Hi everybody,
Gujarat has been one of the most progressive states of our country, but while most of us know only know gujarat has an economic powerhouse of India, you would be shocked to know that in 2001, Gujarat’s GDP only grew by 1.1 per cent. Its Agricultural growth was just 1 per cent and one third of Gujarat’s villages were facing water scarcity! But you know what guys??
But In the next 20 years, Gujarat did something so incredible that its GDP has shot up by 2349% (from 92274 crore in fy 2001 to 22,60,000 cr in fy23)
And Today Gujarat is the fourth largest state by GDP in India with such a massive industrial output that, 77% of India’s petroleum exports come from Gujarat, 33% of India’s drug manufacturing capability lies with Gujarat, and it is the largest exporter state in the country, which exports 33% of the total goods of India!!! And the reason why this happened is because of an initiative called the Vibrant Gujarat summit which is attended by legends like Ratan Tata, the Ambani and the Adani!!
So in this episode today, let’s do a deep dive and try to understand,
What was the economic condition of Gujarat before 2003?
What was the strategy of the government that turned Gujarat into such a prosperous?
What was so special about this Vibrant Gujarat summit?
What are the lessons that other states of India need to learn from the rise of Gujarat??
This is a story that dates back to 2003 Gujarat, during this time,the development of Gujarat was slow because of 3 major reason :
The first reason was the terrible state of power in Gujarat!! Back in 2000, the situation was so bad that The Gujarat State Electricity Board, was generating a revenue of 6280 crores and was facing loss of Rs 2,246 crore. So instead of making a 30% profit, the state electricity board was making a loss margin of 35%!!! And interest costs alone were 1227 crores!! On top of that, like many parts of India, Gujarat faced frequent power outages due to load shedding. So a manufacturing unit would have had to halt its production lines multiple times a day merely due to power cuts. This leads to both inefficiency and losses!!
The second reason was the water problem in gujarat!!
To tell you about it, these are five regions of Gujarat, Kutch, north gujarat, central gujarat, saurashtra and south gujarat!! And out of these 5 regions, three regions were water deprived with Saurashtra receiving 16%, North Gujarat 11% and Katchh getting just 2%! And their condition was so bad that between 1950 and 2000, almost 26 years were declared to be drought years. So without water, neither agriculture nor industrial growth was possible!! This was the second problem of Gujarat.
And lastly, in spite of all these challenges even if a company was willing to be set up in Gujarat it was nothing short of a headache!! Even after getting the certificates, the investor needed to approach at least six departments for clearance, including for environment, roads, water and power. This process itself took over six months to sometimes even 1 full year! Now you tell me, if you wanted to set up a plant by investing 500 crores, and you are made to wait for a year just for clearance, would you wait?? No right, you could just move to another state!! This was the pathetic condition of Gujarat!!
In spite of liberalization, it was very difficult to do business!!
And then you had other problems like road and infra connectivity in the state!!
These were the massive challenges that Gujarat faced in 2001, which is a tarnished image due to unfortunate incidents, a terrible power condition, lack of roads and a pathetic clearance system that made it very difficult for businesses to be set up!!!
Then the question is what exactly happened post 2001 that Today Gujarat has become an engine of economic growth!!
Well, This is where Mr. Modi introduced something called the Vibrant Gujarat summit which was a summit for businessmen and investors to convince them to invest in Gujarat!! This summit has been held every 2 years since 2003 and with each passing year, the amount of investment that Gujarat has attracted has been absolutely crazy!!! So if you look at this chart, in 2003, 66,000 crores worth of proposed investment came in, by 2005 it was almost double 1.06 Lakh crores, then quadrupled to 4 lakh crores in 2007 and again almost tripled to 12.34 lakh crores in 2009!!!
And this investment came from both Indian and foreign companies.
For example, in 2003, Reliance invested 10,606 cr in Hazira to setup the manufacturing plant of petrochemicals. In 2007 Aditya Birla invested 3000 cr in for its Chemical & Petrochemicals project and In 2009, Tata motors invested 5050 croresto setup the iconic Nano factory! ( Source is Vibrant Gujarat PDF: PM Modi’s vision for a Modern Gujarat)
So the question is, just because investors and MNCs were invited, did they just invest in Gujarat?? Absolutely not, they invested because with each passing 2 year gap, Gujarat laid some solid foundation that made Gujarat, the best place to invest!!
And these developments can be summarized in 4 major categories,
The first thing they did was execute something called the single window clearance system and this is an iconic representation of how a classic capitalistic govt functions!! Now although it existed since the 1990s, the execution was made far better post 2001. So instead of a business waiting for 6 months to 1 year just to get clearance from the government, the state introduced a centralized online portal where businesses could submit all their applications. This portal was designed to cater to multiple departments simultaneously. So you didn’t have to approach each department separately.
(Source: Book: Business and Politics in India by Christopher Jaffrelot)
And behind the scenes, the Single Window Clearance System ensured that Once an application was submitted, it was routed to the relevant departments for approvals. And best part was that these Departments had to process applications within specific timelines because of which these processes became faster!! And cherry on the cake, was that the state government set up a dedicated support team to assist businesses in the application process. So these teams provided guidance, answered queries, and ensured that businesses had a smooth experience. This is how obsessed the govt was in serving the business that wanted to do business in Gujarat!!
Secondly they implemented something called the Land Banking system, so long story short, whenever an industry has to be set up, a huge chunk of land needs to be acquired from the existing landlords and since these lands are very vast, the number of landlords are very high. So all of them have to be convinced, the negotiation needs to be done and several other formalities have to be done to set up the land for the industries!! This again takes anywhere between a few months to a year to happen.
But in the land banking system,
The govt of Gujarat came out with a simple but Genius strategy!! what the government did was the complete opposite!!
So even if there was no factory to be setup, a land banking entity would acquire the land from the existing landlords and keep it ready!!! So whenever a huge plant or factory has to be set up immediately the land is offered to the company because of which wait times are reduced drastically!!
And after a certain point, the system of land processing became so fast that when Ratan Tata wanted to move his plant from West bengal to another state. He had many offers but he chose Gujarat because Gujarat was able to offer the land quicker than any other state!! So you know what?? The Tata nano deal was wrapped up in just 15 days, (Business and Pokitics book pg 228) and the factory that was set up in Gujarat which provided employment to 6600 people (Vibrant gujarat pdf) and paved the way to the establishment of multiple Auto clusters in Gujarat.
Infact, even recent projects like the Rs 22,000 crore Tata-Airbus, the manufacturing project are coming up in Gujarat instead of Maharashtra.
This is how the government of Gujarat solved 2 major points of investors which were land acquisition and clearance delays!!
The second thing that the government did was fix the water problem of Gujarat and like we saw back in 2000, Gujarat was facing critical water problems!! So the question is How did the government fix it??
SHOW ALL IN MAP
Well as it turns out, Gujarat had one major river Naramada which used to flow in the southern part of Gujarat whereas Saurashtra, Kutch and Northern Gujarat faced shortages because they did not have such a large water body!!
So the government initiated the construction of canals which took water from Narmada to these water scarce regions. This included 3 major projects,
The First project was the Narmada Main Canal which was back then the world’s longest lined irrigation canal of 458 km and because of this canal, today water from Narmada reaches the remotest corners of Kachchh.
The second project was the Sujalam Sufalam Yojana which is a 332 km canal network designed to hydrate North Gujarat and beyond. And because of this canal over 2.2 million hectares of land is now cultivable. And because of this today, a drought prone region has become a thriving agricultural region!!
And lastly for Saurashtra, the govt initiated something called the SAUNI Yojana which aims to fill the 115 dams of the Saurashtra region with excess floodwater of the Sardar Sarovar Dam. This is how the 3 drought prone regions of Gujarat were receiving sufficient amounts of water to not just drink but also for irrigation!!
And this resulted in such an amazing agricultural out that the production of food grains increased from 5.7 Billion tonnes between 2002–2007, to 9.758 Billion tonnes in 2011–12. This is how the face of agriculture was changed in Gujarat!!
https://www.un.org/waterforlifedecade/green_economy_2011/pdf/session_5_technology_cases_india.pdf
Thirdly, the power problem of Gujarat was fixed, long story short, the interest rates with banks were renegotiated, modern technology was installed which reduced transmission losses from 35.27% to 20.13% and more power plants were built to fix the power deficit!! And you know what?? Because of this, The state electricity board of Gujarat posted its first profit of Rs 203 crore in 2005/06. By 2010/11, the net profit was 533 crores.
This is how Gujarat laid the foundations to become an industrial state!! And then came the standard procedures, which are inviting investors and businesses and more importantly, setting up the special economic zones with tax breaks, and less intrusive regulations. So by June 2010, the government of India had given approval to 60 SEZs in Gujarat covering an area of 31,967 hectares. (Ajit, we have the downloaded pdf, pg 228)
But For the state to transform into a global investment destination, the government of Gujarat considered building megaprojects like GIFT city and Dholera Special Investment region.
For those who don’t know, before gift city, if an Indian company wanted to raise capital in foreign currencies, they needed to go to the financial centers like Singapore or London to issue dollar-denominated bonds. This was a tedious and costly process because they first had to comply with the London laws and then they had to pay a premium to be listed there!! Because the costs of transactions, legal compliance, and other operational aspects in London or New York are very high!!
But now, in the GIFT city, India allows companies to conduct international financial transactions even in foreign currencies within India itself. This has reduced the need for businesses to rely on foreign financial centers.
https://images.moneycontrol.com/static-mcnews/2022/12/GIFT-City-In-A-Nutshell.jpg
And you will be stunned to know that, By July 2023, the Total banking transactions at GIFT International Financial Services Centre (IFSC) reached USD 508 billion and the export of services went from 1 million dollars in FY16 to 614 million in FY20! (vibrant gujarat pdf)
The second project is Dholera which is expected to emerge as a “Global Manufacturing and Trading Hub” over the next few years. We will cover this project separately because it is yet another crazy work that India is doing but long story short, this is a smart city with a dedicated airport, very well connected to ports and rail, has single window clearance and most importantly, it has state of the art infrastructure which makes it perfect for industries!!
This is how by starting from the basics with the water and power problem, by fixing the clearance system of the government, by solving the major pain point of land acquisition for giant business, by building mega projects and most importantly, by inviting industrialists and investors to the Vibrant Gujarat summit, Gujarat has become one of the most prosperous states in the country!!!
And this iconic growth story teaches 3 very very important lessons that every state must learn and execute!!
- Always get the basics right before you aim for the sky!! In this case, the govt OF gujarat first laid a solid foundation by fixing the power problem, the water problem, the land acquisition issue and the clearance system before inviting investors to come and invest in Gujarat!!
- When a company is customer obsessed it can change the life of its customers but when a govt is customer obsessed, it can change the life of a civilisation!!! In this case, Gujarat govt’s visionary solutions of land banking and single window clearance attracted Lakhs crores worth investments and that changed the life of an entire generation in Gujarat!!
- And lastly, always remember in the 21st century, the benchmark of great governance is no longer water and power supply but in crafting a future that is equitable, prosperous, and resilient to the challenges of tomorrow. In this case, the govt of Gujarat has gone way ahead after its basic development to build a fintech city and super smart city like dholera to capture the opportunities of the next 3 decades!!!.