Industrial Decline in West Bengal
March 17, 2005
Most of us are conditioned to view development in terms of industrialization. While industrialization is essential for economic transformation, it is not that economic growth is not possible without industrialization. The sectoral structure of India's GDP and the slow transformation of this makes a good case study. The share of Industry in India's GDP has hardly moved, even when the economy was growing at a almost twice the "Hindu rate of growth" as was the case in most of the last two decades. At a regional level, we can look this taking place in West Bengal. Despite its obviously slackening pace of industrialization, in the post reforms period West Bengal has racked up the fastest rate of growth, both in GDP as well as per capita income. Now juxtapose this fact evidenced by official statistics, Government of India's not the West Bengal governments or the CPM's propaganda office, against the huge investments in industry taking place in states such as Maharashtra, Gujarat and Tamil Nadu. And we are left with a startling picture of a state whose onetime industrial primacy is now a fading memory. It is this picture that makes people like Sir VS Naipaul castigate the CPM led government for what it has done to West Bengal, when an examination of the facts might persuade them to actually congratulate it.
Speaking at the recently concluded India Today Conclave on "India Tomorrow: Perception and Reality." VS Naipaul passed judgment that "Bengal was the economic and intellectual leader of India till it discovered Marxism. It discovered Marxism and like poor Russia in 1917, committed suicide. The economic lead of Bengal has vanished and so has the cultural lead." (See The Hindu of February 26). While cultural development cannot be quantified, economic growth can be and the evidence before us suggests that Sir Vidia's opinion takes more than just poetic license with the facts. The facts are that after 1993-94 West Bengal has the second highest growth rate with 7.2% with only Karnataka (8.1%) ahead of it. It would also seem that the Marxist rate of growth has been better than the Hindu rate of growth since India only grew at 6.3% during this period?
Even in terms of growth of per capita income West Bengal has fared much better than all other states during the post reforms era. It achieved an average growth of 5.5% after 1993-94 as opposed to the nationwide growth of 4.3%. This is even more revealing when you consider that during this period West Bengal was also racking up an average annual population growth of 1.78% between 1991-2001, which is much higher than the rate of the high achievers like Tamil Nadu (1.11%). If one were to consider the population growth since 1981, West Bengal grew at 2.34%, which is uncomfortably close to the national average of 2.51%. Undoubtedly the seemingly uncontrollable and unabated migration from Bangladesh has contributed to this relatively high growth of population. Whatever are the reasons for this we can only surmise that the rise in par capita incomes would have been even higher if there was no influx from the neighboring countries like Nepal and Bangladesh, and even neighboring states like Bihar and Orissa?
Even more interesting is the fact that per capita incomes of West Bengal and Maharashtra, after excluding the two great metros of Mumbai and Kolkata are fairly close. West Bengal's per capita after excluding Kolkata is Rs. 12,671 while Maharashtra's without Mumbai is Rs.13, 897. Thus, even if we accept for a moment that VS Naipaul is correct in assuming that West Bengal has a Marxist system, its performance is not too bad compared to what then must be the most laissez-faire of our states - Maharashtra. We can be certain that if the per capita incomes of other two big cities of Maharashtra - Pune and Nagpur - are excluded, the state's per capita income will be below that of West Bengal. Unfortunately Naipaul's moving mouth having spoken will move on while the words will linger on.
This performance is quite extraordinary when you factor in the dominant reality of rural West Bengal in that it ranks third from the bottom in terms of irrigated acreage with only 28.1% of its agricultural land irrigated. This is when it is the third most densely agricultural state in India with almost 77% of its land area under the plough. If like Punjab or Haryana with 89.72% and 65.0% respectively of agricultural acreage irrigated, West Bengal too were to benefit from centrally financed irrigation and centrally subsidized procurement, it would be fair to assume that its economic performance would have been even of a higher order. Then even without a communist system, the communist regime in West Bengal would have perhaps had a sustained growth rate closer to that of China?
Between 1984 and 2001, industrial capital investment in West Bengal only increased fourfold when it grew by more than seven times in the rest of India. This also coincided with the decline in the value addition of West Bengal industry from 8.8% in 1984-5 to 4.0% in 2000-1. During the same period the number of industries in the state was almost static - 5369 to 6091 - when it grew from almost 97,000 to almost 131,000 for India. Even worse was that during this period the numbers employed in these industries declined by almost half, from 917,000 to about 456,000.
Quite clearly all has not been well with West Bengal and the slackening pace of industrialization; flight of capital and prolonged industrial unrest has taken its toll. But the question that still remains is that whether this would have been any better under a public administration vested with any other political party? The effect of partition on the commerce and industry of eastern India is well known. This was followed by the developments in technology and market preferences that made many traditional products like jute obsolete. An even bigger reason for the blight that settled over the one time industrial heartland of India were economic policies inspired by vague notions of socialism. The most pernicious of these was the freight equalization policy of the Government of India with regard to steel and coal that lasted over three decades from 1956 to 1992. This neutralized the benefit of proximity and eastern India's main competitive advantage. This gave the engineering industry little incentive to stay around Calcutta and production inevitably shifted to areas closer to the markets. Thus if we have to accept that Marxist notions on economic equalization dearly cost West Bengal, it was not the doing of the Communists in West Bengal.
It is not that the Communists did not have a role to play in the industrial decline of West Bengal. Their contribution to militant union activity is well known. Chief Minister Buddhadeb Bhattacharya himself has been very candid about this when he admitted to a CII gathering: "Yes, its true that we have committed mistakes and have been irresponsible. You have heard of the word gherao, which means surrounding the management. It is now part of the English dictionary." MSN Encarta defines it as a transitive verb and noun meaning "surrounding somebody as protest; to surround and virtually imprison an official, employer and/or manager." Often these gherao's and the more traditional forms of industrial action ended up in violence resulting in a flight of capital from West Bengal. Worse this kind of militancy led to competitive militancy and now trade unions affiliated to all other political parties make similar demands and use similar methods. This has made all our trade unions more comfortable with state ownership with the obvious attendant benefits of assured salaries and assured pay increases, full tenures, and annual bonuses, without any relation to productivity and corporate health. When an industry was rendered sick it was inevitable taken over by the government to protect jobs and not so much to contribute to the economy. Examples abound all over the country, but West Bengal typified it.
The consequences of this are clear to see. Of the 6091 factories in West Bengal in 2001 as many as 252 are deemed sick. This implies a sickness rate of 4.14% for West Bengal when it is 2.54% for India as a whole. By comparison for industrially better-developed states like Maharashtra the sickness rate is 3.30%; and for Tamil Nadu it is just 1.54%. The picture gets even gloomier for SSI units. Of the 249630 sick SSI units in India, no less than 113846 or 45.60% are in West Bengal. This picture would not be complete unless we relate this to the number of mill closures. In 2001 no mill was shut down in West Bengal when 151 were shut down all over the country, with Gujarat and UP accounting for the most with 43 and 39 respectively. The question that still remains is whether this would have been the picture if eastern India did not suffer the precipitous economic decline it did after Partition and due to the now obviously questionable policies of the Government of India? But we know for certain that economic decline contributes as much to union militancy as competitive irresponsible trade unionism.
This industrial decline in West Bengal has had a profound impact on the structure of the state's economy. Much like for all of India where the share of Agriculture as a percentage of GDP declined from 33.43% in 1993-94 to 26.28% in 2001-02, in West Bengal the decline was almost similar, from 33.84% in 1993-94 to 27.36% in 2001-02. The big change is visible in the share of the Manufacturing sector. This sector's share grew from 23.68% in 1993-94 to 24.36% in 2001-02. However in West Bengal it declined from 23.02% in 1993-94 to 21.68% in 2001-02, a decline of 1.34% in percentage share. Since the Services sector share in West Bengal grew by 7.81% during this period when for India it was 6.54%, it would seem that West Bengal was moving more speedily towards becoming a post-industrial society without having been even close becoming industrialized. (See Tables 10 and 11), to see how China fared during this period see our study "Will India Catch-up with China?" posted on www.cpasind.com.
Concurrent with its industrial decline is the relatively poor performance its power sector. While India generated an additional 43.75% of electricity in 2001-02 over 1993-94, West Bengal lagged behind with an increase of 38.64%. One reason could be the proximity of Orissa, which taking advantage of its huge coal resources and a very supportive central government ramped up generation by 118.70% during the same period. (See Table 12). But in terms of increase in per capita consumption of electricity, which is a better indicator of a state is faring, West Bengal with an increase in consumption by 38.11% remained pretty close to the national increase of 40.21%. In Orissa by comparison consumption only increased by 30.84%, while in the other neighboring state of Bihar it was 27.97%. (See Table 13). While West Bengal did fairly in terms of consumption, it was well behind in terms of electrification of villages. By the end of 2002 only 78.17% of its villages were electrified, while the coverage for India was 86.65%. At this point of time eight states (AP, Haryana, HP, Karnataka, Kerala, Maharashtra, Punjab and Tamil Nadu) have almost complete coverage. (See table 14). In terms of this indicator West Bengal has remained pretty close to the other states in the region - Assam 77.04%, Bihar 71.02%, and Orissa 74.97%. As rural electrification is still in general commercially unviable and hence is invariably centrally supported, this quite clearly suggests a neglect of the eastern region as a whole. We will present data on this aspect later in this study.
When the CPM led coalition came to power in West Bengal in 1977 the incidence of poverty in the state was 60.52%, well above the national BPL level of 51.32%. In 1999-2000 these were 27.02% and 26.10% respectively. This means that while those below BPL decreased by 55.35% in West Bengal, in all of India the decline was 49.22%. West Bengal's BPL level is the lowest in the eastern region with the levels of Assam (36.09%), Bihar (42.60%) and Orissa (47.15%) remaining well above the national level and that of West Bengal. The performance of West Bengal is comparable to that of Maharashtra where the comparable decline from 1977-78 to 1999-2000 was 55.28% to 25.02% or a decline in incidence of 55.22%. When you relate the performance of West Bengal and Maharashtra, the former having fared dismally in terms of industrial expansion while the latter was a star on this account, perhaps one will get a better idea of how much more pro-people the regime has been in West Bengal?