Modi Won't Create a Second Miracle in India

Indian election front-runner Narendra Modi hasn't won three successive elections in Gujarat because of the state's industrial prowess, but because of its agricultural growth.
The colors in Gujarat are vibrant. The investment not so much. Photographer: Adeel Halim/Bloomberg

With just two weeks to go until poll results are announced in India, local stock markets have soared. Investors are giddy at the prospect that Gujarat's Chief Minister Narendra Modi will lead the opposition Bharatiya Janata Party to a sweeping victory, hoping he can revive growth rates that have dipped below 5 percent a year, half of what they used to be. Under Modi, Gujarat's gross domestic product growth has consistently exceeded the national average: He's hailed as a proven, pro-business achiever.

There are two problems with this overweening optimism. First, the so-called Gujarat Miracle is somewhat overhyped. Although healthy, the state's GDP growth has not exceeded that of other top industrial states like Maharashtra. (The fastest growth has been recorded by poor, backward states like Bihar and Uttarakhand, which are playing catch-up.) Gujarat's social indicators have never been good, which is why a committee on state development levels headed by central bank Governor Raghuram Rajan ranked Gujarat 12th out of India's 28 states.

Modi is famed for his "Vibrant Gujarat" summits with Indian and foreign investors, during which memorandums of understanding are signed for huge investments. Yet this is mostly theater: The rate of conversion of memorandums into actual investments is just 8.5 percent.

This underscores the second misconception about Modi. He hasn't won three successive elections in Gujarat because of the state's industrial prowess, but because of its agricultural growth.

Agricultural experts Ashok Gulati and Tushaar Shah estimate that Gujarat has averaged between 9 percent and 10 percent annual growth in agriculture since Modi took over. It's true that their claim has been challenged by other experts. Much of Gujarat is semi-arid and highly dependent on the monsoon, so crop production can soar or collapse by 20 percent to 30 percent depending on the rains. By choosing the appropriate starting and ending points, one can show very high or quite modest growth numbers.

Still, Yogendra Alagh, a top economist, notes that the world over, even 4 percent sustained growth in agriculture is rare. Because acreage tends to be fixed, almost all gains have to come from higher productivity. Two years ago, Alagh estimated the true growth trend in Gujarat's agriculture at a still-high 6 percent.

As in the rest of India, almost 70 percent of Gujarat's population still lives in the countryside, with most engaged in farming. This is Modi's true base -- not the urban yuppies whom the news media has tagged as his core supporters. Big industrialists hail Modi for his industry-friendly instincts and fast clearances. Peasant farmers have kept him in office.

Modi himself has focused intently on the agricultural sector. He's tripled the number of check dams -- minor earthworks to trap rainwater -- in the state. He's improved the supply of electricity to enable more widespread, pumped irrigation. He has also steadily expanded the canal network harnessing waters from the Sardar Sarovar Dam.

Most of India's states give out free, unmetered electricity to farmers to win their votes. One consequence is that many state electricity corporations are bust, and cannot supply reliable power or invest in additional capacity. In Gujarat, Modi instead decided to install meters and charge farmers. His Jyotigram project provided two electricity feeders to every village, a low-voltage feeder providing 24/7 electricity to households, and a high-voltage feeder providing electricity for tubewell pumping at fixed hours.

A steady supply of electricity has vastly improved the quality of rural life, and spurred agricultural growth and diversification into high-value horticulture. Previously, severe voltage fluctuations burned out transformers and pumps, but Modi has ensured quality electricity. All three of Gujarat's state electricity corporations are profitable, and the state has more power than it needs.

Modi has encouraged drip irrigation with subsidies and farmer outreach. The cultivation of genetically modified Bt cotton has grown explosively, making Gujarat India's top producer and exporter. The state has consolidated its position as a top dairy producer. Agricultural prices have shot up in the last decade, partly because world prices zoomed after 2007. The net result has been an exceptionally buoyant agriculture sector that is better insulated from droughts (though by no means drought-proofed).

If Modi becomes prime minister, can he replicate all over India what he has done in Gujarat? Not a chance. Agriculture and irrigation are controlled by state governments. New Delhi cannot order any state to reform its electricity corporations, charge farmers for power or build check dams. The crucial rural functionary in India is the district collector, who takes his orders from his chief minister, not from New Delhi.

However skilled Modi may or may not be, the notion that he can somehow transform India into an expanded version of Gujarat is a fantasy. At best he can point to the state as a model for other chief ministers to emulate. Leading by example is a slow and uncertain process, however -- in India no less than anywhere else.

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