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Economy Jan 2, 2013

Kerala growth model is Gujarat model in disguise

By R Jagannathan

In recent months, ever since Narendra Modi seemed interested in a larger national role, a lot of attention has been focused on debunking his growth story in Gujarat. His detractors have posited the Bihar growth story as superior, and the numbers do suggest that smaller states with low starting bases have been growing faster (Bihar, Chhattisgarh, etc) than Gujarat.

But the debate has gone off-track largely because of the biases for and against Modi in the development model debate. Efforts to sift fact from fiction have got lost precisely because of the Modi factor, since there is a reluctance among his critics to accept that he has done any good at all. Economists Jagdish Bhagwati and Arvind Panagariya of Columbia University have now put the debate back on track in their new book India's Tryst With Destiny: Debunking Myths that Undermine Progress and Addressing New Challenges.

Kerala model is as much about growth creating better human development numbers. AFP

The real comparison, they say, should be between the Gujarat model and the Kerala model - the former being short-hand not for Modi's development, but private sector-led growth, and the latter for state-spending on welfare.

In popular discourse, Kerala is the ultimate Exhibit A in human development indicators, and this is said to be the result of state spending on social sectors like education and health. Gujarat, on the other hand, fares poorly on social indicators, but high on growth, let by its entrepreneurial spirit. It is seen to be spending less on social sectors.

In an interview to The Economic Times, Bhagwati and Panagariya junk this myth. Neither is Kerala's social performance state-led, nor is it lacking in entrepreneurial spirit; what it had at the dawn of independence was a higher educational and health base. As for Gujarat, it started from a social indicator level that was must worse than the national average, and is only now beginning to close the gap.

In fact, the co-authors say Kerala's growth story is really a validation of the Gujarat model. They say: "It is ultimately the Gujarat model that has delivered in Kerala. Contrary to common claims, Kerala has been a rapidly growing state in the post-independence era, which is the reason it ranks fourth among the larger states, according to per-capita gross state domestic product and first according to per capita expenditure."

The stats clearly show that it isn't the government spending that is developing Kerala, but private spending. Nor is Kerala some kind of socialist paradise in wicked private-sector-led India, and compared to even wickeder Gujarat.

The co-authors, in fact, assert that Kerala "suffers from the highest level of inequality among the larger states. So growth, and not redistribution, largely explains low levels of poverty." Poverty is falling not because of the state, but because private individuals - no doubt fed by remittances from the diaspora - are spending big on investment in education and health. "In education", say the authors, "at 53 percent, rural Kerala has by far the highest proportion of students between ages 7 and 16 in private schools. The nearest rival, rural Haryana, has 40 percent of these students in private schools."

Bhagwati and Panagariya also debunk the belief that Kerala, God's own country, lacks in entrepreneurial spirit. In fact, the earliest Arab traders had closer links to Kerala than Gujarat. They point out that Kerala, even now, has more of its citizens - one in three households - living abroad whereas Gujarat has less than one in 10 urban households (one in 50 rural households) living and earning abroad.

The short point: "They (Kerala) have had a long history of commercialisation and globalisation via trade and that the resulting prosperity is a key explanation of the high social indicators they inherited at independence."

Bhagwati and Panagariya also claim that growth can come from the globalisation - which could be through trade, entrepreneurship, migration, or foreign investment, and the actual route taken depends on the specific circumstances of a state. So Gujarat is not a land favoured by entrepreneurship and Kerala cursed without one.

The larger point they seek to make is this: that most of what we assume to be the result of state intervention in social progress is less the result of policy and more the result of growth.

In that sense, the Kerala model is as much about growth creating better human development numbers. By implication, it means that if Gujarat continues to grow fast under Modi, the social indicators will change here too. His detractors may have jumped the gun in rubbishing Gujarat's growth story.

The authors offer solid facts to contradict Modi's critics that Gujarat is a poor performer. In fact, the state does not fare too poorly at all if we look at the base from which it began

The few numbers they give include these: "Gujarat inherited low levels of social indicators (at independence) and it is the change in these indicators where Gujarat shows impressive progress. The literacy rate has risen from 22 percent in 1951 to 69 percent in 2001 and 79 percent in 2011. The infant mortality rate per thousand has fallen from 144 in 1971 to 60 in 2001 and 41 in 2011."

However, the point to note is that the Gujarat model is not exclusive to Gujarat, and other states, including Maharashtra and Tamil Nadu or Haryana, may be following the same basic approach while nuancing it differently.

The problem, though, is in the presumption that the Kerala Model is different from Gujarat - and this is where Messrs Bhagwati and Panagariya clearly emphasise that its growth that's making the difference. And if the Gujarat model is about growth, Kerala is succeeding because it has aligned with the Gujarat model.

Read the full interview here.

by R Jagannathan

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