Gujarat model

Topics: Industry, Subsidy, Economics Pages: 34 (8450 words) Published: April 18, 2014
Economic Reforms and Development Strategy in Gujarat
-Ravindra H. Dholakia
[The paper examines the development strategy followed by Gujarat state government during the nineties. It has followed the strategy focussed on industrialisation and urbanisation with an open door policy eversince its inception in 1960. Economic reform measures at the Centre with an explicit emphasis on trade and industry considerably benefited Gujarat making its economic performance outstanding. The state government only facilitated the growth of private enterprise since its strategy was already consistent with the changes in the policy reforms at the Centre. Since mid-nineties, however, when the reform process at the Centre slowed down, the state government in Gujarat started taking major initiative to liberalise and reform its policies further. In this process, the focus of the development strategy seems to have shifted away from the organised manufacturing to the unorganised sectors and giving protection to the SMEs. It is argued that Gujarat's performance would again pick up as the national reform process gets back on the track.]



In a multilevel federal democracy a state often represents a middle level between the central government and the local bodies. Gujarat had all these 3 layers of government efficiently functioning ever since its inception in 1960. The constitution of India provides reasonably clear division of the rights and duties of different layers of the governments for achieving overall development of the country. Within this broad constraints, different state governments in India have been following their own specific development strategies (see Dholakia, 1994). During the process of economic policy reforms and liberalisation, the constraints and regulation on economic activities by the centre in different segments of the economy got relaxed. The states found more freedom and flexibility to pursue their own socio-economic agenda. It is not surprising that different states took advantage of this increased flexibility according to their physical capabilities, economic environment and ability to evaluate opportunities and risks involved. States were required to respond dynamically and compete with each other to attract the private sector activities by providing the most conducive economic environment. During the initial phase of the economic reforms, i.e., 1991-92 to 1997-98, Gujarat outperformed all other states in the country in terms of economic growth according to the then member, Planning Commission (see, Ahluwalia, 2000). It is, therefore, interesting to examine in detail the case of Gujarat, particularly the economic reforms and the development strategy it has followed during the nineties.

Development strategy in Gujarat State has been very clear and unambiguous ever since its inception in 1960 in according a high priority to industrialisation as can be seen from various state plans documents and the socio-economic reviews carried out annually. The state had made a clear choice of encouraging the secondary sector activities over the primary and tertiary sectors’ activities (see, Dholakia, 1994). It is a well-known fact that Gujarat lags behind several states in the country in terms of human capital and related indices. Between the human capital and physical capital related government expenditures also, the Gujarat government had consistently accorded higher priority to the latter (see, Archana Dholakia, 1990). Thus, the development strategy of the Gujarat State for industrialisation has been unbalanced growth with emphasis on directly productive activity (DPA) rather than on creating social overhead capital (SOC). While this has its own limitation for the overall development of the state, it has advantages in terms of clarity and consistency of objectives. Since Gujarat is well connected to other states in the nation, it has an access to the highly skilled technical and professional...

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