WSJ on Gujarat - A Glimpse at India, Minus the Red Tape
By GEETA ANAND And AMOL SHARMA
AHMEDABAD, India—Western India's Gujarat state has transformed itself into one of the country's economic and export engines by presenting an alternative to the red tape and widespread corruption that have stymied big projects elsewhere in the country, turning it into a springboard for the apparent national political ambitions of its controversial leader.
Investors credit Gujarat Chief Minister Narendra Modi, speaking Wednesday at a business summit, with building a pro-business state government.
Under the direction of Chief Minister Narendra Modi, Gujarat has tackled several problems that often frustrate both foreign and domestic businesses here. Investors characterize Gujarat's civil service as a disciplined force that approves land purchases and environmental permits quickly. The state invests heavily in modern road and power infrastructure. It has set up a Web portal that lets foreign investors track their government requests and complain about delays.
"Our progress was not delayed by even a single day by the government," says Asutosh Shah, managing director of Duravit India Pvt. Ltd., a unit of Germany's Duravit AG, which began making ceramic toilets and sinks here in September. "It was a 100% corruption-free process. You have to experience it to believe it."
Gujarat has India's two largest oil refineries and plants set up by global names such as General Motors Co. and Mitsubishi Heavy Industries Ltd. It has averaged more than 11% economic growth in recent years, well outpacing the national rate. It accounts for 5% of India's 1.2 billion people but 22% of the country's exports.
Gujarat's approach—mirrored in a handful of other business-friendly states such as Tamil Nadu—offers one model for how India can fulfill its economic potential in the next decade and pave the way for hundreds of millions of poor Indians to move from subsistence living to an industrialized economy that will be a potent rival to China's.
"To me, good governance means minimum government and maximum governance," Mr. Modi said at Gujarat's biennial investment summit this week. Invitations to the event went to people from all of India's 28 states. The event's 10,000 attendees included Indian industrialists Ratan Tata andMukesh Ambani, delegates from Indian states and government officials from more than 70 countries.
A power project in Surat, Gujarat.
Mr. Modi, 60 years old, became chief minister, the state's top executive office, in 2001. The year before, Gujarat's economic output shrank by almost 5%.
His turnaround of the state's economic fortunes has come amid controversy. In February 2002, 58 Hindu pilgrims died in a mysterious fire aboard the train carrying them home from a holy site. Hindus believed Muslims were behind the fire. The incident sparked a backlash by Hindu mobs against Muslims. A spiral of sectarian killing left more than 1,000 people dead.
Mr. Modi's fiercest critics believe he encouraged or at least countenanced the anti-Muslim violence through instructions to police to stand down and allow Hindu fundamentalists to carry out attacks. These allegations are still under investigation by a special committee appointed by India's Supreme Court. Mr. Modi, who declined repeated interview requests, has vigorously insisted he had no role in fomenting the riots.
Others say his intense focus on attracting big business hasn't benefited ordinary Gujaratis enough for the state to be considered a positive example. "He's consolidated his power by delivering a dream wish list to business. But there's a point at which governments have a responsibility to constituents other than business," said Mira Kamdar, a senior fellow at the New York-based World Policy Institute who is based in Paris.
Gujarat has made progress in some human-development areas under Mr. Modi, but like the rest of India is still struggling to overcome many poverty-linked problems. According to India's national family health survey in 2006, 41.1% of children under three years of age in Gujarat were underweight, virtually unchanged from the 1999 survey and slightly higher than the national average of 40.4%. More recent figures weren't available.
Still, Mr. Modi's performance in delivering economic growth and attracting development has put the national government on the defensive. Mr. Modi's BJP, a Hindu nationalist party, is the main opposition to the Congress party that leads the coalition government in New Delhi.
When Rahul Gandhi, heir to the Gandhi-Nehru dynasty and a leading candidate to be the next Congress prime minister, visited Gujarat in late November to speak to college students, he responded to praise of Gujarat's economic record by comparing Mr. Modi to China's Mao Zedong. "Many evil leaders have done great development work," local news reports cited him as saying. Students believed it was an apparent reference to the 2002 violence.
Questions about that time could temper Mr. Modi's prospects of winning a high-profile national office based on Gujarat's economic record, some observers say. "Modi cannot be a statesman who would command respect from all sections of society," said political analyst Chintamani Mahapatra at New Delhi's Jawaharlal Nehru University.
Others say Mr. Modi's repeated re-election to office proves that the electorate has moved beyond the issues of his past and is giving him credit for Gujarat's development.
Gujarat's 1,000-mile coastline—the longest in India—has made it the leading entry port for crude oil and heavy-industry imports. Mr. Modi's regime has further encouraged investment. In 2009, Gujarat set up "special investment regions" where the government reserves swaths of land for industries like petrochemicals or textiles and then pays for the infrastructure to be built there.
Among the biggest such projects is in Dholera, a port south of the capital of Ahmedabad, where the state hopes to attract $20 billion in investments to develop a center for biotechnology, software development and light manufacturing in coming years.The state has plans to open an international airport nearby and add high-speed rail service.
Canada's Bombardier Inc., which won a €500 million ($650 million) contract to manufacture coaches for New Delhi's new metro train network, located its production facility in an industrial park in Gujarat after scouting several options.
"We were looking at a very rapid rollout and wanted a government system that would allow for no roadblocks," said Rajeev Jyoti, managing director of Bombardier's India transportation subsidiary. After contacting Gujarat in August 2007, Bombardier got a 50-acre plot of land within weeks and set up its entire plant within 15 months, one of the fastest rollouts in the company's history, Mr. Jyoti said.
In some sectors, Gujarat is more welcoming of foreign firms than the central government. The state is attracting international solar-power companies partly because its subsidy regime allows power generators to purchase their solar panels from foreign manufacturers; India's multibillion-dollar national solar-power subsidy program deters foreign participation.
Gujarat's investment in an extensive natural-gas pipeline is what initially persuaded Duravit, the German ceramics maker, to set up manufacturing for its Indian subsidiary here, says Mr. Shah, the unit's managing director. Natural gas is required in the production of ceramics.
In 2009, Mr. Shah settled on Gujarat and began identifying possible sites. He homed in on 41 acres of land zoned for agricultural uses about 45 miles from Ahmedabad, Gujarat's largest city. The land was owned by 21 families, requiring signatures of 130 people to complete the sale. The process of signing the documents and registering the sale took just three weeks, largely because of the land-registration department's professionalism, he says.
Write to Geeta Anand at geeta.anand@wsj.com and Amol Sharma at amol.sharma@wsj.com
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