Joint Conference on the Challenges of Growth, Employment and Social Cohesion, 12 September, Oslo, Norway.

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