What Gujarat Is Telling India

Every challenge is an opportunity. The BJP is now in power — on its own and with allies — in 19 states. Can it invert the strong consensus for weak reforms?

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Shankkar Aiyar December 18 2017, 1:01PM

For weeks, Gujarat has been in the news and its people have had the attention of the Prime Minister and the Opposition. It is time to read the tea leaves. Sieved clean of the ricocheting claims and rhetoric, what do the results from Gujarat tell India?

Context is critical for perspective. The Gujarat Model boasts of double-digit growth in agriculture and overall gross domestic product. Yes, it lags in health and human development indicators. A World Bank study shows poverty reduction has been slower in Gujarat than in some advanced states but faster than the national average. Over 42 percent urban, the state is among the most industrialised, with a huge presence of capital-intensive industry and a labour-intensive small and medium enterprises sector that tops the ladder for value addition. The state boasts of a per capita income of Rs 138,023.

There is no mistaking the anxiety and anger reflected in Gujarat. Voter expectations are located at the intersection of necessary and sufficient conditions, what is and what must be. And it is instructive that the issues thrown up by the results and through the campaign are not very different from the issues haunting India. The microcosm is reflecting the worries of the macrocosm.

The Farmer

The noise around the agitation by Patidars and its impact signals a national crisis. The quota call by Patels in Gujarat is no different from the quota call by Marathas or by Jats or by the Kapus. It is true that once social and politically influential, these communities feel marginalised by new emerging political equations. It is equally true that the landed are agitating for quotas because agriculture is increasingly an unviable enterprise — and this is visible in the shrinking of the size of agriculture in GDP.

Suffice to say that if nearly six of 10 Indians depend on less than 15 percent of national income it will have consequences. The cries in Gujarat echo the woes of farmers across the nation. The agrarian crisis represents a threat to economic security and social stability. The decay in farm incomes is reflected in the rising levels of divergence in rural and urban incomes — urban per capita income in Maharashtra is three times that in rural areas.

A quarter of a century after liberalisation, agriculture — the largest private sector — continues to be under an arbitrary license and permit raj.

The terms of trade have only worsened. In Gujarat, farmers are agitated about remunerative prices — for oilseeds, groundnut and, cotton. In Maharashtra’s Lasalgaon, farmers have been barred from exporting a bumper onion crop. The story repeats itself elsewhere in other produce, for instance, cotton in Telangana or potatoes in Uttar Pradesh.

The temptation thus far has been to invest in the throw-money-problem-will-go-away theory — which would be higher minimum support price and farm loan waivers. This option will be echoed in the coming days — particularly in Parliament. Fact is, palliatives are not enough. The Indian farmer has been denied both forward and backward linkages — reliable inputs of seeds, water, power and, access to markets. The promise of doubling farm income cannot be powered by promises — of a law on contract farming, pilots on nutrient/fertiliser supplies, concepts on pre-paid power coupons via direct benefit transfer and the listless e-market for agriculture produce.

What is needed is a not more incrementalism but a new business plan for agriculture to raise farmer incomes and rural prosperity.

The Youth

The Three Musketeers — Hardik, Alpesh, and Jignesh — were described as the X-Factor in the Gujarat polls. Typically street smart, adept at guerilla tactics, they employed smart lines and the gift of the gab — triggering a shift in the voting pattern in rural and semi-urban Gujarat. Their ability to draw youth in large numbers to their rallies — yes, there is the caste equation — is scarcely a mystery. It is jobs, rather, the lack of jobs being created by the economy.

It has been argued that employment data is sketchy. Indeed, the Economic Survey of 2016–17 uses March 2012 figures. The annual household employment survey, the quarterly employment survey and details of employment sourced from listed companies present a confusing picture on job creation.

What is not unknown though is that not enough jobs are available for the youth. A recent ICRIER study ‘Waiting for Jobs’ by Radhicka Kapoor looked at multiple sources to assess job creation. Its conclusion: “results from our analysis reflect a sluggish pace of job creation over the last three years and underscore the severity of India’s jobs crisis.”

The cause for the poor pace of job creation is visible in the quarterly and annual data for growth.

The slowdown in growth is most visible in agriculture and allied services, construction and manufacturing and exports.

Translated, the sectors which host a bulk of the workforce, and which have the potential to generate jobs are hurting the most. And in the services sector technology is replacing human intervention at a rapid pace.

The youth factor had a critical role in fueling the mandate of 2014. First, there is demography — India’s median age is around 29. Then there is the politics of economics. Every year India adds over 10 million persons to the workforce. Young and first-time voters invested their votes in the promise of a focus on job creation.

That availability of jobs is an issue in Gujarat, despite the high level of industrialisation and headline growth, gives an idea of how worse it could be elsewhere.

The disaffection of the youth in Gujarat mirrors a nation-wide concern and anxiety about the future.

The Entrepreneur

Elections are in essence a negotiated contract between the sovereign and agents, between voters and political parties. It is arguable that few understand the complex matrix of entrepreneurship, opportunity and, prosperity as well as the average Gujarati.

The triple whammy of slowdown, demonetisation, and the implementation of a badly designed Goods and Services Tax was cause for war. Leveraging the elections traders and businessmen revealed their talent in instructive lessons in the power of collective political bargaining. The nervousness of Gujarat BJP leaders following the outrage on social media, particularly the multiplier momentum of the WhatsApp universe, triggered a review of GST, popularly referred to as khakra economics.

The quest to formalise the informal economy entails disruptive consequences and needs calibrated responses. But it is not only transitory issues that haunt businesses.

As Arthur Conan Doyle once said there is nothing more deceptive than an obvious fact. The issues highlighted by the business folks in Surat and Rajkot or Ahmedabad are issues that those in Tirupur, Ludhiana, Jaipur, Thane, Ranchi and elsewhere have been agitated about.

SMEs and home businesses are hurting from retrenched demand, poor access and affordability of capital and compliance burden.

Doing business in India has never been easy — thanks to the multiplicity of rules, layers of clearances and the persistence of inspector raj. It is mystifying why both the centre and the states must be involved in clearing investment proposals. The slippage in sales, and in exports in labour-intensive sectors — where India has traditionally enjoyed an edge — indicate the impact on competitiveness.

It is true that the government has made efforts to make it easier. However, there is loss in translation — in communication and in converting intent in to tangible difference. Factors of productivity are trapped in sloth and regulatory swamp — be it land acquisition, making labour laws employment-friendly, in the reliability of power supply, in getting clearances and pendency of tax issues.

The issues and solutions have been discussed — in budgets, in the articulation of the Make in India idea, in reports of ministries and in the agenda drafted by the NITI Aayog. What remains is to find champions to get it done.

Regional Is National

The disaffection among segments of voters mirrors the disaffection across India. Step away from the swag of victory, from the spoils of gains, affiliation, and allegiance. The issues being thrown up in state elections — distress in the rural economy, the spectre of unemployment and the slowdown — define the narrative of the political economy.

It is critical to recognise that the issues represent structural rigidities that are holding back economic growth and social development. The issues thrown up in the polls require customised attention. The causality of most of these issues is located in reforms required at the states. Virtually every square kilometer of India is ruled by the states.

Every challenge is an opportunity. The BJP is now in power — on its own and with allies — in 19 states. Can it invert the strong consensus for weak reforms?

Shankkar Aiyar, political-economy analyst and Visiting Fellow at IDFC Institute, is the author of Aadhaar: A Biometric History of India’s 12-Digit Revolution; and Accidental India.

You can email him at shankkar.aiyar@gmail.com and follow him on Twitter. Previous columns can be found at Thought Capital. This Thought Capital column was first published here.

Journalist-Analyst. Author of ‘Accidental India’ and Áadhar: A Biometric History. Studying how the market for politics rules the economics of people!