Wednesday, August 13, 2014

Gujarat's growth story: Per annum net value added 22%, job generation 3%, tax collection 3%, R&D 1%

By Rajiv Shah
In one of the most significant critiques in the recent past, Gujarat’s well-known industry consultant Sunil R Parekh has said that though Gujarat’s industries may have grown faster than most states, this has failed create matching jobs, generate enough taxes for coffers, and provide safe environment. Worse, he finds Gujarat’s performance in the area of innovations discouraging. Despite 17 per cent of industrial output of India, in patent filing, Gujarat accounted for less than 1 per cent of national filings; “Maharashtra, Delhi, and Tamil Nadu, together contribute 60 per cent of national filings.”
In his well-research paper, “Some Facets of Industrialization in Gujarat”, which is part of the new book, “Growth or Development: Which Way Is Gujarat Going?”, Parekh says, the fixed capital in Gujarat “went up from Rs 120 crore to an impressive Rs 2,40,000 crore, registering a compound annual growth rate (CAGR) of 22 per cent.” Of this, he adds, “Rs 2,40,000 crore fixed capital, the last decade alone accounted for Rs 1,74,000 crore, a surge in growth as high as 72.5 per cent over the earlier four decades.”
While “this speaks volumes for the state emerging as one of the choicest locations for investors”, and the “period 2000-10 could be considered as most significant in terms of the flow of investment to industry”, Parekh points out, “Industrial employment has grown from 3.5 lakh to 11.5 lakh—a CAGR of just 3 per cent in the same year period. In absolute numbers, the state witnessed new job opportunities of 4,70,353 during the first four decades as against 3,36,355 in the last decade”, which “does not represent a significant figure.”
Saying that this has happening because “more industries in Gujarat have now become technology-driven with the introduction of automation”, and also because “excess labour has been laid off in several industries and sectors”, Parekh adds, Gujarat’s “gross output has gone up from Rs 365 crore to Rs 6,42,000 crore, registering a CAGR of 22 per cent. The last decade alone accounted for a share of over 81 per cent. The reasons for this high growth could be the emphasis placed on the manufacturing sector by the policymakers”.
Value added: Different sectors
Parekh suggests, the quality of industrialization also shows things are going: “Out of a total annual output of Rs 6,42,000 crore in 2009–10, the petrochemical industry accounted for the highest output of Rs 2,20,000 crore (34 per cent) followed by chemicals with Rs 96,000 crore (15 per cent), basic metals, food and beverages, textiles, and other important sectors. These five sectors together contribute about 69 per cent of the state’s total industrial output.”
He adds, “If machinery, fabricated metals, pharmaceuticals, metallic and non-metallic minerals, plastic, and electricity are included, these 11 sectors contribute 86 per cent of industrial output. Petrochemicals and chemicals together account for 50 per cent of the output, which once upon a time constituted the dominating sector, and has now become the mainstay of Gujarat’s industrial scene, replacing textiles.”
The type of industries that have come has had a heavy toll on environment, Parekh suggests. According to Parekh, “Though Gujarat enforces systems like common effluent treatment plants (CETPs), and propagates clean technology and clean energy, it has a long way to go in controlling industrial pollution in the state. Gujarat has the largest number of CETPs (18) in India (obviously because it has the largest share of polluting industries), and two more are being added—the combined capacity of all these plants is only 211 million litres per day (MLD) with a membership of only 3,606 factories.”
VAT to industrial output ratio
Indicating the inadequacy, Parekh says, “Gujarat has over 2,50,000 functioning factories across the state. It produces all categories of the most hazardous industrial products. There is a need to move from end of the pipeline solutions (EOP) to cleaner technologies. However, the path to this goal appears very bumpy and uncertain. In recent years, larger industries have started to embrace cleaner technologies, particularly in new investments. Micro, small, and medium enterprises (MSMEs), however, continue with the EOP solutions.”
Coming to value added tax (VAT), Parekh says, “though Gujarat is one of the most industrialized states in India, the VAT collected to annual survey of industries (ASI) output ratio is one of the lowest in the state. In fact, at 3 per cent, it is the lowest among the six major states in India. In spite of Gujarat contributing 17 per cent of the industrial output in the country, its ratio of VAT to output is only 3 per cent, one-third that of Maharashtra.”
Finding this amusing, Parekh says, this has happened despite the fact that “Gujarat has one of the highest rates of VAT, 14 per cent as against 12.5 per cent in other states.” Giving reasons, he believes this is because “the state government is not keen to tax medium and large industries, as it is more interested in giving them subsidies as an incentive to invest in the state.” Also, “industrial growth in Gujarat has poor value added, as in many cases it produces raw material for outside industries rather than undertake value addition within the state.”

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