Economic reforms and development strategy in Gujarat

The Gujarat state government has followed a strategy focussed on industrialisation and urbanisation with an open door policy ever since its inception in 1960. Economic reform measures at the centre with an explicit emphasis on trade and industry considerably benefited Gujarat, making its economic performance outstanding. During the process of economic policy reforms and liberalisation in the 1990s, the constraints and regulation on economic activities by the centre in different segments of the economy got relaxed. States such as Gujarat found more freedom and flexibility to pursue their own socio-economic agenda, particularly since the process of liberalisation seemed to have had a slowing-down effect on the state economy.This paper examines the development strategy followed by Gujarat’s state government in the mid-1990’s. The paper looks at the concepts of economic reforms and liberalisation and their possible impact on the level of economic activity in an economy. The specific instruments used by the State Government of Gujarat to promote economic growth through the private sector are also discussed, and these include:Tax and Cost-Related IncentivesProvision of Infrastructure & Input SuppliesApprovals and Clearances for IndustriesLand Market ReformsThe paper finds that:the 6 sectors that do not show statistically significant acceleration/deceleration in the growth include agriculture, registered manufacturing, electricity, railways, other transport, and storageforestry unregistered manufacturing, construction, trade and hotels, communication, public administration, and other services have experienced significant acceleration in their growth after 1991-92the fishing, mining & quarrying, banking & insurance, and real estate sectors in Gujarat are experiencing a significant deceleration in their growth during the reform periodThe paper concludes by noting that during the initial phase of liberalising the industrial sector by the Centre, Gujarat did not have to make any major changes in its policies. The changes in the economic environment made its strategy and policies followed till that point very relevant and attractive for the growth of the private enterprise in the state. This process has however led to a conflict of desires for the State Government. Within the overall strategy of "growth through private enterprise," the State wanted to achieve high efficiency and productivity growth of resources employed in the state while simultaneously attempting to protect some of the less efficient small and medium enterprises from the global competition with all kinds of subsidies. This confusion in policy decision-making has slowed down the gains made from liberalisation, and the author argues that unless direction is provided from New Delhi, the development of Gujarat cannot get back on track.