Go go Gujarat

As the curtain fell last week on India's most visible business jamboree, the clumsily named biennial Vibrant Gujarat Global Investors Summit, you could be forgiven for experiencing a sense of déjà vu.

As they had two years earlier, investors pledged to sink vast sums--upward of $450 billion, or about one-third of India's GDP--in the western Indian state's soaring economy. As in the past, a parade of India's top businessmen--among them Mukesh Ambani, Anil Ambani, Ratan Tata and Anand Mahindra--lavished praise on Gujarat's progress under Narendra Modi, the state's 60-year-old business-friendly chief minister, and a leading figure in the opposition Bharatiya Janata Party (BJP). And unsurprisingly, going by press reports, Mr. Modi retained his place as India's most polarizing politician: loved and loathed in equal measure.

Gujarat has streamlined and rationalized procedures for land allocation and environmental clearances.

Nine years after Hindu-Muslim riots killed more than 1,000 people, three-quarters of them Muslim, the violence continues to cast a shadow over how Indians talk about Gujarat. Mr. Modi's critics accuse him of either abetting or failing to control the bloodletting in 2002. His supporters say he is a scapegoat for events largely beyond his control.

To be sure, this larger national conversation, at its heart about morality in public life, will not disappear any time soon. (Mr. Modi says he is innocent; a team appointed by the Supreme Court is investigating the charges against him.) But it ought not to obscure another, equally important, question: What can the rest of India learn from Gujarat's economic success?

Think of Gujarat as a slice of East Asia--say Japan in the 1960s or South Korea in the 1980s--set amidst the dust and drama of the Indian subcontinent. For nearly a decade now, the state on the edge of the Arabian Sea has averaged double-digit growth rates, the only large Indian state to do so. With only 5% of India's 1.1 billion people, Gujarat accounts for almost one-third of the country's stock-market capitalization, more than one-fifth of its exports, and about one-sixth of its industrial production. Per-capita electricity consumption in the state is about twice the national average.

Twenty years ago, before the advent of economic reforms, the average Gujarati was about four-fifths as rich as the average resident of Maharashtra, the neighboring state that has long been India's industrial heartland. In 2008, according to the Reserve Bank of India's most recent figures, per-capita incomes in Gujarat and Maharashtra were virtually identical-- just over $1,000 in nominal terms--despite the latter housing Mumbai, the country's business capital.

Under Mr. Modi, Gujarat has acquired a reputation for aggressively wooing both domestic and foreign investors. In 2008, it snagged the Tata Group's flagship Nano car project after political unrest forced the company to flee Communist-ruled West Bengal. The state houses India's two largest oil refineries, and one of the world's largest automated coal terminals. Its roads, ports and power plants are among the best in the country. Among its prominent foreign investors: General Motors, Mitsubishi Heavy Industries and Canada's Bombardier.

What explains this superior performance? In a nutshell: a fortuitous mix of geography, culture and leadership. Gujarat, which has India's longest coastline, has been a trading culture for centuries. It also houses one of India's most entrepreneurial populations.

In Gujarat, wealth tends to be respected rather than merely envied. The global Gujarati diaspora--with its fingers in everything from real estate in east Africa to diamond trading in Belgium to motels and newspaper kiosks in the United States--fertilizes the state with know-how, ideas and international contacts.

Mr. Modi's supporters tend to exaggerate his contribution to the state's prosperity. Gujarat's culture and geography set it on the path to faster development as soon as New Delhi loosened the dead hand of the federal government with reforms in 1991. Nonetheless--apart from the major blemish of the 2002 riots--the chief minister can be proud of his record of governance.

Unlike much of India, Gujarat has streamlined and rationalized procedures for land allocation and environmental clearances. For instance, the Tata Nano project took just three days to get the green light in 2008. Foreign investors can use a web portal to track paperwork and make complaints.

In the business community, the famously frugal Mr. Modi has earned a reputation for not only being personally honest, but also for setting the tone for his administration. He is also perhaps the only major Indian politician--in a political culture built on government handouts--to espouse the gospel of small government. His motto: "minimum government and maximum governance."

The Gujarat council of ministers has just 20 members, remarkable for a large state. Unlike many Indian politicians, Mr. Modi, a bachelor, has no loutish offspring who expect to inherit political power by right. By appealing to pan-Gujarati pride, he has largely transcended the caste equations that marked Gujarat politics in the 1980s and still define elections--and the flawed policies that flow from them--in much of India.

In the end, most states can't hope to replicate, at least not overnight, Gujarat's entrepreneurial culture and sensible attitudes toward wealth creation. But other elements of the state's model--strong leadership, anti-corruption efforts, a streamlined bureaucracy and a welcoming attitude toward business--can travel without damage across its borders. And Mr. Modi, Gujarat's longest-serving chief minister, is proof that good governance can also be good politics. The sooner more states figure this out, the better it will be for India.

Sadanand Dhume is a resident fellow at AEI.

Photo Credit: Nikhil Kulkarni

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