AHMEDABAD, India—Western India's Gujarat state has transformed itself into one of the country's economic and export engines by presenting an alternative to the red tape and widespread corruption that have stymied big projects elsewhere in the country, turning it into a springboard for the apparent national political ambitions of its controversial leader.

Under the direction of Chief Minister Narendra Modi, Gujarat has tackled several problems that often frustrate both foreign and domestic businesses here. Investors characterize Gujarat's civil service as a disciplined force that approves land purchases and environmental permits quickly. The state invests heavily in modern road and power infrastructure. It has set up a Web portal that lets foreign investors track their government requests and complain about delays.

"Our progress was not delayed by even a single day by the government," says Asutosh Shah, managing director of Duravit India Pvt. Ltd., a unit of Germany's Duravit AG, which began making ceramic toilets and sinks here in September. "It was a 100% corruption-free process. You have to experience it to believe it."

Gujarat has India's two largest oil refineries and plants set up by global names such as General Motors Co. and Mitsubishi Heavy Industries Ltd. It has averaged more than 11% economic growth in recent years, well outpacing the national rate. It accounts for 5% of India's 1.2 billion people but 22% of the country's exports.

Gujarat's approach—mirrored in a handful of other business-friendly states such as Tamil Nadu—offers one model for how India can fulfill its economic potential in the next decade and pave the way for hundreds of millions of poor Indians to move from subsistence living to an industrialized economy that will be a potent rival to China's.