A Tale Of Two Models — Gujarat Vs Kerala
What happens to a state which follows the path of unaffordable welfarism, and what happens to one which tenaciously trudges the path of industrialization and growth?
Old-style politics in India could be moving slowly away from one based on identities, alarmist victimhood, and vote-banking, to one which places greater emphasis on alluring welfarism.
It’s the new show in town, set to get louder and flashier, as the subcontinent enters a long 2023 filled with elections, in the run-up to the 2024 general elections.
The late Arun Jaitley used to refer to this as a possible next stage of our political evolution, in which, a marginally-right-of-centre Bharatiya Janata Party (BJP) would be balanced by a (preferably) slightly-left-of-centre coalition.
In policy terms, this right means using the revenue from growth to fund necessary welfare programmes, and left means a tendency to put the welfare cart before the growth horse.
No party in India can go too far right and cut welfare spending to the bone, even if it is the fiscally prudent thing to do, because it wouldn’t last a full term.
In contrast, the left is an electorally viable spectrum, with its extent to the left of the centre, being directly proportional to how far it places the horse before the cart.
In one sense, though, this is still classic leftist appeasement politics, with a difference only that a traditional appeasement of minorities is overshadowed by an appeasement of the underprivileged.
The caste wars are transitioning into class wars since railing against Hindutva now only triggers a fierce counter-consolidation, and it works at the ballot box because India is still very much a developing country. Karl Marx would be glad.
And in its own desi way, this debate about growth horses and welfare carts is set to dominate political campaigns, since the futility of trying to trump India’s civilizational awakening by playing the secularism card (at least openly), is becoming increasingly apparent to all but the most witless of opposition politicians.
Note how rank-leftists like Jignesh Mewani, Kanhaiya Kumar, Medha Patkar and Yogendra Yadav, have conveniently hitched their political fortunes to the Congress wagon. Note how arch-secularist Mamata Banerjee has been reduced to chanting the Chandi Paath, after the BJP finally established itself as the principal opposition in West Bengal.
And also note how Arvind Kejriwal always visits a temple before enticing the electorate with mouth-watering freebies, subsidies, and welfare schemes.
A few exceptions exist in a few large states, like Tamil Nadu, Andhra Pradesh, Kerala and Punjab. But that is only because the BJP has yet to start its ascent on the demographic peaks there; meaning, that it is only a matter of time before opposition parties in these states, too, change their tunes from a deafening, percussive anti-Hindutva beat to a more nuanced welfarist riff.
As a result, it is important that Indians understand the long-term consequences of such electoral choices. One way to do that is to see how Kerala and Gujarat, two drastically different states representing these two poles, have fared, using a series of metrics.
This approach, using government data, is useful in answering the question of the day: what happens to a state which follows the path of unaffordable welfarism, and what happens to one which tenaciously trudges the path of industrialization and growth?
For this exercise, Swarajya has used the most recent data published by the Reserve Bank of India (RBI), in its annual ‘Handbook of statistics of Indian states’.
Kerala was chosen because it has long been praised by the left-of-centre parties as an exemplary product of leftist policies; and because it has consistently ranked first on most social indices for well over half a century now. It has no industry to speak of, no service sector like its neighbours, an ageing population, and it is the classic example of a remittance economy.
Gujarat was chosen because it has modernized, urbanized and industrialized faster than other large states in the past four decades, without a financial or tech capital like Mumbai or Bangalore, and in spite of severe, widespread water shortages, bringing enviable prosperity to all three economic sectors plus world class infrastructure.
The metrics selected reflect the ability of a state to meet the basic needs of its people, its success (or failure) to feed itself, net value addition resulting from its investment policies (a measure of revenue growth, and a reflection of the contrasting approaches adopted by the two states under study), the cost of its welfare policies to the treasury, and, most importantly, its ability to manage an economy.
Most of the data sets span the period 2005-2022. Gujarat is coded in orange on the charts, and Kerala in blue.
While there is no doubt that the co-operative model gifted Gujarat a clear first-mover advantage from the 1950s, what is remarkable is that the state, rather than resting on its oars, has consistently continued to raise milk production levels in this century as well.
In contrast, Kerala has not just failed to adopt this approach (which should have been right up a leftist’s alley), but it has failed to maintain whatever meagre production levels it has.
The data shows that milk production in Kerala has actually declined from 2013.
The usual suspects’ first reaction to the chart above will be that, aha!, Kerala trumps Gujarat on eggs production.
Yes, it does, and it even exports eggs to Gujarat, but that is not the point. The correct inference from this data set is that Gujarat rapidly scaled up output in the first decade of this century, after which, it has maintained a steady growth rate.
In contrast, egg production in Kerala has consistently declined from a peak in 2015. If these trends hold, then Gujarat could cross Kerala in the next 5-7 years.
This is a surprise: who knew that Gujarat produces more fish than Kerala? Not just that, it increases output steadily year after year.
In Kerala, fish production declined from 2005 to 2009, then again from 2011 to 2014, slumped dramatically between 2016 and 2019, only to slump again in 2020 (that last data point can be explained by pandemic restrictions, but not the others).
This is extremely curious, because the fishing community is a politically powerful entity in Kerala. Both Communist and Congress politicians fall over each other trying to tend to the community’s interests, and to portray themselves as the fishermen’s best friend.
Now what would the fishermen of Kerala have to say, when they learn that their sector has been serially mismanaged so badly, for so long, by socialists of various hues, even as the fishermen of Gujarat consistently improve productivity every year?
This is no surprise. Gujarat has added value from the industrial sector at such a pace in the past two decades that it is now in competition with Maharashtra for the top spot. The numbers are staggering.
Those advocating socialism may say that this is an unfair comparison, since Kerala is not an industrialized state. Fair enough, but how will they explain the fact that the value of even these meagre manufacturing levels have declined since 2018?
Installed power capacity
Here, again, the welfarists will argue that the comparison is unfair, that Kerala has not materially increased its capacity to generate electricity because it doesn’t need to. If there is no demand from industry, then where is the need to invest in this sector?
The answer is that this is a tautology and hence gravely flawed: you can’t argue that growth in installed capacity is low because demand is low, and then, in the next breath, argue that industries stay away from Kerala because of lack of power.
This is what Marxism does: it kills logic, and private enterprise.
[Note: a revenue deficit means a difference between net revenue receipt and net revenue expenditure. This is different from a fiscal deficit which is the difference between actual and budgeted incomes.]
Readers are advised to first study the blue line in the chart above; this is welfarism in action. Next, look at the orange Gujarat curve: apart from the three drought years of 2004, 2009 and 2010, when urgent relief spending was required, the state has always striven to maintain a robust revenue surplus.
This is why the judicious management of revenue is such an important metric – a surplus is a state’s war chest which allows it to tide over bad years.
In contrast, the government of Kerala has always lived beyond its means. The situation however started to worsen considerably after 2011, when the Congress party led by Chief Minister Oommen Chandy started upon a path of reckless profligacy. This led to a politically irreversible trend which was worsened by the fiscally imprudent ways of the Marxists who followed from 2016.
And the worst part is that Kerala, unlike industrialized states which add significant value from manufacturing, has no healthy revenue base in the agricultural or services sectors to bank on.
No one said anything because the Congress government in Delhi was following the same arc of spending like there was no tomorrow.
Now, if anyone thought that the dangers of a doubling of the revenue deficit between 2012 and 2019 would have made both the Congress and the Communists see sense, look at the next chart.
Instead of tightening their belts in the face of increasing basic state expenses, and a precarious revenue base, Kerala’s pension bill has only risen to the skies.
Here, the welfarists may argue that since Gujarat’s pension bill too grew in this period, why pick on God’s own country? It is an argument without logical basis for numerous reasons.
First, even though the population of Gujarat as per the 2011 census is 181 per cent more than that of Kerala, and its current GDP is 205 per cent more than Kerala’s, the pension bill of Kerala is 137 per cent more than that of Gujarat’s.
Second, Kerala’s per capita pension expenditure in 2011-22 was Rs 6,917, while that of Gujarat was just Rs 2,787. By that metric, Kerala’s pension bill is 248 per cent more than Gujarat’s.
Third, Gujarat’s pension bill has been declining since 2019.
So, what has this unbridled welfarism (or socialism; appellations are unimportant) gotten Kerala? See the last chart below.
Outstanding Guarantees Of State Governments
(Note: For decades, the RBI has flagged guarantees by state governments as a grave fiscal risk, which, if unchecked, could lead to defaults. It is a key metric for assessing how well the economy of a state is being managed.)
This is perhaps one of the most dangerous metrics of all.
The Kerala government’s desperate need to borrow so heavily to meet expenses, and then to borrow even more to pay off borrowings, has not just created a terrible debt trap, but pushed the state’s ratings into the ground as well. As former state finance minister Thomas Isaac said, Kerala is bankrupt.
In contrast, the Gujarat government has consistently sought to reduce the quantum of its outstanding guarantees every year. This is prudent practice worthy of emulation.
These are but a few metrics which highlight the perils of welfarism; the rest of the RBI data only sharpens the depressing fiscal incompetence and astounding recklessness employed by successive socialist-welfarist governments in Kerala.
Even Bihar, which is the most backward state in the country, hasn’t broken the bank.
The point is that social index ratings don’t matter a fig beyond a point, if the population, demand, consumption, and incomes go up in a state, but milk production goes down. This is specious reasoning which will only draw derisive slow claps.
At least now, zealous votaries of welfarism should stop using Kerala’s literacy figures to counter arguments against their hoary dogmas, or contrasting the levels of hygiene there with the bromide of malnutrition in Gujarat.
It won’t wash, and neither will efforts to put the welfare cart before the growth horse, because decades of data show that this electorally profitable ideology is, in fact, a recipe for an empty treasury, and socio-economic disaster.
Indians would do well to remember the only profit socialism ever earned is at the ballot box.
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