Vibrant Gujarat? State industries' net value added slips into the negative for two consecutive years

By Rajiv Shah

Gujarat industry’s net value added (NVA), which is calculated by deducting all the depreciation charges – including consumption of fixed capital such as on raw materials, power and other inputs – has suddenly gone into the minus, surprising many an economist. The latest Annual Survey of Industries (ASI) data, put out in the first week of this month, suggest that NVA, which economists consider as “indicating the actual investment potential of a sector of economy”, has gone into the negative for two consecutive years continuously. It was minus (--) 0.64 per cent in 2010-11 and, again, minus (--) 1.72 per cent in 2011-12. The ASI is the principal source of data on various aspects of registered industrial establishments. They are part of the annual exercise by the Government of India’s Central Statistics Office’s industrial statistics wing.
The fresh data showing poor investment potential of Gujarat in the industrial sector suggests that, after a drastic rise in the recent past, the sector may be experiencing stagnation, though economists would like to wait to reach such a conclusion. Yet, the fact is, the negative growth of the NVA of Gujarat industries in 2011-12 stands in sharp contrast to 18.69 per cent rise in the NVA of the country as a whole, with several states’ NVA rising by a whopping 152.47 per cent (Karnataka), 127.92 per cent (Rajasthan), Punjab (61.86 per cent), Bihar (27.83 per cent), and Haryana (20.96 per cent). In fact, Gujarat was one of the five states whose NVA went into minus in 2011-12, other states being Uttar Pradesh (--16.30 per cent), Jharkhand (--13.91 per cent), West Bengal (--2.29 per cent), and Assam (1.88 per cent).
Gujarat’s poor showing in NVA has come even as the state’s overall rank in the total amount of net value added in rupee terms slipped from No 2 in the country to No 3. Maharashtra has consistently maintained its No 1 position. In 2011-12, Maharashtra’s NVA was Rs 1.54 lakh crore, and at Rs 1.49 lakh crore in 2010-11. In 2011-12, Karnataka eased out Gujarat as No 2. In 2010-11, Gujarat’s NVA stood at Rs 89,447 crore, while No 3 was Karnataka at Rs 71,993 crore. But in 2011-12, Karnataka snatched away Gujarat’s No 2 position by registering NVA of Rs 1.03 lakh crore. Gujarat, which went into the negative, on the other hand, registered an NVA of Rs 87,909 crore, going into the negative.
Significantly, Gujarat’s NVA stagnated for two consecutive years after its industries registered a very healthy rise in NVA of 49.01 per cent in 2009-10. The rise came about following negative NVA in the previous year, of – 2.72 per cent in 2008-09. Even then, it is a fact that the ASI figures 1998-99 onwards suggest that Gujarat’s NVA registered an impressive growth of 14.5 per cent per annum till 2011-12. Prof Indira Hirway, a senior economist, told Counterview, “The data suggest that the investment climate might have suffered a setback over the two years in question. However, good investment cannot always be a continuous process each year. It has its own ups and downs. Hence, it is always advisable to calculate NVA taking a long-term period to know the exact situation.”
There is a distinct view among Gujarat-based economic experts that the state’s own home-grown industry has not been growing particularly consistently over the last few years. This view has been openly expressed by senior economic consultant Sunil Parikh in different open forums. In its drive to attract outside investment through bi-annual state-sponsored Vibrant Gujarat summits, Parikh believes, the investors from outside the state have been able to take away a bigger part of the cake, while the state’s own industries showed a degree of stagnation. There is, however, no word or analysis from the government over the tangled issue, as it would be politically dangerous to trigger its nuances at time when Gujarat chief minister Narendra Modi is BJP’s Prime Ministerial candidate in ensuring Lok Sabha polls.