Migrants’ exodus can hurt Gujarat’s economy
Gujarat has a large number of labour-intensive industries and these have unleashed the now-famous entrepreneurship and contributed to enhanced well-being in the state. A lot of these industries will lose their competitiveness if the labour costs were to rise significantly.
The “Gujarat Model” of economic development was one of the key factors behind the Narendra Modi-led Bharatiya Janata Party’s stellar victory in the 2014 elections. Ironical as it may sound, one of the key pillars of this model is under threat from social contradictions within the state. After a migrant worker was accused of sexually assaulting a minor, an atmosphere of hostility has been created against the migrant workers, especially those from the states of Uttar Pradesh and Bihar, in what is one of India’s most industrialised states. This migrant workforce has played a key role in furthering Gujarat’s economic growth. Two sets of statistics can be given to prove this point.
The average non-farm rural wage in Gujarat in 2017-18 was 10% less than the all-India average. In fact, the only major states (among the ones for which data is available), which had a lower average non-farm wage than Gujarat were Madhya Pradesh, Bihar and Odisha. Non-farm rural wages are a good proxy for urban demand for labour, which, logically speaking, should be much higher in Gujarat, given its higher levels of industrialisation. What explains this discrepancy?
Large inflow of migrants from states such as Bihar and Uttar Pradesh has allowed the Gujarati entrepreneurs to keep wages down. The 2016-17 Economic Survey gave a list of top 30 interstate migration routes listing inflow and outflow states. Gujarat had the second-highest share among states — Delhi was the first — which figured in the inflow list. The corresponding outflow states were Uttar Pradesh, Bihar, Maharashtra, Rajasthan and Madhya Pradesh.
Gujarat boasts of housing some of India’s most state-of-the-art industries such as petrochemicals. However, the state also has a large number of labour-intensive industries such as textiles, jewellery and ceramics. These are the industries that have unleashed the now-famous Gujarati entrepreneurship and contributed to enhanced well-being in the state.
What is also true is the fact that a lot of these industries will lose their competitiveness if the labour costs were to rise significantly. This is exactly what will happen if the migrant workforce in the state were forced to leave. Should this happen now, it will be a third disruption for the Gujarati small and medium industry after the shocks from demonetisation and the Goods and Services Tax. The attempt to whip up hostility against migrant workers in Gujarat is a classic case of bad politics and bad economics.