Growth Acceleration and Potential in Gujarat

Abstract

The paper begins by considering the growth experience of Gujarat in 17 sectors compared to the nation during the pre-reform period of 1980-92 and reform period of 1991-2004 identifying areas of strength and weaknesses. It then identifies episodes of high economic growth over 4 and 10 consecutive years in each sector in the state over the last two decades and derives plausibly optimistic growth potential of the state in future. In order to examine the feasibility of such optimistic growth targets, a preliminary attempt is made to estimate traditional sources of economic growth in Gujarat in the neoclassical growth accounting framework for the primary and non-primary sectors in the two sub-periods. Sources of growth acceleration are derived and implications of targeting substantial growth acceleration implied by earlier estimate of optimistic growth potential in the state are examined. In the process, the paper provides first estimates of capital stock, growth of land input, factor shares and total factor productivity growth for Gujarat broadly comparable and consistent with the national level estimates. A simultaneous equations model to identify the prime-movers or drivers of economic growth in Gujarat is also fitted before concluding the paper with suggested strategy and policy changes based on the findings of the study to achieve faster growth in the state.