Rethinking growth remedies

With the end of the long election process, the leader of the largest coalition, the National Democratic Alliance (NDA), is expected to form the new government today. The NDA, a coalition of 15 parties, won 293 seats. The BJP — the largest party in the coalition — has won 240 seats, 32 short of an absolute majority in a 543-member Lower House of the Parliament.

The 18th Lok Sabha will accommodate representatives from 41 political parties, having diverse political views. Barring the BJP and the Indian National Congress, the rest are mostly state-level parties (with the exemption of CPI & CPIM). An analysis by the think-tank PRS Legislative shows that political outfits recognised as “national parties” secured 346 (or 64 per cent) seats, while regional/ local parties won 197 (33 per cent) seats. Candidates from non-NDA/INDIA parties obtained 17 seats, including seven by independents. At least two Independent candidates have won the election while lodged in the prison.

It is argued that in a diverse country like India, democracy flourishes in a coalition government as coalitions are about a consensus of diverse interests, as opposed to being hammered into submission by a brute majority government. Economic data also suggest that coalition governments have performed better in India. For example, the average growth rate for the 10 years for the BJP-led majority government was 6 per cent, including the 5.8 per cent contraction the economy witnessed in FY21 amid Covid-related disruptions. But the Congress-led United Progressive Alliance (UPA) government that preceded the BJP government in 2014 secured 6.7 per cent growth in its five years, and 6.9 per cent in the previous five years of its first term. The compound annual growth rate (CAGR) during the 10-year rule of the UPA at 6.8 per cent was the fastest in India’s history.

During the last decade of the BJP-led majority government, India has witnessed a massive rise in unemployment, a near-stagnant manufacturing sector, growing inequality in income and wealth among the citizens, and a near breakdown of the federal system of governance. Even the industry captains have urged the new government to put top priority on job creation. These are the outcome of the much-hyped ‘Gujarat growth model’ introduced by the then Chief Minister Narendra Modi. Later, the same model was mainstreamed as the national economic model when he became the Prime Minister in 2014. In this piece, we shall discuss, in the context of limitations of the Gujarat growth Model, two other alternative development models – the Dravidian Model and Bengal Model of Inclusive Development, which are being successfully implemented by the Tamil Nadu and West Bengal governments respectively.

The Gujarat Model

Since 2011 Gujarat has been projected as a model for the country by many scholars and experts. Delivering a lecture on ‘Debunking Populist Myths that Undermine Prosperity: Lessons from and for Gujarat’ in 2011, Jagdish Bhagwati stated that Gujarat had done well in terms of not only economic growth but also social sectors. Arvind Panagariya (2012) described this growth experience as the ‘Gujarat Miracle’ and stated that concerns like the high incidence of poverty among the Scheduled Tribes and malnutrition of women and children would be taken care of by the increased revenue of the state government on account of the high growth rate. Bibek Debroy (2012) in his book ‘Gujarat: Governance for Growth and Development (2012) highlighted the high growth achieved by the state along with ‘rapid poverty reduction’. These experts viewed Gujarat’s experience of growth in the first decade (2002-2011) of this century as a ‘success story’ of neoliberal policies, and as a model that has delivered or will deliver rapid growth with inclusion, observed P K Khanna (2016). It is claimed that the driving force behind the Gujarat model was the then chief minister Narendra Modi’s innovative interpretation of neoliberal policies.

• When Narendra Modi became the Prime Minister of India in 2014, his government followed the same neoliberal policies without making any proper assessment of the possible consequences of unemployment, welfare programmes, income inequality, and social exclusion due to this one-dimensional growth-centric model. The present state of the Indian economy validates the concerns of the other group of economists who flagged serious limitations of the Gujarat model much before it was replicated on a national scale.
• Indira Hirway, the then Director and Professor of Economics at the Centre for Development Alternatives (CFDA), in an article (2017) titled ‘The truth behind the Gujarat growth model’, exposed the following limitations of the Gujarat model. According to her:
• The Gujarat growth strategy had three major components: a quantum jump in infrastructure to facilitate the inflow of corporate investment; a quantum jump in governance to address the requirements of corporate units; and an unprecedented rise in incentives and subsidies on investments to the corporate sector to attract investments.
• Infrastructure development focused on roads, airports and power – and through reforms, ensured 24-hour availability of power.
• Governance focused on quick disposal of investment proposals with a single window, easy access to bank credit and if required, other services to corporate units and their core staff. The incentives to corporate investment included mainly sales tax subsidies till 2006-07 (till the Centre banned it). Forty per cent of the revenue from sales tax – the main source of revenue for state governments – was forgone. Thereafter, the government introduced subsidies on capital, interest, and infrastructure as well as heavy subsidies on land, water supply and natural resources.
• The rates of subsidies were larger for larger investments. For mega industries, there was no fixed rate and each case was assessed separately. For example, Tata-Nano got a total of Rs 30,000 crore in subsidies (like Suzuki, Hyundai etc).
• The land was acquired from common grazing pastures, denotified protected areas, national parks, and from irrigated fertile lands. The price started from Re 1 per acre. Though 40-45 per cent of households in Gujarat depend on natural resources for their livelihoods (farming, animal husbandry, dairy, forestry, fishery etc.), the depleted and degraded resources, along with heavy pollution, have reduced their productivity and incomes in these sectors and raised their vulnerability. The tribal population is the worst affected by the growth despite the fake claims.
• After the huge incentives to corporate units, the government was left with limited funds for education, health, environment and employment for the masses. The net result was 40 per cent of the population remaining below the multi-dimensional poverty line (2016). The growth was elitist, not reaching the masses. In short, the hype created around the Gujarat model was hollow and fake.

By 2016, the limitations of the Gujarat model were well documented. It followed a corporate-centric ‘race to the bottom approach’ which allocated huge government funds to attract investment at the cost of curtailing the much-needed funds for education, health, environment and employment for the masses.

Bengal Model of Inclusive Development

West Bengal is a land-starved, densely populated state with a share of less than 2.7 per cent of India’s land. However, the state contributes over 6 per cent to the nation’s GDP and houses more than 7.5 per cent of the country’s population. Under the leadership of Mamata Banerjee, a massive socio-economic turnaround has taken place in Bengal between 2010-11 and 2022-23. In this period, the state’s GSDP has increased by over three times. The GSDP of West Bengal for 2023-24 (at current prices) is Rs 17.19 lakh crore. In 2024-25 West Bengal’s GSDP is projected to be Rs 18.8 lakh crore, amounting to a growth of 10.5 per cent over 2023-24. This has been made possible through a sustained increase in government expenditure in (a) physical infrastructure, (b) agriculture and allied sectors, (c) social sector, and (d) state-planned expenditure.

The term ‘Bengal development model’ was used by this author in a piece titled ‘Let hundred flowers bloom’, on March 27, 2021. Then, in the Tripura election manifesto, released in February 2023, the All-India Trinamool Congress (AITMC) promised to follow the ‘Bengal model of development’, if voted to power.

Unlike the corporate-centric Gujarat model which follows the ‘race to the bottom approach’ to lure corporate investors with a plethora of incentive schemes, the Bengal model follows a people-centric ‘beauty contest approach’ to make the state and its human resources more beautiful to the potential investors. It’s a long-term approach that is sustainable and more inclusive.

The unique features of the Bengal model are:

(i) its inclusive approach. The Bengal model incorporates all stakeholders of society in the development process, (ii) the manufacturing sector is dominated by the micro, small and medium enterprises, (iii) (MSMEs), (iv) Rural and women-centric programmes, (v) Decentralised governance or ‘Duare Sarkar’ (government at the doorsteps), and (vi) reliance on knowledge and skill-based Karigar economy.

It may be recalled that during the 34-year-long Left Front rule (1977-2011), the truncated state of West Bengal, which was divided in 1947, was trapped in a low-equilibrium situation. As per the Socio-Economic and Caste Survey 2011, over 77 per cent of the population of West Bengal lived in rural areas, against the national average of 73 per cent. Among the 82.47 per cent of all rural households (87.47 per cent scheduled castes and 93.13 per cent scheduled tribes), the monthly income of the highest earning member was less than Rs 5,000, reported Millennium Post in March 2021. To break this low-level equilibrium trap in which the Bengal economy had fallen, the Mamata government relied on numerous welfare schemes to boost economic activities.

Four such flagship schemes that have ushered in a silent revolution in the socio-economic condition of the state are:

• Kanyashree Prakalpa (KP): Launched by the Government of West Bengal in 2013, it is a conditional cash transfer (CCT) scheme aimed at simultaneously reducing underage marriage and adolescent dropout among girls.
• The Sabooj Sathi Scheme: The West Bengal Finance Minister, in his Budget Speech of 2015-2016, announced a scheme for the distribution of bicycles to an estimated 40 lakh students studying in classes IX to XII in government and government-aided schools and madrasas of the state.
• Swasthya Sathi: The scheme was officially launched by the chief minister on December 30, 2016. It offers basic health cover for secondary and tertiary care up to Rs 5 lakh per annum per family. There is no cap on the family size, and parents from both spouses are included. All dependent, physically challenged persons in the family are also covered. All pre-existing diseases are covered. The entire premium is borne by the state government,
• Laxmi Bhandar Prakalp scheme: Under the scheme, the state government provides financial support to women heads of families living in both urban and rural areas of the state. The transfer of funds started on September 1, 2021. At present, the general households receive monthly assistance of Rs 1,000) and the SC/ST women get Rs 1,200 per month. 2.1 crore beneficiaries receive this money via Direct Benefit Transfer. Lakhir Bhandar probably is the first example of a successful implementation, though on a limited scale, of the much-discussed Universal Basic Income (UBI) scheme.

Although budgetary allocation for all the welfare schemes has increased over the years, the government could restrict its debt to GSDP ratio within 37 per cent, compared to over 40 per cent during the Left Front regime. It has been made possible due to the steady increase in the GSDP of the state during the last one de. Huge amounts of money transferred to millions of women and other beneficiaries have increased the consumption demand, which has been acting as an incentive for investors to invest in the MSME sector.

An analysis of development parameters, as mentioned in the report titled ‘National Multidimensional Poverty Index: A Progress of Review 2023’, indicates that notwithstanding the per capita income of Gujarat being double that of

West Bengal, both states are at comparable levels of multidimensional poverty. West Bengal also showed more progress in five years (2016-21). The report shows that in West Bengal, 11.89 per cent of the population lives under multidimensional poverty, and the figure is only marginally lower for Gujarat at 11.66 per cent.

The multidimensional poverty index assesses deprivation along 12 indicators under the broader categories of health, education, and standard of living. An in-depth analysis of all 12 indicators by The Print found that West Bengal outperformed Gujarat in reducing deprivation in nine of these parameters.

The Dravidian Model

Various studies suggest that Tamil Nadu boasts of the highest rate of female employment in the nation, with women playing a significant role as influential consumers as well. The state leads in various industries, including automobiles, textiles, and software, and stands as a testament to the success of inclusive development and progressive governance. Tamil Nadu’s economy grew by 8.19 per cent in 2022-23, far exceeding the national average of 7.24 per cent. As the second-largest economy in India, Tamil Nadu contributed 8.8 per cent to the nation’s GDP.

This economic prosperity is matched by Tamil Nadu’s commitment to sustainable development and social welfare, highlighting the Dravidian model’s success in fostering an environment where economic growth and social justice go hand in hand. The state’s journey showcases a unique blend of social and gender justice, industrial growth, human development, and cultural pride.

The core idea of the Dravidian model is about sharing prosperity through productivity. Its philosophy of inclusive industrialisation addresses both economic deprivations that arise through the market and social deprivation that emerges from caste inequality. It is claimed that the sub-national variant in the developmental path, produced in Tamil Nadu, is the product of Dravidian political ideology. This variant mitigates the trend of rising inequality seen all over the world and ensures effective redistribution through state measures.

The Dravidian Model is shaped by the unique political and social history of the region; it challenges the conventional paradigms of development and underscores the potential of state-led initiatives in transforming societies, writes Dilip Mandal (2024).

Observation

In a large diversified country like India, there cannot be a single economic model which can be replicated across that nation. Jobless growth models are of no use to a populous country like India. Alternative development models, which are inclusive and egalitarian, should be explored for the balanced and sustainable development of this vast country.

Views expressed are personal