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Gujarat's Growth Story

If one were to use correct concepts and measurements, it will be seen that labour in Gujarat has actually significantly benefited from high economic growth and productivity gains. Annual Survey of Industries data show that the state has outperformed many others in the level of employment and wage compensation. A critical comment on "Labour and Employment under Globalisation: The Case of Gujarat" (EPW, 28 May 2011).

Gujarat’s Growth Story Ravindra H Dholakia, Amey A Sapre commercial farming. This transition is e ssentially in the structure and character of the farm economy. It should be noted that the growth rate of agriculture in Gujarat is nearly three

If one were to use correct concepts and measurements, it will be seen that labour in Gujarat has actually significantly benefited from high economic growth and productivity gains. Annual Survey of Industries data show that the state has outperformed many others in the level of employment and wage compensation. A critical comment on “Labour and Employment under Globalisation: The Case of Gujarat” (EPW, 28 May 2011).

Ravindra H Dholakia ( and Amey A Sapre ( are with the Indian Institute of Management, Ahmedabad.

n “Labour and Employment under Globalisation: The Case of Gujarat” I ndira Hirway and Neha Shah (henceforth HS) (28 May 2011) conclude that (1) despite rapid growth in Gujarat, the structure of employment has remained the same; (2) low wages indicate that workers have not benefited from high industrial growth due to high capital intensity of industries; (3) productivity gains are not passed onto workers because growth in wages has been low; (4) the state has slipped lower in poverty reduction; (5) the present growth momentum in the state is politically and economically unsustainable as it is likely to lead to an aggregate demand deficiency problem; and (6) therefore, the Gujarat model is not a sustainable role model for other states to emulate.

Their arguments are not consistent and convincing because: (a) in some cases, the evidence they quote does not necessarily lead to their conclusion; (b) in some cases, they quote some data but ignore other data from the same source; and (c) in some cases, they ignore other readily available data sources, findings and evidence. Once we consider all the evidence, none of their conclusions hold. Let us consider their arguments one by one.

In the context of employment in Gujarat, HS argue that despite high growth rate of the state economy, the Lewisian structural transfer of workforce from primary to nonprimary sectors remains a distant dream. There are conceptual and logical problems here. The concept of structural change is linked to a shift in workforce from low productivity to high productivity or traditional to modern activities and not with primary and non-primary activities.

A sizeable literature exists on this, which is ignored by HS. As a part of standard d evelopment theory, Todaro and Smith (2009) discuss the stages and transition of agriculture in developing countries from peasant subsistence to specialised

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times the average all-India growth rate. This high growth is achieved by significant diversification of cropping pattern from low value to high value commercial crops, and with rapid increases in allied activities such as dairying, animal husbandry, fishing and horticulture (Pathak and Shah 2010; Gandhi and Namboodiri 2010; Datta 2010; Sharma and Thaker 2010). There have been substantial structural shifts within the primary sector of the state, which accompanied the high growth trajectory of the state agriculture. The question of workers shifting from primary to non-primary sectors would arise only when the primary sector fails to offer high productivity employment, not when the primary sector is growing more or less at the same rate as the total state economy. In Gujarat the share of primary sector in state income (gross state domestic product) did not fall appreciably during the last decade. Hence it is logical to e xpect no structural shifts in the composition of workforce from primary to nonprimary sector in the state, in spite of significant structural changes taking place in the economy.

Workers’ Benefits

The second conclusion of the HS study is that workers are not benefited by high growth in Gujarat because increasing capital intensity in the industrial sector led to very low (8.5%) share of wages to workers in the net value added (NVA) with the remaining part being appropriated by the capitalists. Data from the Annual Survey of Industries (ASI) 2007-08 are quoted to support their contention. However, the correct use of data and other evidence do not support their contention. HS have t aken the narrow definition of workers a lthough the same source (ASI) provides a broader definition of workers (employees) and their compensation (total emoluments), which gives a correct description of all monetary and related benefits to all employees.

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Table 1 shows the disaggregated catego-rates is indicative of the quality composi-is in contrast with other studies and the ries of employment and emoluments for tion of workers and Gujarat ranks high on data from Rural Labour Enquiry (RLE) selected states. it contrary to what HS argue. (2010), which show that real wages in the

It is evident from Table 1 that “workers” What is happening in Gujarat is fairly state have increased during the period alone as a category do not adequately consistent with the well-established rela-1999-2000 to 2004-05. represent the true concept of employment tionship between relative factor prices The real daily wage rate (which is a

more appropriate measure in our context)

Table 1: Employment and Emoluments Paid in Factory Sector (2008-09)

Characteristics Gujarat Andhra Pradesh Tamil Nadu West Bengal Maharashtra Kerala has shown an improvement from Rs 39

in 1999-2000 to Rs 41 in 2004-05 for men

No of persons engaged 11,25,543 10,93,554 17,74,019 5,49,852 14,91,931 3,81,558

in agricultural occupations (RLE 2010).

1 Workers 8,71,459 9,09,828 14,56,155 4,49,887 10,34,201 3,31,043

1.1 Directly employed 5,23,846 4,35,593 12,39,422 3,45,396 6,57,717 2,71,204 E swaran et al (2009) show that real daily

1.2 Employed through contractors 3,47,614 4,74,235 2,16,733 1,04,491 3,76,484 59,839 wages increased on account of agricultural

2 Employees other than workers 2,48,182 1,71,018 3,03,435 97,979 4,49,559 48,080 productivity growth for all major states
2.1 Supervisory and managerial 1,21,198 83,575 1,31,019 40,552 1,91,810 23,487including Gujarat during 1983-2004.
2.2 Other employees 1,26,984 87,443 1,72,416 57,427 2,57,749 24,593 Himanshu (2007) finds that Gujarat is one
Wages and salaries including employers' of the few states experiencing a positive
contribution (Rs lakh) 15,17,028 10,47,911 19,21,371 6,92,444 30,76,624 3,26,167
1 Wages and salaries including bonus 13,03,885 8,89,405 16,24,606 5,69,983 25,88,401 2,69,263 growth of real wages for rural males (1.1%)
1.1 Wages and salaries 12,36,101 8,49,775 15,15,045 5,41,019 24,49,577 2,48,173 simultaneously experiencing a dec line in
1.1.1 Workers 5,93,380 4,87,449 8,50,633 3,43,201 9,72,674 1,57,616 the rate of unemployment over the period
1.1.2 Supervisory and managerial 4,62,346 2,75,796 4,47,704 1,29,316 10,13,105 57,982 1995-2005. Thus, labour in Gujarat bene
1.1.3 Other employees 1,80,375 86,530 2,16,708 68,502 4,63,798 32,575 fited on both wages and unemployment
1.2 Bonus to all staff 67,784 39,630 1,09,561 28,964 1,38,824 21,090 contrary to what HS argue.
2 Employers' contribution 2,13,143 1,58,506 2,96,765 1,22,461 4,88,223 56,904

Net value added (NVA) (Rs lakh) 60,41,722 35,47,084 39,71,350 16,59,980 1,12,87,800 7,70,511

Wages to workers/workers (per day) (narrow definition) (Rs lakh) 189.14 148.82 162.27 211.91 261.25 132.28

Wages and salaries including employers'

contribution/persons engaged (per day)

(broader definition) (Rs lakh) 374.39 266.18 300.85 349.81 572.83 237.45

Source: ASI 2008-09, report on factory sector.

as it does not include workers employed through contractors, and at the supervisory and managerial levels. These categories cannot be ignored when we are discussing labour and employment issues. Moreover, these categories form a significant proportion of employment in the f actory sector. Correspondingly, total employee compensation is the correct measure for the cost to the company (CTC) and benefits to the employees. Table 1 shows that with the correct concept, the relative share of labour in NVA is more than 25%, and not less than 10% as claimed by HS. The remaining part is not only profitappropriated by the capitalists, but also includes interest (a substantial part) and rent including royalty.

Table 1 also provides the wage rate per day in the factory sector. In terms of the narrow definition, the wage rate in Gujarat is only Rs 184 per day, which makes Gujarat rank 8th out of 14 major states. However, with a broader definition, the wage rate in Gujarat is Rs 374 that makes the state rank 4th out of 14 major states in the country. The difference between the two wage

Economic & Political Weekly

august 6, 2011

and capital intensity, and between capital intensity and relative share of labour in NVA. If the wage rate in Gujarat is relatively higher than other states, it implies a higher wage-rental ratio (because the rental rate is likely to be similar across states) leading to higher capital intensity in the state. With higher capital intensity, the relative share of labour will fall (or be lower than other states) if elasticity of substitution between labour and capital is greater than unity (Hicks 1933; Robertson 1957).

Thus the HS conclusion about workers not benefiting from higher industrial growth in Gujarat is not valid. Workers in Gujarat are getting higher wages, but since they are easily substitutable by capital, their relative share is lower. Moreover, the quality of industrial employment in Gujarat is higher and not lower than other states.

Growth of Wages

HS quote the data on nominal wages from the NSS 64th round to argue that the growth of wages in Gujarat has been low, implying that gains of productivity have not been passed onto workers. This finding

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Inflows of Migrants

Furthermore, in the context of wages and employment, the aspect of migrant labour in the state cannot be ignored. It is well known that Gujarat and Maharashtra are among the few net in-migrant states that receive large inflows of migrant labours from several states. Gujarat had a net in-migration rate of 16% that is higher than most other states (NSSO 2008a). Correspondingly, the unemployment rates in Gujarat as given by the NSS 64th round (Table 2) are among the lowest.

The unemployment rates in Gujarat have been substantially lower than the national average on all counts without exception and outperforms those in all major states like Kerala, Karnataka, Haryana, Maharashtra, Andhra Pradesh, Tamil Nadu, Punjab and West Bengal in all c ategories as measured by the usual principal status (NSSO 2008b, statement 22.1). This performance is despite

Table 2: Unemployment Rates in Gujarat and India as per NSS 64th Round

Unemployment Rates Gujarat All-India
(per 1,000) (%) UPS CWS CDS UPS CWS CDS
Rural Male 9 15 40 19 41 85
Female 0 9 22 11 35 81
Persons 6 3 35 16 39 84
Urban Male 24 30 39 38 47 65
Female 7 10 26 52 65 95
Persons 22 27 38 41 50 74

UPS is Usual Principal Status, CWS is Current Weekly Status, CDS is Current Daily Status. Source: NSSO (2008b).


the fact that Gujarat is a net in-migrant state with a large inflow of migrant labour from other states. It is, therefore, difficult to accept the conclusion of HS based only on the ranking of the state on nominal wages that labour in Gujarat is not benefited by the productivity gains.

Poverty Estimates

The conclusion of HS that the state has slipped lower in the ranks for poverty reduction is based exclusively on an exploratory IFPRI (2009) study using a Hunger Index that does not offer any comparability with the standard measures of poverty used in India. On the other hand, as of last comparable poverty estimates, the findings of Himanshu (2007) show that the poverty headcount ratio for Gujarat steadily declined from 22.2% in 1993-94 to 19.4% in 2004-05. Moreover, Gujarat also shows the lowest degree of consumption inequality among the better-off states in India (Himanshu 2007). These sharply contradictory evidence need to be reconciled before any serious conclusion is drawn.

The HS conclusion that present growth momentum in Gujarat would lead to an aggregate demand deficiency, making the state socially and politically unstable is highly debatable, if not totally unacceptable. This is because aggregate demand deficiency is a concept relevant for a closed economy with no external trade. Globalisation, on the other hand, implies extensive trade across borders. It is relevant to recognise that more than 20% of India’s exports originate from Gujarat (Economic Survey 2011), and that Gujarat is well connected to the rest of the world with substantial international flows of both labour and capital. Problems of domestic demand deficiency are thus ruled out for Gujarat.

Moreover, even in the absence of globalisation, state economies are always open economies with substantial inter-state movements of goods, services and factors of production. The problem of domestic demand deficiency at a state level would, therefore, simply not arise. Further, Gujarat is attracting large investments due to better infrastructure and strong rural and urban consumer base. It is also a state with all its fiscal parameters within prudent limits.

Gujarat also shares several features with the Chinese economy including high savings and high growth rates. If a large country like China can sustain high growth for over three decades, why cannot a small open state economy like G ujarat sustain high growth rates for three-four decades? Considering all these aspects coupled with the evidence on wages, unemployment, poverty and income inequalities presented above, it is least likely that Gujarat becomes socially or politically unsustainable.

Given all the arguments and evidence discussed above, we cannot accept HS’ final conclusion that Gujarat is not a sustainable role model for other states to emulate on such arguments.


ASI (2011): Report of the Annual Survey of Industries, 2008-09 (Factory Sector), Vol 1, Ministry of Statistics and Programme Implementation, Kolkata.

Datta, Samar K (2010): “Examining Gujarat’s Success Story in Fruits and Vegetables” in Ravindra H Dholakia and Samar K Datta (ed.), High Growth Trajectory and Structural Changes in Gujarat Agriculture (New Delhi: McMillan).

Eswaran, Mukesh, Ashok Kotwal, Bharat Ramaswami, and Wilima Wadhwa (2009): “Sectoral Labour Flows and Agricultural Wages in India, 1983-2004: Has Growth Trickled Down?”, Economic & Political Weekly, 10 January.

Gandhi, V P and N V Namboodiri (2010): “The Economics and Contribution of Cotton Biotechnology in the Agricultural Growth of Gujarat” in Dholakia, Ravindra H and Samar K Datta op cit.

Hicks, J R (1933): Theory of Wages (London: McMillan).

Himanshu (2007): “Recent Trends in Poverty and Inequality: Some Preliminary Results”, Economic & Political Weekly, 10 February.

Hirway, Indira and Neha Shah (2011): “Labour and Employment under Globalisation: The Case of Gujarat”, Economic & Political Weekly, Vol XLVI, No 22, 28 May.

IFPRI (2009): “India State Hunger Index in Report on Global Hunder Index”, International Food Policy Research Institute, Washington DC.

NSSO (2008a): Migration in India, NSS Report No 533 (64/10.2/2), National Sample Survey Office, Ministry of Statistics and Programme Implementation (New Delhi: Government of India).

– (2008b): Employment and Unemployment Situation in India, NSS Report No 531 (64/10.2/1), National Sample Survey Office, Ministry of Statistics and Programme Implementation (New Delhi: Government of India).

Pathak, M and V D Shah (2010): “Five Decades of Gujarat Agriculture: Some Reflections” in Dholakia, Ravindra H and Samar K Datta op cit.

Robertson, Dennis (1957): Lectures on Economic Priciples (London: Staple Press).

RLE (2010): “Report on Wages and Earnings of Rural Labour Households, 61st Round of NSS 2004-05”, Ministry of Labour and Employment, Rural Labour Enquiry, Labour Bureau, Shimla.

Sharma, Vijay Paul and Hrima Thaker (2010): “Livestock Development in Gujarat in 2000s: An Assessment” in Dholakia, Ravindra H and Samar K Datta op cit.

Todaro, Michael P and Stephen Smith (2009): Economic Development, 8th Edition (New Delhi: Pearson Education Indian Edition).

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