Untilthe1990s,Indianpolicymakerssworeby self-reliance and public sector dominance. All major ports were owned and operated by the government. India’s share of world tradefell from 2.2 percent at independence in 1947to 0.4 percent in the mid-1980s.
This wasregarded as an achievement, not a tragedy, by socialist planners at the time. Not surprising-ly, these planners failed to pay enough atten-tion to developing ports: after all, self-suffi-ciencyshould,logically,leadtotheabolitionof allports.So,India’sportsinthe1980ssufferedfrom obsolete technology, low loading rates,chronic congestion and delays, and poor con-nectivitywiththehinterland.
However, one state, Gujarat, decided to gointheoppositedirectionandreapedenormouseconomicsuccessasaresult.Intheearly1980s,thestatedecidedtoharnessportsandinterna-tional trade as vehicles for economic develop-ment.ItcreatedtheGujaratMaritimeBoardin1982toupgradeandexpanditsports.Overthenext two decades, the GMB planned the inte-grateddevelopmentofseveralnewports,alongwiththerequiredroadandraillinks.Itexperi-mented with several forms of privatization,from privatizing port services to facilitatingprivate jetties, and from joint venture ports tocompletelyprivateports.Thestate’sPortPolicy Statement of December 1995 spelled out anexplicit strategy of port-led development,including the creation of 10 completely new,world-class ports, in which private-sector par-ticipationwouldplayalargerole.The initial tentative steps in the 1980s didnot yield dramatic results. India’s industriallicensing policy at the time empowered thecentral government to decide on the locationofallindustries,andsoindustrialistscouldnotmovetobusiness-friendlystatesoftheirchoice(likeGujarat)eveniftheywantedto.However,India’s economic reforms in 1991 virtually abolishedindustriallicensingandmadeitpos-sible for individual states to attract industry through competitive policies and institutions.Gujarat’s port policies, which emphasized a lead role for the private sector, greatly magni-fied its ability to seize the new opportunitiescreated by economic liberalization. The happy outcome was that Gujarat became the fastestgrowing state in India (excluding minor stateslikeDelhiandGoa).ThiscarriesalessonforallIndian maritime states and for other develop-ingcountries,too. As Table 1 shows, Gujarat topped thegrowth rate of major states, averaging 10.14percent per year in state gross domestic prod-uctin2000–06.
AnearlierstudybyeconomistMontek Ahluwalia also showed Gujarat ontop in 1991–99, with growth averaging 8.15percentperyear.
Yet Gujarat was not always among thefastest growers. In the 1980s, when the centralgovernment determined all industrial loca-tions, the state grew at only 5.08 percent peryear,belowthenationalaverageof5.47percent.What made the big difference after 1991 waseconomicliberalization,whichfreedindustriestogotostatesoftheirchoice.Eveninthehey-dayofsocialism,Gujarathadalwaysbeenbusi-ness-friendly, and it further improved its busi-ness climate after economic liberalization.
Quantifyingeconomicfreedomorbusinesscli-mate in different states is a difficult and com-plex exercise.Such an exercisewas undertakenby the Rajiv Gandhi Foundation, which con-structed an
Economic Freedom for the States of India
index, analogous to the Fraser Institute’s
Thatindexrated Gujarat as number one among Indianstates in 2004. The exercise was repeated in2005,andratedGujaratasnumbertwo. After1991,Gujarat’sgoodbusinessclimateattracted industrialists in droves. The key wasthe state’s emphasis on port liberalization.Gujarat has become, in effect, an Asian eco-nomic tiger. In the 15 years before the Asianfinancial crisis, Thailand and Korea averaged8.7percentgrowth,Taiwan8.0percent,Singa-pore 7.8 percent, Malaysia 7.3 percent, andIndonesia7.1percent.Gujarat’sgrowthratein1991–98, also before the Asian financial crisis,wasacomparable8.15percent.Likethetigers,Gujaratharnessedinternationaltradetoaccel-erate growth. And like the tigers, it was hit in
India’s economicreforms in 1991made it possiblefor individualstates to attractindustry throughcompetitivepolicies andinstitutions.