Why Modinomic Hype Falls Flat on Facts

BY MAITREESH GHATAK AND SANCHARI ROY

Love it or loathe it, the Gujarat model of development under the leadership of Narendra Modi has set the terms of debate around the upcoming elections. To his supporters, a mandate for Modi will unleash the magic forces of Modinomics, his unique style of economic governance at the centre, and breathe life into the country’s stagnant economy. To his detractors, Gujarat’s growth story is a hyped-up PR campaign aimed at covering up a dark underbelly of poverty, inequality, and low levels of human development indicators.

What are the facts? There are many dimensions of economic performance and we could look at the level of per capita income, the growth rate of per capita income, human development indices (HDI) that put weight not only on income but also on non-income parameters like education and health, level of inequality, percentage of people below the poverty line, and many others. Which index we choose to emphasize reflects either our preferences as to the aspect of economic performance we value the most, or our views as to which dimension has to be improved (say, per capita income) for bettering the dimension we care about (say, poverty alleviation).

Let us first take the most obvious indicator, per capita income level. Over the last three decades, Gujarat’s rank has hovered around fourth, behind Punjab, Haryana and Maharashtra. And while Gujarat’s rank improved to third position in the 2000s, so did Maharashtra’s, from third to first. More interestingly, the rise of both states was matched by a fall in Punjab’s rank to seven.

Now, let’s turn to the growth rate of per capita income, supposedly a strong point of Modi’s economic score card. A lot of people argue that Gujarat has grown faster than the rest of India during the 2000s, and present this as clinching evidence of the power of Modi’s economic model.

There are two problems with this argument. First, there are other states that have done the same. Gujarat, Maharashtra and Haryana have been going neck to neck at the top of the growth rate rankings over the last three decades. Yet, no one talks about the Maharashtra model or the Haryana model of development. Singling out Gujarat for praise, while ignoring the rest of the leading contenders, seems disingenuous.

Second, Gujarat’s growth rate was higher than the all-India level in the 1980s and 1990s as well. To establish the claim that Modi had a transformative impact on Gujarat in terms of growth rate of per capita income, we have to show that the differencebetween Gujarat’s growth rate and that of the rest of India, actually increased under Modi’s rule, and more so compared to other states.

Gujarat’s growth rate in the 1990s was 4.8 per cent compared to the national average of 3.7 per cent. In the 2000s, it was 6.9 per cent compared to the national average of 5.6 per cent. Thus, the difference between Gujarat’s growth rate and the national average increased only marginally, from 1.1 percentage points to 1.3 percentage points. A good performance? Yes. Justifying the hype? No, as Maharashtra, the top ranked state in terms of per capita income in the 2000s, also improved its growth rate from 4.5 per cent in the 1990s to 6.7 per cent in the 2000s. The difference between Maharashtra’s growth rate and the national average increased from 0.8 percentage points to 1.1 percentage points, which was similar to Gujarat’s. Thus, Gujarat did not show any signs of accelerating any faster in the 2000s than before, and nor was it the only one at the top of the league.

Contrast this with the performance of Bihar, the state that has been at the bottom of the rankings in terms of per capita income all through. It was growing at 1 per cent in the 1990s but shot to 6.9 per cent in 2000s. This means that, compared to the national average, Bihar’s growth rate was 2.7 percentage points lower in the 1990s, but became 1.3 percentage points higher in the 2000s. Such a reversal is no mean feat – especially given that Bihar is the third most populous state in India and it is more challenging to achieve sharp improvements in a larger state than a smaller one. So the prize for the most dramatic turnaround would go to Bihar, since it rose from being a bottom-ranked state in the 1990s to join the ranks of growth leaders like Gujarat and Maharashtra in the 2000s.

One could argue that it is easier to turn around a state that was at the bottom of the league like Bihar than to maintain, or to marginally improve, the performance of a state already at the top of the league, like Maharashtra, Haryana or Gujarat. After all, there is greater scope for improvement in the former case. Conversely, one could also argue that it is more challenging to turn around a backward state, because if it were easy, someone would have done it already. This is reinforced by the argument that Bihar is the third largest state, whereas Gujarat’s rank is 10th in terms of population and it is difficult to achieve sharp improvements in a larger than a smaller state.

What about other socio-economic indicators? For the Human Development Index (HDI), Kerala has been the star performer by a distance. While Gujarat’s HDI performance was above the national average in the 1980s and 1990s, it decelerated in the 2000s and came down to the national average. If we look at measures of inequality, Rajasthan appears to have made the most gains while Gujarat, having started with lower inequality than the rest of India in the 1980s-90s, saw its inequality level actually rise above the national average in the 2000s.

If we look at the percentage of people below the poverty line, along with several other states such as Himachal Pradesh, Punjab, Kerala, Haryana, Andhra Pradesh, and Karnataka, Gujarat has consistently had lower levels of poverty than the all India average. However, the biggest improvement in the last decade has been achieved by Tamil Nadu and Bihar.

So while Gujarat’s overall economic record is undoubtedly good all through the last three decades, its performance in the 2000s does not seem to justify the wild euphoria and exuberant optimism about Modi’s economic leadership. If a Chief Minister must be singled out for praise for turning around a state’s economy, it would have to be Nitish Kumar. For those frustrated with the status quo and hoping for a magical turnaround of the Indian economy if Modi comes to power, it may be wise to recall that in economic matters, it is the bottom line that matters, not sentiments. At some point, the numbers have to add up.

 -Maitreesh Ghatak is Professor of Economics at the London School of Economics

 -Sanchari Roy is a Post Doctoral Fellow at the University of Warwick.