Gujarat's growth model most sustainable: CLSA

Research firm says industry, which accounts for 40% of GSDP, will be primarily responsible for sustaining growth in Gujarat

Ahead of state elections there is some good news for Gujarat. According to an analysis by research firm CLSA, Gujarat stands the best chance of sustaining its high growth trajectory in the next few years as compared to other competing states like Maharashtra and Tamil Nadu because of its unique development model.

“Unlike most large economies, India’s economy has evolved differently. It has transitioned from an agrarian economy to a services powerhouse, without going through a phase where manufacturing dominates. But Gujarat has bucked this national trend,” the report said.

It said that in Gujarat, industry accounts for 40% of the State Domestic Product (GSDP), while the national average is just 27%, which will be primarily responsible to sustain growth in Gujarat.

The report also said that, the state’s low reliance on central funds will help it deliver strong growth despite indications of a possible softening of central funds on account of dismal fiscal deficit scenario.

Gujarat scores well in this count as compared to other industrialised states like Maharashtra and Tamil Nadu, which have been witnessing fall in share of industry in overall GSDP.

“The state’s industry GDP contribution to the national GDP has consistently increased from 8-8.5% in 2000-01 to 11-1.5% in FY 11,” the report said.

On the oft-repeated criticism that despite high growth, Gujarat’s Human Development Index (HDI) and Infant Mortality Rate (IMR) has shown little signs of improvement as compared to Maharashtra or Tamil Nadu, the report said that with improved governance, Gujarat’s HDI and IMR would soon converge with the other two states.

In agriculture, the report said that farming contributes around 13% to the state’s GDP, significantly higher than Maharashtra and Tamil Nadu.

“The state’s contribution to the national production of wheat and cotton has significantly improved in the last few years and the contribution of its agri GDP to the national agri GDP has doubled in the last 10 years,” the report said.

As on FY 11, around 13% of Gujarat’s SDP was from agriculture.

On low reliance on central funds, CLSA said that the ration of the state’s own tax revenue to total tax revenue is one of the highest among all Indian states at 84%.

“Less than 30% of its overall revenue receipts comes from central taxes and grants from the central account,” the report said. These experts believe makes Gujarat’s growth more robust, so even if there is a slowdown in central allocation, growth is not hampered.

It spends a consistent 55-60% of its overall expenditure on development, while not compromising on spending in other sector, while in other states share of total expenditure on development activities fluctuates widely.

NOTE: The contributions for India are for national GDP, while for Gujarat it is for State Gross Domestic Product (GSDP).

Source: CLSA, CLSA Asia-Pacific Markets