On the road

Market strategy

Anirudha Dutta Gujarat, the silver lining

anirudha.dutta@clsa.com On the eve of the 20th anniversary of commencement of reforms – July
(91) 2266505056
1991 was Manmohan Singh’s first speech as FM – On the road travelled to
Bhavesh Pravin Shah Gujarat for two days. A near 10% growth in agriculture for over a decade,
(91) 2266505009 rapid industrialisation and long-term results focussed government is
driving Gujarat’s growth, a state that started with some historical
advantages. When rest of India is feeling hemmed in by scams,
corruption and policy paralysis, in Gujarat you consistently hear of clean
administration, responsive bureaucracy and a progressive government
focussed on long term development of the state with long term stated
policy goals. Gujarat’s success could well provide the template for India.
29 June 2011
A legacy of strong growth
India ‰ Between 2002-2007, industry grew at 12.5% (India manufacturing growth – 8%).
Between 2005 and 2010, Gujarat’s real GDP growth was 11.3% (India - 8.7%).
Miscellaneous ‰ Over the last decade, agriculture has grown at nearly 10% per annum, as Gujarat
reaped the benefits of scientific farming, rain water harvesting and linking its rivers.
‰ Gujarat has two natural advantages – a long coastline and people with
entrepreneurial spirit – something that everyone emphasises in the state.

The state government’s role

‰ The government has been an important catalyst in the growth. It is harnessing its
twin advantage well and a corruption free, responsive administration is a big plus.
‰ It was clear from our discussions that the state government has a long term vision
for Gujarat’s growth in agriculture, manufacturing and services. Transparent policy
applied consistently and a citizen and investor friendly administration has resulted
in Gujarat emerging as the favourite investment decision within India.
‰ There has been a quantum leap in integrated infrastructure development and is one
of the few power surplus states in the country. It has also set in place the
infrastructure for supply of trained manpower to the industry.

Future outlook and risks

‰ Gujarat’s road map is now to make a quantum leap in large scale manufacturing by
creating large industrial cities. The SRI Act and the Delhi-Mumbai Corridor are
expected to drive it. The other area of focus is tourism development.
Few large corporates/ ‰ The state is likely to emerge as the fourth auto hub in India, if Ford and Maruti set
groups with major up their next plants there. Tata Motors and General Motors are already present.
presence in Gujarat: ‰ Much of Gujarat’s growth in the last decade is attributed to Chief Minister Narendra
Modi’s dynamism, vision and focus on growth. Some people say that he is now
Reliance Industries trying to accommodate political people in the administration as he prepares for a
Tata group role at the centre. This would seem to be the key risk if the clean administration
Larsen & Toubro becomes riddled with political functionaries and factions.
RPG group
Adani group Gujarat’s growth has outpaced the other larger states
Essar group
Gujarat 11.3
GE Plastics
Du Pont Haryana 11
ABB
Bihar 9.6
Shell
British Gas India 8.7
Cairn Energy
P&O Karnataka 8.5
General Motors Kerala 8.1
Areva
Uttarakhand 7.8
Maersk
Bombardier Tamil Nadu 7.4
BASF
AP 7.4 %
Sanofi Aventis
Pfizer 0 2 4 6 8 10 12

Source: Retaining the Edge: Sustaining South India’s Growth Momentum, McKinsey, CII

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 Gujarat, the silver lining On the road

Gujarat is among the

Gujarat, the silver lining
most prosperous state in On the eve of the 20th anniversary of commencement of reforms – July 1991
the country was Manmohan Singh’s first speech as Finance Minister – On the road
travelled to Gujarat for two days with Patrick Foulis, The Economist’s Mumbai
bureau correspondent. A nearly 10% growth in agriculture for over a decade,
rapid industrialisation and long-term results focussed government is resulting
in fast development of Gujarat, a state that started with some historical
advantages. Gujarat’s GDP is c.US$80bn and with a GDP per capita (PPP) of
US$4,132 (population of 60m), it is one of the most prosperous large states
along with Maharashtra and Punjab. Between 2005 and 2010, Gujarat’s real
GDP grew at 11.3% cagr, well ahead of the national growth rate of 8.7%.

Figure 1

Steady growth in real GDP for state of Gujarat

Between 2005 and 2010,
55 US$bn Real GSDP
Gujarat’s real GDP grew
at 11.3% cagr
Grown at 11%
50 compared to all
India average of
9%
45

40

35

30
FY05 FY06 FY07 FY08 FY09

Source: CLSA Asia-Pacific Markets

Gujarat is seen as state
with clean administration,
responsive bureaucracy
and a progressive
government
When rest of India is feeling hemmed in by scams, corruption and policy
paralysis, in Gujarat you consistently hear of clean administration, responsive
bureaucracy and a progressive government focussed on long term
development of the state with long term stated policy goals. We now bring
you the positive story of how a state is transforming itself by design and the
people of the state are enjoying the fruits of this development. Gujarat’s goal
is to continue to grow at 2-3 ppts higher than India. Even at present with
about 5% of India’s population and 6% of its geographical area, Gujarat
contributes 16% of India’s industrial output and 21% of India’s exports.

Figure 2 Figure 3

Gujarat’s share in India total Gujarat’s industrial sectors contribution to India total

Population 5 Pharmaceuticals 42

Area 6
C hemicals 51
# of factories 10
Petrochemicals 62
Mfg. value 12
Plastic industry 65
Value of output 16

Daimond 80
Fixed capital invst. 17

Exports 22 Salt processing 80

% %

0 5 10 15 20 25 0 20 40 60 80 100

Source: Source: Vibrant Gujarat 2011 - Destination Gujarat, CLSA Asia-Pacific Markets

29 June 2011 anirudha.dutta@clsa.com 2

 Gujarat, the silver lining On the road

For Ceat’s new factory, Our journey started about 50kms from Vadodara, in the industrial belt of
120 acres of land was Halol. We are visiting Ceat’s latest factory manufacturing radial tyres for cars,
bought from farmers over
buses and trucks. At first glance, the factory looks more like an IT park in
just six months
the suburbs of Bangalore. The Rs6bn project, which will produce 155tpd by
the year end (present capacity 90tpd), was set up in less than 24-months
from Day zero. Construction time was 12-months. 120 acres of land was
bought from farmers over a six-month period.

Gujarat is a preferred
destination as there is no
power and water problem
So why did Ceat choose Gujarat and what other locations did it consider given
that it has considerable presence in Maharashtra? In Maharashtra and
Uttaranchal, getting the requisite land was a constraint. The infrastructure of
Gujarat and smooth land acquisition were the main attraction. There is no
power and water problem and there was no pressure from local leaders to
hire their people in the factory, a problem in many parts of the country.

RPG Cables decided to set The net result of the good infrastructure is that inventories are low and at any
up its new plant in time the company runs on at most three days inventory. Nearby ports and
Gujarat after the
good port connectivity has made it easy for the company to import rubber
experience of Ceat
bales. Is the RPG group considering more projects in Gujarat? Sandeep
Bhatia, DGM Commercial, says that group company, RPG Cables, decided to
set up its new plant in Gujarat after the experience of Ceat. The government,
he told us, did not interfere at all during the setting up of the factory,
bureaucrats proactively responded to the company’s requests and also
followed up on its requests, red tape was kept at a minimum and no one
asked for any bribes. The last is quite an achievement when most newspaper
headlines daily are about corruption and crime.

Figure 4

Gujarat has the highest Total IEMs filed in India (1991-2009)

proportion of IEMs filed in
the country between Gujarat
Others
1991-09 13%
17%

C hhatisgadh
WB
13%
5%

MP
6%

Kharkhand Orissa
7% 12%

Karnataka
Maharashtra
8% AP
10%
9%

Source: DIPP, Vibrant Gujarat 2011 – Destination Gujarat, CLSA Asia-Pacific Markets. IEM refers to
Industrial Entrepreneurial Memorandum

Benefits of The benefits of this industrialisation could be seen all around us – both for the
industrialisation is seen people of Gujarat and for outsiders as well. In Vadodara, apartment rentals
for both people of Gujarat
are up nearly 20% in one year and over the last two years apartment prices
and outsiders
have moved up by 125-150%. In this highly automated factory full of CNCs
(Computer Numerically Controlled), overhead cranes, and fork lifts, On the
road was surprised to find many women on the shop floor.

29 June 2011 anirudha.dutta@clsa.com 3

 Gujarat, the silver lining On the road

Better job prospects is Sharmishta Sahai was one of them. The young, aspirational India is best
attracting young reflected in the eyes of Sharmishta, who in her early 20s finished her
aspirants to Gujarat
polytechnic in a college in the eastern state of Orissa and then joined Ceat in
Gujarat, which is half way across India. Her father is a state government
employee and it is very doubtful if anyone from their family, much less a girl,
has ventured outside the state on work. Better job prospects outside her
state, encouraged Sharmishta to come all the way to Gujarat, where she
stays with three other colleagues in a nearby town. 20% of the technical work
force on this shop floor is women, we are informed. And women work in two
shifts.

The industrial belt and the four-lane roads are not the only signs of progress.
We walk into a small village a few kilometres away from the Ceat factory. As a
small group of village folks gather around us, we ask them what has changed
in last 5 or 10 years. It was surprising to hear that nothing has changed and
life is as tough as it always was and there are not too many jobs, we are
informed.

Over 90% of villagers had
mobiles, practically every
house has dish antenna
But as our talks progressed another story emerged. Over 90% of the villagers
have mobile phones and TVs in their house. We walked into the house of one
of the villagers and the small dark room is occupied by a Bajaj motorcycle.
The owner who runs a bicycle repair shop nearby pays an EMI of Rs1,600 for
the bike. Every house has a dish antenna poking out of the roof. Some things
have certainly changed irrespective of what the first villager told us.

Figure 5

Gujarat has low Proportion of population below poverty line

proportion of population
below poverty line 30 % 28.3 India Gujarat
27.5
25.7
25

20 19.1
16.8

15 13

10

0
Rural Urban C ombined

Source: Gujarat Socio-Economic Review – FY11, CLSA Asia-Pacific Markets

Availability of cream While the sight of a mouse scuttling over the shampoo and tea sachets in the
biscuits, hair colors and local store discouraged us from buying anything, the merchandise in the store
shampoos in small shops
is an indicator of changing consumer habits – cream biscuits, hair colors,
was common sight
shampoos etc. Most of the men work in nearby factories and earn double of
what they would earn as a farm hand.

Our FMCG team too When Vivek Maheshwari, CLSAs consumer and cement analyst, travelled to
witnessed fast changing Nadiad in Gujarat (a small town known for spice trading), he also witnessed
consumer landscape
the fast changing consumer landscape. On his return he write – “A personal
visit to Nadiad in the state of Gujarat served as an eye-opener on the fast
changing consumer landscape in small town India. From the outside, it

29 June 2011 anirudha.dutta@clsa.com 4

 Gujarat, the silver lining On the road

appeared that the stores had little to offer, but the shelves told a different
story altogether. With domestic brands and MNCs jostling for shelf space, the
rural consumer is clearly spoilt for choice and the surprisingly high shares for
premium brands mirror the rising aspiration levels. The sheer variety of
products available in a low unit pack (LUPs) format was a revelation to us.”

Figure 6 Figure 7

One of the three stores that Vivek visited in Nadiad Premium products are visible in rural stores now

Source: CLSA Asia-Pacific Markets

Every household has On the road had heard that 100% of villages in Gujarat are electrified. As per
electricity connection and the earlier definition thought of by some clever bureaucrat, a village was said
it is metered
to be electrified if it had one electric point. The present definition is that at
least 10% of households in the village should be electrified. In Gujarat
villages every household has electricity connection and it is metered and we
could see this in the village we visited. This was reiterated by Uday Singh
Mahurkar-Salunke, Senior Editor of India Today, when we meet him in
Ahmedabad later in the day. “Farmers used to steal power. Then Modi (the
Chief Minister) sent a strong message to farmers and the scenario has
completely changed today.”

Figure 8 Figure 9

Dish antennas are visible almost everywhere Notice the white electric meters?

Source: CLSA Asia-Pacific Markets

29 June 2011 anirudha.dutta@clsa.com 5


By the end of Mach 2012,
Gujarat will have 250 MW
of solar power capacity
Per capita consumption of
electricity in Gujarat is 2x
of India
Gujarat is one of the
states that recover 50%
of the electricity cost
from agricultural users
Every person that we met
spoke of development
Not only education and
industry has progressed,
but corruption has ended
29 June 2011
Gujarat, the silver lining On the road
As a result Gujarat is a power surplus state today and now Narendra Modi is
emphasising on the growth of solar power. By the end of Mach 2012, Gujarat
will have 250 MW of solar power capacity. A senior bureaucrat in the
Industries & Mines department told us in Gandhinagar, “Ten years back there
were a lot of problems in the power sector. The Chief Minister said let’s
promote power generation and reform distribution. Since then losses have
reduced and today we are a power surplus state. Agriculture, which is 18-
20% of state GDP, also consumes a similar proportion of power and the tariff
is subsidised.”
Figure 10
Comparison of per-capita consumption of electricity
Per capita consumption of electricity
1400 kwh 1331
1200
1000
800 672
600
400
200
0
India Gujarat
Source: Gujarat Infrastructure Development Board, CMIE, Socio & Economic Review - Gujarat , CLSA
Asia-Pacific Markets
Gujarat is one of the only states that recover 50% of the electricity cost from
agricultural users. During the last state elections when there was a lot of
pressure on the chief minister to promise free power to farmers, he steered
clear of making populist promises. In an emailed response to the
questionnaire sent by Patrick and I, Narendra Modi says, “Ending free power
for farmers was bit of a challenge but I would not call it a battle. My
explanation to farmers was simple. In fact, the farmer does not need power
for the sake of it. He needs power to fetch irrigation water. I assured them
enough water…. Moreover, for the first time in India, we are giving 24x7
uninterrupted power to the village house holds.”
At the last India Today Conclave in March 2011 in New Delhi, Narendra Modi,
Gujarat’s Chief Minister, said, “Gujarat is an example that with government
one can progress and develop…Gujarat has converted development into a
people’s mass movement. This mass movement is Gujarat’s biggest strength.”
Every person that we met during our two day travel spoke of development
and the Chief Minister’s agenda of progress and growth.
Om Prakash, our driver, is from Rajasthan. According to him education and
industry have made huge progress in Gujarat in the last ten years with new
colleges, institutions and factories opening up. Roads development has also
been rapid, according to Om Prakash. What else has Narendra Modi achieved?
“Corruption has completely ended. Government officers speak differently with
us now and even the police have stopped harassing us.”
anirudha.dutta@clsa.com 6

Figure 11
Wide four-laned road…
Source: CLSA Asia-Pacific Markets
Rural incomes are
diversifying and getting
linked to urban
development and growth
Agriculture has grown at
9.6% cagr over the last
decade
The dam and the canals
have changed Gujarat’s
fortunes to a large extent
The Narmada dam project
has helped in bringing
water to a large number
of villages
29 June 2011
Gujarat, the silver lining On the road
Figure 12
..And well landscaped
Om Prakash’s story also illustrates how rural incomes are diversifying and
getting linked to urban development and growth. Om Prakash has about 17
bigha of land (3 acres), where he grows wheat. They also have four buffaloes
and two cows and sell the milk to a cooperative. His daughter (14 years) and
son (7 years) study in private schools and he pays a fees of Rs700/ month for
one and Rs900/ month for the other. Better opportunities have brought him
to Gujarat.
Agriculture has made tremendous strides in the state. In the last decade,
agricultural output in the state has grown by 9.6% annually and in the last
five years, the growth has been over 10%. Agricultural income has increased
from Rs90bn (US$2bn at Rs45/ US$) in 2002 to Rs500bn (over US$11bn) in
2010 and the state, which was known for droughts and scanty rainfall, is
today an exporter of cotton, and vegetables like okra and tomatoes
How has all this been achieved? One big achievement has been the Narmada
dam and the network of canals. Built under severe opposition from NGOs and
environmentalists, the state fought the case for a number of year’s right upto
the Supreme Court to get permission to build the dam. The dam and the
canals have changed Gujarat’s fortunes to a large extent. In fact one of the
canal waters has also been diverted to the Sabarmati river and a huge
riverfront development is taking place in Ahmedabad, which is a source of
pride for the city. Not only this, the water flowing into the Sabarmati has
helped in raising the ground water level significantly in the city.
Figure 13
Details of the Sardar Sarovar Project (Narmada dam)
Particulars Comments
Total cost of Sardar Sarovar Project Rs456bn; Likely to go up to Rs700bn by FY12
Funds received by Gujarat under
Accelerated Irrigation benefit program
(1996-2008) Rs48.87bn
Irrigation benefits 1.8 mn hectares of land
Drinking water benefits 9,633 villages and 139 towns in Gujarat
Combine installed capacity of 1,450MW
Power generation in Mar-06
At full reservoir level, the dam would submerge
37,533 hectares of land in 245 villages in
Social implications Gujarat, Madhya Pradesh and Maharashtra
Source: Tata Institute of Social Sciences, CLSA Asia-Pacific Markets
anirudha.dutta@clsa.com 7
 Gujarat, the silver lining On the road

There has also been a
concerted effort to promote
rain water harvesting, drip
irrigation and agricultural
technology
But it is not just the large dam and the canal waters that worked wonders for
Gujarat’s agriculture. There has been a concerted effort to promote rain water
harvesting, drip irrigation and agricultural technology. In Jamkha, a village in
Junagadh district, 52 check dams were built in two months. In three months,
10,000 check dams were built in 2,400 villages in Saurashtra, under a
scheme where the state government bore 60% of the cost and the villages
paid the rest. This has helped in recharging ground water and enabled
farmers to undertake farming apart from removing the crushing water
shortage that used to plague the region.

On the road had heard praise of this effort from Sunita Narain at the Centre
for Science and Environment a week before the Gujarat trip. She said that
what Gujarat has achieved is great. Gujarat has succeeded in checking the
flow of water into the sea and the linking of various water bodies has also
given an impetus to agriculture in the state. The check dam work, to be fair,
had started during the tenure of Keshubhai Patel, but Narendra Modi carried it
forward.

Gujarat is the only state
where all farmers have
been given soil cards to
encourage balanced use of
fertilisers
Another story of ground water recharging was told by Uday Singh. A 280km
long canal has been built from Kadana dam going to north Gujarat. The canal
has helped to recharge ground water along the entire route of 280kms. To
conserve water, drip irrigation and water sprinkler systems has been widely
encouraged in the state. Gujarat is the only state where all farmers have
been given soil cards to encourage balanced use of fertilisers. As a result of
the government’s efforts, the percentage of gross irrigated area to gross
cropped area has increased from 21.7% in 1980-81 to 44.7% by 2006-07,
the latest year for which data is available.

Figure 14

Significant increase in Trend in irrigation in Gujarat

irrigation in the state 00 Hectares FY81 FY91 FY01 FY03 FY04 FY05 FY06 FY07
Government Canals 3,668 4,731 3,476 3,804 5,997 6,762 7,782 7,892
Wells-Tubewells 15,884 19,301 24,347 26,373 27,364 27,764 30,242 33,070
Tanks 409 314 153 135 262 334 422 398
Other Sources 65 30 84 149 252 416 628 1,016
Net Irrigated
Area (NIA) 20,026 24,376 28,060 30,461 33,875 35,276 39,074 42,376
Gross Irrigated
Area (GIA) 23,344 29,105 33,421 36,370 41,112 42,795 47,642 52,787
% of NIA to Net
Area Sown 20.9 26.2 29.8 32.1 34.4 36.2 40.2 43.2
% of GIA to
Cropped Area 21.7 27.4 31.8 34.2 36.0 38.0 41.9 44.7
Source: Directorate of Agriculture, Gujarat State, Gandhinagar, Gujarat Socio-Economic review FY11,
CLSA Asia-Pacific Markets

Gujarat had two natural What about industrial growth and development? What is driving that and why
advantages – a long is corporate India flocking to Gujarat? Everyone we met told us that Gujarat
coastline and an
had two natural advantages – a long coastline and an entrepreneurial spirit in
entrepreneurial spirit
its citizens. These two things meant that Gujarat has traditionally been a
good and attractive place to do business. Big ticket investments like
Reliance’s refinery were planned much before Modi became the chief minister.

29 June 2011 anirudha.dutta@clsa.com 8

 Gujarat, the silver lining On the road

Rule-based system is in At the same time everyone assertively says that Modi has given a clean
place which transparent administration driven by policies, which are transparent and equally applied to
and equal
all. An ex-bureaucrat and now an entrepreneur said, “Narendra Modi cut out
the vested interests from decision making. Whole army of favour seekers,
middlemen etc vanished. Transaction costs have come down…It has become a
rule based system.”

According to a senior bureaucrat in the Chief Minister’s secretariat, “Narendra

Modi is a man of integrated thought and long term vision. He has a passion
for the development of Gujarat. He shows total objectivity towards matter of
public policy and governance. Merit is the only criteria for any decision of the
government.”

What else was done to harness Gujarat’s twin advantage? A senior bureaucrat
says that to harness the strengths three enabling factors had to be there –
infrastructure, labour laws, and proactive governance system driven by
policies and not individual discretion. Consistently this government has
upgraded the infrastructure – road, rail, port and gas. Throughout the state, a
2,200 kms gas grid has been set up. Gujarat government was one of the first
to take advantage of public private partnerships (PPPs).

Figure 15

An integrated Port connectivity to DFC

development plan

Source: Government of Gujarat, CLSA Asia-Pacific Markets

29 June 2011 anirudha.dutta@clsa.com 9

 Gujarat, the silver lining On the road

In 2004, contract labour In 2004, contract labour was allowed and flexi timings have been permitted.
was allowed Employers are not obliged to recognise unions and whenever there have been
some labour issues like recently in the General Motors plant, it was promptly
resolved with the active intervention of the state government.

Proactive governance is Proactive governance is another aspect of this government that is frequently
frequently mentioned spoken about. As far as investor’s go, the facilitation process is very fast and
it gives them a lot of confidence. The unwritten rule for government officials
is that any project sponsor should not spend more than 5% of his time in
government offices, says the bureaucrat in the Industries & Mines
department. We were having pizzas washed down with large quantities of
Coke for lunch in his office and the waiting room was WiFi enabled, not a
common sign in government offices in India.

“We are committed to the According to Narendra Modi (in his emailed response), “We are committed to
highest standards of good the highest standards of good governance. More than this, we are ensuring
governance” – Narendra
the best outcomes in every aspect of governance. Recently, the United
Modi
Nations awarded the Chief Minister’s office for improving transparency,
accountability and responsiveness in the Public Service category. Gujarat’s is
the only Chief Minister’s Office to attain the ISO certification for
administration and overall governance. However, we are continually striving
for betterment in our systems and work culture. We have been holding an
annual brain storming session. We have set up IT based systems. These are
examples of institutionalization.”

And governance is not only for the corporate sector or investors. One of the
biggest frustrations for the citizens of India is the judicial system and the long
time the courts take – sometimes decades – to decide on any matter. The
backlog of case is huge. Gujarat came out with an innovative way to improve
the situation by starting Evening Courts using the existing infrastructure,
since November 2006. The response has been overwhelming.

Novel concept of evening The evening courts do not imply only additional working hours but also a
courts to expedite the system which enables the common man to seek justice without wasting his
judicial system
working hours during the day. On the other hand, since petty cases are taken
up in the evening courts, it leads to lessening the burden of the State
judiciary allowing it to concentrate on more important legal issues pending
before it. Gujarat is the first State in the country to have introduced shift
system successfully in subordinate courts. More than 85 evening courts are
operational and more than 0.72m cases have been disposed off through
evening courts.

Gujarat is targeting Gujarat is now targeting investments in manufacturing and infrastructure on a

investments in massive scale. Will it succeed? 38% of the area under Delhi-Mumbai
manufacturing and
Industrial corridor (DMIC) is in Gujarat. According to a recent interview by
infrastructure on a
massive scale Amitabh Kant, Chairman of DMIC, land acquisition has made progress only in
Gujarat’s Dholera region. Dholera is one of the 12 Special Investment Regions
(SIR) that the Gujarat government has planned under the SIR Act. Land
acquisition in Dholera has been smooth so far and there is no resettlement
involved. Under SIR single window clearance is given to all projects.

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 Gujarat, the silver lining On the road

Gujarat’s target is that Gujarat’s target is that share of manufacturing in the state GDP should
share of manufacturing in increase from 31% now to 40% by 2025. Given the state’s exciting plans and
the state GDP should
what seems a clear road map, prompted my fellow traveller to compare
increase to 40% by 2025
Gujarat’s developmental efforts to the achievements of Guangdong province
of China.

Figure 16

Trying to attract large scale investments

Source: Government of Gujarat, CLSA Asia-Pacific Markets

Gujarat is looking for a One of the questions we asked the Chief Minister was on his vision for
balanced economic Gujarat’s development and does he see Gujarat play the same role as
development
Guangdong province did in China. His emailed response – “The model that I
envisage is a model of balanced economic development where 1/3rd GDP
comes from Industry, 1/3rd from service and 1/3rd from agriculture. This will
ensure sustainable growth over long periods since internal adjustments would
take care of problems in any one of the three areas.

We house some of the biggest and the best industries world over. We are
monopoly producers in the country in several sectors and global leader in a
number of products. Our industrial growth is around 13%, consistently for a
decade. We contribute to 15% of India’s exports. With Tata Nano and
Bombardier, we are emerging as a new auto and transportation
manufacturing hub.

The DMIC and SIR With our limestone reserves, we are emerging as one of the biggest cement
projects will strengthen producer in the country. We have already emerged as a big steel and pipe
Gujarat’s position as a
producer in the country. Now, we are going to become global players in these
growth engine
fields. And the best asset which we have is our 1,600 km long coastline
dotted with world class ports. These ports are the gateways to Gujarat’s
prosperity and expressways for the progress of the northern hinterland of the
country. The upcoming DMIC and SIR projects along with our port led
development will further strengthen our position as the growth engine of
India. Our development process is robust and yet uniform; fast and yet
sustainable. Our model of holistic development mainly focusing on five issues
viz. harnessing the power of water, energy resources, education, people’s

29 June 2011 anirudha.dutta@clsa.com 11

 Gujarat, the silver lining On the road

participation and security (including health security), is widely recognized

today.”

Figure 17

Gujarat has big plans around the DMIC

Source: Government of Gujarat, CLSA Asia-Pacific Markets

The government initiated Skilled work force availability is a concern across sectors, including in
a program for opening farming. What is the state is doing about producing a pool of skilled work
300 skill development
force for the industry? The state realised two years back that there was a big
centres by 2013
gap in skill development and initiated a program for opening 300 skill
development centres by 2013, which will produce 300,000-400,000 skilled
work force every year. 65 of these centres are already running, with IIT
Mumbai and IIM Ahmedabad being the guiding institutions, government
provides the infrastructure and the industry runs these centres.

Apparently one of the first questions that Tata Motors had asked the
government was whether skilled work force will be available. The state
government along with officials of Tata Motors held training camps within 10-
15km radius of the Nano factory site and picked up 1,000 youngsters of
whom 800 are now employed with Tata Motors.

Every aspect of education We asked the Chief Minister about human capital development. His emailed
is being strengthened response, “Our Education initiatives are strengthening every aspect, from
primary education to world-class higher education institutes. Through
vigorous annual school enrolment campaigns we have achieved near 100%
enrolment and have reduced drop-out rates to almost zero. Since last two
years we have launched a campaign to assess and enhance the quality of
education in public schools.

29 June 2011 anirudha.dutta@clsa.com 12

 Gujarat, the silver lining On the road

As we expand industrial growth and opportunities, we are establishing world-

National Law University
and Petroleum University class institutes of learning to prepare the new workforce. We have established
are some of the premier premier institutes like Gujarat National Law University and Pandit Deendayal
institutes established Petroleum University. We have the only Forensic Sciences University in India.
recently The recently established Raksha Shakti University is the first of its kind in
India, conducting diploma and degree courses in public science and internal
security. We are not only providing to train the present youth but also
worrying for the resource people for the future – we have launched Indian
Institute of Teacher’s education which provides an integrated five year course
to prepare teachers.”

Our visit to Juhupura Critics of Narendra Modi do not tire of highlighting the one black spot in the
state government’s track record – the 2002 riots. On the road travelled to
Juhapura, which is probably the largest Muslim settlement in Ahmedabad. Off
the busy four-lane road, a large number of youngsters – construction workers
– are milling around and waiting for their day’s job. We speak to a young
mason who insists on speaking in his smattering English. Once again it is a
familiar story – nothing has changed, life is very tough, the government does
nothing etc.

For an unskilled person, How much do they earn for one day’s work? They earn Rs300/ day and wages
wages have gone up from have more than doubled in the last two years thanks to all the construction
Rs80/ day to Rs150/ day
work going on. They get about 15-20 days work per month on an average.
Most seem to be fairly cheerful, dressed well and carry the ubiquitous mobile
phone. For an unskilled person, wages have gone up from Rs80/ day to
Rs150/ day. In comparison, in the villages unskilled workers earn about Rs80-
90/ day in a factory and Rs50-60/ day as farm hands. But this group is being
hurt by inflation. While reluctant to be drawn into any political discussion,
they do accept that the state government’s developmental work has by and
large helped everybody. The four-lane road was built about two years ago.

“When the state We moved inside into one of the by-lanes. We are now in a more prosperous
develops, everyone’s middle class area. Once again there is a reluctance to be drawn into any
business grows”
political discussion. But a tent-house owner says, “When the state develops,
everyone’s business grows and we have also benefitted.” Our next stop is a
bookseller where we chat with the owner and his 82-year old father. While the
father reminisces about the gold old days when the Britisher’s ruled India (he
was given a “V” poster when the atom bomb was dropped on Hiroshima), the
son says that life has improved over the last few years.

“Once you get away from A steady flow of women, many in full hijab, keep coming for mainly two
the main drag, the overall things – buy books and note books for their children and top up their mobile
impression is of an
SIM cards. The shop owner has three sons – one works for Uninor, a second
industrious and
prosperous place“ for Beetel Phones and the third is looking for a job. All of them are based in
Ahmedabad. Patrick sums up his impression of the locality – “Once you get
away from the main drag, the overall impression is of an industrious and
prosperous place without an obviously oppressive religious vibe.”

The Chief Minister’s Gujarat clearly has made rapid strides in development. And the Chief
imprint is writ large on Minister’s imprint is writ large on the state. Much of the work done is credited
the state
to his personality, his charisma and his untiring efforts, something that
obviously does not hurt a politician. Everyone in the state, except the chief
minister himself, aver that his next ambition is to try for the top job in the
national political firmament. Many wish he reaches there, such is his cult
following in the state. Of course, Narendra Modi himself downplays his role

29 June 2011 anirudha.dutta@clsa.com 13

 Gujarat, the silver lining On the road

and attributes Gujarat’s success story to “team effort” and sees his role as
that of a facilitator.

What can go wrong? So what could go wrong? We heard repeatedly that the Chief Minister has
become more accommodative towards political functionaries in recent times,
something he has assiduously eschewed during most of his tenure so far. This
may be his way of garnering support from the larger political system as he
prepares for a possible role at the centre. Can the efficient administration he
has built up start losing its sheen if the administration starts coming under
the influence of political functionaries and factions? This remains a potential
risk.

UN award to the CMs office
in the Public Service
category
A second criticism is that the next rung of leaders has not been groomed and
the institutionalisation of the good governance practices may not have
happened. However, the Chief Minister believes that extensive use of IT is an
example of how his efforts are being institutionalised. In response to one of
our queries, he replied, “We are committed to the highest standards of good
governance. More than this, we are ensuring the best outcomes in every
aspect of governance. Recently, the United Nations awarded the Chief
Minister’s office for improving transparency, accountability and
responsiveness in the Public Service category. Gujarat’s is the only Chief
Minister’s Office to attain the ISO certification for administration and overall
governance. However, we are continually striving for betterment in our
systems and work culture. We have been holding an annual brain storming
session. We have set up IT based systems. These are examples of
institutionalization.”

A strong example of rapid Gujarat today stands as a strong example that amidst all the cynicism about
growth India’s political set up, a largely corruption free and responsive government
can be run in a large state, it can deliver rapid economic growth and inclusive
growth and both these can progress hand in hand.

Figure 18 Figure 19

Gujarat is attracting higher investments compared to …and generating higher employment in organized
other states… sector
50 US$bn % Number of organized jobs
1.9
Investment (2005-10) Average growth at
39
40 2.4%pa compared to
1.8 India's average of
33
0.1%
30
1.7
20
20 18
1.6

10 1.5

0 1.4
Gujarat AP TN Karnataka FY03 FY04 FY05 FY06 FY07 FY08

Source: Retaining the Edge: Sustaining South India’s Growth Momentum, McKinsey, CII, CLSA Asia-Pacific Markets

29 June 2011 anirudha.dutta@clsa.com 14

 Gujarat, the silver lining On the road

Appendix 1
Figure 20

India vis-à-vis Gujarat in numbers

Unit India Gujarat
Area Sq km 3,287,240 196,024
Population (2011 Census) mn 1,210.0 60.4
Literacy rates (2011 Census) % 74.0 79.3
Urban population (2001 Census) % to total 27.8 37.4
Per capita consumption of electricity kwh 672 1,331
Railway (FY08) '000 sq km of area 19.3 27.2
Traffic handled at major port (FY09) Growth (%) 2.2 11.3
Vehicle density per sq.km 22.0 36.0
Tele-density per 100 population Nos 9.0 10.7

GDP growth (FY02-FY08) % 8.0 11.2

Sector GDP (FY02-FY08)
Agriculture % 2.8 9.2
Industry % 9.0 12.7
Services % 9.6 10.7

Per capita income at current prices (FY08) Rs 33,283 45,773

Highways

Education
Gross Enrolment Ratio in
Class I-V (6-11 years) % 115 123
Class VI-VIII (11-14 years) % 78 78
Class I-VIII (6-14 years) % 100 106

Yield of food grains

FY99-00 Yield (Kgs./Hect.) 1704 1186
FY09-10 Yield (Kgs./Hect.) 1798 1581

Population below poverty line (2004-05)

Rural % 28.3 19.1
Urban % 25.7 13
Combined % 27.5 16.8
Source: Gujarat Infrastructure Development Board, CMIE, Socio & Economic Review – Gujarat, CLSA
Asia-Pacific Markets

Key to CLSA investment rankings: BUY = Expected to outperform the local market by >10%; O-PF = Expected to outperform the local market
by 0-10%; U-PF = Expected to underperform the local market by 0-10%; SELL = Expected to underperform the local market by >10%.
Performance is defined as 12-month total return (including dividends).

©2011 CLSA Asia-Pacific Markets (“CLSA”). Note: In the interests of timeliness, this document has not been edited.
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