The other day, I read Mihir Sharma’s recent column on crony capitalism, Thy hands, great oligarchs. “The takeover of India’s politics by its oligarchs is almost complete”, began Mihir, and once he picked up speed everyone from the Ambanis to the Tatas to the Rangarajans of the world – everyone except Manmohan – had come under his rampaging three-wheeler. There they lay splattered on the road, rubbing their bloodied elbows, exercising their ankles. Nothing wrong in it – much of it was probably justifiable. But then, quite out of the blue, the focus shifted to Mihir’s bête noire, the one and only Narendra Modi.

“After all”, said Mihir, “the big guys help him fix his numbers – all, yes all of Gujarat’s incremental manufacturing growth under Mr Modi has come from two ultra-mega refineries, owned by Essar and by Reliance. Together they employ perhaps 3,500 people. That’s it, the Gujarat manufacturing miracle.”

This was a devastating charge, made more acute by the nonchalant, data-less manner in which it was uttered. Only smug Nobel-winning economists have the sacrosanct right to do this – make a claim without backing it up with numbers, confident of being rewarded Vice Chancellorships later. Right man, wrong Cambridge, perhaps?

Indeed, “That’s it, the Gujarat manufacturing miracle!” is the kind of sentence that obliges a reader to use italics and exclamations where none exist. Strange then to find it go unchallenged, especially by those who believe Gujarat’s achievements under Modi are creditable.

So this Gujarat story – is it hot air or Helium?

I decided to find out.

The incremental growth that Mihir mentions is described as the quantum of growth – positive or negative – relative to a base year. If, say, the Gross Domestic Product or GDP of Gujarat in 2004 was Rs 200,000 crore, which then jumped to Rs 220,000 crore in 2005, the incremental GDP growth would be Rs 20,000 crore or 10%. Now the Manufacturing sector, it is well known, plays an important role in Gujarat’s development – its contribution to the state GDP has consistently been around 30% over the past decade. The table below gives the figures for the Incremental Manufacturing Growth – hereafter called IMG – for Gujarat for the last 7 years.

 

 

1. IMG: Incremental Manufacturing Growth

2. All GDP figures in Rs Crore and at constant 2004-05 prices.

3. GDP figures before 2004-05 have not been included as the base year considered is 2004-05. They are however available from the Planning Commission.

4. GDP at constant prices or Real GDP – that factors in inflation – has been used as it is considered a better indicator of economic progress than GDP at current prices, or Nominal GDP.

5. The GDP figures for Gujarat for the year 2012-13 are not available at the Planning Commission website.

As is apparent, IMG fluctuates from year to year. While it was Rs 10,240 crore in 2005-06, it shot up to Rs 20,944 crore in 2009-10, only to come down to Rs 4,547 crore in 2011-12. The seven-year IMG totals to Rs 57,078 crore. What Mihir is saying, is that this amount is entirely the contribution of Reliance and Essar refineries. He goes back even further than 2005-06 – to when Narendra Modi took over the reins of Gujarat (“Under Mr Modi”) – but it is prudent to deal with figures that are of 2005-06 and later, especially as the Essar refinery became operational only in 2006.

Quick, back-of-the-envelope calculations suggest that Mihir is quite correct in his “All, yes all” assertion. Income Approach factors like Depreciation (traditionally high for refineries), Sales and Service Tax, Establishment Expenses, Net Interest, Corporate Profit, and Wage Spend, once added up, do corroborate the fact that “GDP, Refining”, i.e. the contribution of Reliance and Essar refineries, matches Gujarat’s IMG. The numbers might not tally year on year but when totalled over the period in question they are broadly comparable.

Now for the other. The “That’s it, the Gujarat manufacturing miracle!” claim. Labelling Gujarat’s IMG as GDP Refining, let us look at what happens to Gujarat’s Manufacturing GDP if one were to remove the contribution from Reliance and Essar refineries altogether. In other words, how does Incremental Manufacturing Growth fare in such a circumstance?

 

All figures in Rs Crore

At first glance, a seven-year IMG totalling Rs 52,531 crore – without Reliance or Essar chipping in – is impressive. But how does this stack up with the other manufacturing powerhouses of India? For a comparison, the table below shows the incremental manufacturing growth of five of India’s largest economies: Maharashtra, Uttar Pradesh, Tamil Nadu, Andhra Pradesh, and Karnataka.

 

All GDP figures in Rs Crore and at constant 2004-05 prices.

 As can be seen, the IMG figures of Gujarat without contribution from ultra-mega refineries are second only to Maharashtra, a state whose GDP has for years been double that of Gujarat. But if one looks at the IMG for a six year period starting 2006-07, Gujarat trumps even Maharashtra by as much as Rs 3,367 crore. The table below shows how this translates into GDP per capita.

 

 GDP figures are of 2011-12 at constant prices (2004-05)

Population according to 2011 Census

Finally, here are the Compounded Annual Growth Rates or CAGR for the seven year period for which incremental manufacturing growth was calculated:

 

 CAGR is calculated according to the formula: (ending value/beginning value)^{(1/n years)} – 1

 

And so here’s a state that manages to achieve the highest CAGR, the second-highest GDP per capita, the second-highest IMG – this without any help whatsoever from two of the world’s largest refineries with a combined utilised capacity of 88.5 million metric tonnes of crude contributing a quarter of Gujarat’s Manufacturing GDP – well, is it creditable?

No.

Gujarat has always been developed; Gujaratis have always been enterprising.

We forget: in our country – where there are more foundation stones per square yard than tombstones – it is as much a miracle to sustain economic progress as it is to generate it. In 2008-09, the year of the Global Financial Crisis, when India’s three largest economies – Maharashtra, Uttar Pradesh, and Tamil Nadu – showed a negative IMG, Gujarat’s IMG was Rs 5,707 crore – without any contribution from Reliance or Essar. Yes, yes, all that is fine, but is it creditable?

Umm, no.

 

Addendum: There is some confusion regarding these numbers in some readers’ minds. The above calculation was done believing stringently the assertion that “All, yes all of Gujarat’s incremental manufacturing growth under Mr Modi has come from two ultra mega refineries”.

1. “All, yes all” means entire amount.

2. “Has come from” means that this amount has been contributed by the “ultra-mega refineries”.

According to the author, the statement does not say that all of Gujarat’s IMG is the IMG of Refining. It says that the entire amount that is Gujarat’s IMG comes from refining. This is why the IMG of Gujarat was relabelled as GDP, Refining – meaning that this “amount” is because of the value added by refining for that particular year. As stated earlier, the exact amounts are not important – they could be more or less than what is stated – as the belief that All of Gujarat’s IMG has been because of value added by Refining.

The author has since discovered – with some difficulty as there is a pay-wall – the original article on which Mihir based this assertion. It was published last year in EPW: “Have Gujarat and Bihar Outperformed the Rest of India? A Statistical Note, Economic and Political Weekly (EPW) September 28, 2013 Vol XLXIII no 39.” The article publishes a chart that gives Petroleum Industry’s % share of Gujarat’s Manufacturing GDP (see Table below). Based on these percentages one can calculate the:

1. GDP, Refining – listed below as GDP, Refining (EPW)

2. IMG Refining (EPW)

3. GDP Manufacturing without GDP Refining (EPW)

4. IMG Gujarat without GDP Refining (EPW)

 

 

For the given period, we find:

IMG Gujarat totals to 57,078 cr

IMG Refining (EPW) totals to 13,327

IMG Gujarat without GDP Refining (EPW) totals to 43,751

If one were to believe EPW data, it becomes clear that the statement: “All, yes all of Gujarat’s incremental manufacturing growth under Mr Modi has come from two ultra mega refineries” no longer holds true.

Furthermore, comparing the IMG of Gujarat without GDP Refining (EPW), with other states, one finds that Gujarat’s CAGR, of 9.56%, is still the best among the 5 economies and its GDP per capita, of 61,484, is the second-best. It’s total IMG, 43,571 crores, has slipped marginally behind that of Tamil Nadu, 45,083 crores, but that could be because the % share of 2010-11 and 2011-12 have been extrapolated to 25% as they were not provided by EPW (correspondingly, these %ages could also be higher than 25% in which case Tamil Nadu would be second to Maharashtra and ahead of Gujarat as it is shown presently)