January 29, 2014 by rupeindia
– by Yogi Aggarwal
Narendra Modi constantly refers to himself as a ‘chaiwala’ (tea vendor), in order to get common people to identify with him, rather than with the elitist Congress party. But is his economic programme really for the chaiwalas, i.e., the self-employed and owners of small businesses?
Mr Modi’s “vision” for India, as recently revealed to a huge gathering of BJP cadre, includes the creation of 100 new, so-called “smart cities”, interlinking rivers, bringing back money stashed in Swiss banks, the introduction of bullet trains as part of a modernisation of the Indian Railways, and job creation.
In reality, the Gujarat model of “high growth” is not for small businesses. Under Modi’s watch every effort has been made to promote big industry. Small and medium enterprises that provide more employment per unit of investment got poor treatment. The state has spent 10 times as much to attract investments in the state as it has on agriculture and on food subsidies. Just sales tax subsidies to medium- and large-scale industries between 1999-2000 and 2006-07 constituted nearly three-fourth of the sales tax revenue of the state.
In addition, the subsidies to industry increase with size, starting with subsidy for units for capital investment of Rs 5 crore, going higher for industry with investment over Rs 100 crore and even more for “mega industrial projects” investing Rs 1,000 crore or more. According to one analysis of official data, subsidy and incentives to large industry and infrastructure projects amount to 40 per cent of the total state budget, while incentives to small and medium industries constitute a mere 2.3 per cent of the total incentives given to industries.
The concentration of large-scale industry in Gujarat because of subsidies leads to a highly capital-intensive industrial sector with high income and low employment, while small and medium industry stagnates. So while Gujarat’s GDP growth was 10.8 per cent during the past decade, compared to the all-India average of 7.7 per cent, the state’s traditional small and medium sector (which provides employment) did not prosper and wages stagnated. “In brief, the fastest growing state in India has shown one of the poorest performances as far as wages are concerned.” Abusaleh Shariff notes that self-employment and petty trade in Gujarat – Modi’s chaiwalas, so to speak – have shown only marginal growth in income during the last two decades in comparison with other sectors of the economy.
Gujarat’s high growth has few backward linkages to the rest of the state’s economy. In fact, R. Nagaraj and Shruti Pandey show that “incremental manufacturing output [in Gujarat] is mostly coming from a single industry — petroleum refining — whose share in gross value added in the state’s registered manufacturing has risen from four per cent in 2000-01 to nearly 25 per cent a decade later. This is on account of output from just two refineries — the shore-based refineries of Reliance and Essar in Jamnagar.”
Around a third of the country’s refining capacity is at the two entirely export-oriented refineries at Jamnagar: Reliance with oil refining capacity of 60 million tons a year, and Essar with a capacity of a third of that. The Reliance website mentions total exports from its refinery as being Rs 239,000 crore (or $44 billion) in the latest year. But the local linkages (of employment, trade and ancillary industry) of this import-dependent, capital-intensive, coast-based, export oriented industry, are practically non-existent, while it adds a huge amount to the state’s GDP figures.
The Modi government has been suspiciously generous in giving land for industrial projects. The main beneficiary is the Adani group. Last year in a reply to a question in the state Assembly, the state revenue minister, Anandiben Patel, informed the house that 5,465 hectares (or 54.6 sq. km.) of land had been given to the Adani Group of Companies for a total of Rs 60 crore. This works out to a ridiculous price of Rs 10,000 per hectare of industrial land for which the market rate is at least a thousand times higher.
The Modi regime has also acquired 960 hectares land for the Tatas for their Nano car project at Sanand near Ahmedabad, most of it acquired from seven surrounding villages. It has been reported that Ford and Maruti are also planning to locate there. The policy has often rendered farmers landless, often at low rates for their land, but gladdened the heart of industry. It is not surprising that Modi is being projected as a champion of the corporate world.
Modi’s vision of development is not for the chaiwalas or other ordinary people. It is a vision of development led by the Reliance, Essar and Adani groups, with many other large industrial houses such as the Tatas now joining the game.
The writer is a Mumbai-based freelance journalist
 Indira Hirway, “Partial View of Outcome of Reforms and Gujarat ‘Model’,Economic and Political Weekly (EPW), 26/10/13.