'Gujarat Files': Good governance leads to a debt trap

Revenue deficit for the first time, growing public debt and lacklustre performance by state PSUs take the sheen off the vaunted Gujarat Model

'Gujarat Files': Good governance leads to a debt trap

RK Misra

Statistics are like bikinis. What they reveal is suggestive but what they cover up is crucial, goes a quote by Business Professor Aaron Levenstein.

Gujarat is where BJP has been in power for 27 years with Narendra Modi as chief minister for over 13 of them, who projected it as a model state and used it as a springboard to become the prime Minister in 2014.

The suggestive part is that the cumulative public debt of Gujarat has shot up to Rupees three lakh Crore (Rs 3,00,963 crore) as per the revised estimates of 2020-21, the State Assembly was informed during the current budget session. This is the last budget session of the present government as elections are due in the state later this year.

Gujarat’s cumulative public debt has ballooned to an all time high of Rs 3,20,812 crore for the current 2021-22 and will, it is estimated, shoot up to Rs 3,49,789 crore by the end of the current financial year of 2022-23.The public debt will be Rs 1,05,824 crore more than the total budget of Rs 2,43,965 crores for 2022-23 presented on March 3.

According to published reports of the government’s statement in the assembly under the fiscal responsibility Act, 2005, the state’s estimated public debt is projected to touch an astronomical high of Rs 4,49,810 crore by the end of 2024-25. When the BJP first came to power in Gujarat in 1995, the public debt of the state was around Rs 10,000 crores.

However, the crucial part that finance minister Kanu Desai left unsaid is that the state is staring at a veritable debt trap as it has to pay 61 per cent of this astronomical amount of Rs 3,00,963 crore in the next seven years. This aspect has been brought out by the Comptroller and Auditor General(CAG) in its report on the state’s finances tabled in the Gujarat Assembly. In other words the state will have to repay an estimated Rs 1.87 lakh crores by 2028.

The report also points out that while Gujarat’s Gross State Domestic Product (GSDP) has grown at a Compounded Annual Growth Rate(CAGR) of 9.19 per cent between 2016- 21,the outstanding public debt has grown at a CAGR of 11.49 per cent. “This calls for a need to review debt sustainability of the state”, the CAG said.

The warning of the CAG, however, does not seem to have registered with the finance minister who stated in a reply to a question in the assembly that Gujarat’s public debt which stood at 28.48 per cent of Gross State Domestic product(GSDP) in 2004-05,has fallen to 16.5 per cent as per revised estimates of 2021-22. The total public debt is within the limit of 27.1 per cent of GSDP.

“Our debt is Rs 3 lakh crores but the state’s financial health is good enough to enable us to borrow up to Rs 4.5 lakh crores, if necessary”, the minister said.

The finance minister’s health certificate has not stood up to the audit watchdog’s scrutiny though. The CAG has pointed out that during 2020-21, the state understated its revenue deficit by Rs 10,997.93 crores and would actually stand at Rs 33,525 crores if the items of shortfall in contribution to consolidated sinking fund ,non-discharge of interest liabilities and incorrect classification are factored in.

The accumulated losses of the State Public Sector Undertakings is another sob story. The CAG has put these losses at Rs 30,400 crores and taken note of the fact that the Gujarat government continues to invest in bodies like the Gujarat State Petroleum Corporation and the Road Transport Corporation whose net worth have been completely eroded. According to the CAG, Rs 1000 crores was invested in GSPC and Rs 469 crores in GSRTC whose net worth stood in negative. Gujarat has 97 SPSUs,64 government companies,29 government controlled companies and four statutory corporations.

Interestingly, the rise in Gujarat’s public debt kept loyal company with the rising fortunes of chief minister Narendra Modi who took charge of the state in October 2001,except for one difference. Modi’s fortunes soared while Gujarat’s debts sank deeper by the year.

When Modi assumed power in 2001-02,the actual debt was Rs 45,301 crores and when he left for Delhi in 2014,the CAG put the total debt of the state for 2015-16 at Rs 2,21,090 crores.

Modi’s journey to Delhi riding astride a decisive mandate is largely attributed to successful ‘marketing’ of a development model. The bi-annual Gujarat Global Investors Summits were the cornerstone of this model

Beginning with the first one in 2003 up to the seventh one in 2015 the Gujarat government declared it had signed a total of 51,378 memorandums of Understanding (MOU) worth a total investment of a mind-boggling Rs 84 lakh crores with the 2011 summit alone accounting for Rs 20.83 lakh crores in proposed investment in the state. In the run up to the eighth summit in 2017, the state chief secretary, J.N. Singh claimed an implementation rate of 66 per cent for the past seven editions.

How would it compare when weighed against the fact that the GDP of India for the year 2017-18 was Rs 131.80 lakh Crores? In fact, the figures being trotted out at these summits touched such ludicrous levels that it subsequently stopped quantifying it in rupee terms and later even dropped the word ‘investor” from the summit.

According to the figures published by Gujarat’s own Directorate of Economics and Statistics only about 8 per cent of the Rs 40 trillion of the investments proposed at the summits from 2003 to 2011 have been implemented. Figures show that Maharashtra without any such ‘gloss and glam’ show bagged 30 per cent of India’s total investment between 2000-to 2016 while Gujarat ranked fifth with 4 per cent.

The Department of Industry Policy and Promotion (DIPP) study has brought out that Gujarat’s share in actual cumulative Foreign Direct Investment (FDI) inflows to India between 2000 to 2013, broadly coinciding with Modi rule in Gujarat, was only 4 per cent. Gujarat garnered only Rs 39,000 crores out of the cumulative national FDI of 9.1lakh crores. More significantly Gujarat’s share in the kitty had declined from 3.4 per cent in 2011 to 2.9 per cent in 2012 to 2.4 per cent in 2013.

The benefits to Gujarat accruing from the summits were only a fraction of what it achieved for Modi.

Aided by APCO Worldwide, the US global public affairs and strategic communications consultancy hired to promote the summit, Modi hop, step and jumped from a ‘Hindu Hriday Samrat’ (Hindu heart throb) to development messiah through the hard-hyped ‘Gujarat Model’ to become the Prime Minister in 2014.

(The writer is a columnist and commentator based in Ahmedabad. Views are personal)

(This was first published in National Herald on Sunday)

Views are personal

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