Whither West Bengal–Part III : Industry caught in morass of dormancy

Whither West Bengal–Part III : Industry caught in morass of dormancy

- in Analysis, Special Post

West Bengal, India’s sixth largest economy, had a gross state domestic product (GSDP) of US $ 132.86 billion in 2014-15, growing at compound annual growth rate (CAGR) of 11.06 per cent since 2004-05. At the current prices, GSDP of West Bengal was estimated at US $ 140.56 billion in 2015-16. The average annual GSDP growth rate from 2004-05 to 2015-16 was about 10.57 per cent. West Bengal is the third largest state in India in terms of mineral production, accounting for about one-fifth of total mineral production. Coal accounts for 99 per cent of extracted minerals.

The natural resources, policy incentives and infrastructure in the state support investments in major sectors such as iron and steel, biotechnology, coal, leather, jute products, tea, IT, gems and jewellery. The state has 3,000 acres of land at its disposal to set up industries. It has 12 growth centres for medium and large scale industries, set up by the West Bengal Industrial Development Corporation (WBIDC). There are exclusive growth centers for electronics, software technology and export processing. Major industrial areas are Haldia, Kolkata, Asansol-Durgapur region, and Kharagpur.

In 1946, on the eve of India’s independence from British rule, West Bengal ranked first among all states in terms of total employment in manufacturing industries and was second only to the Bombay presidency in terms of value added in manufacturing. West Bengal is the first trade centre for Britishers which will act as a catalyst in boosting the production capacity in West Bengal. The effects of British colonisation were the establishment of early industries in this region. The coal mining industry (the earliest coal mine was established in 1820), the engineering industry in the first half of the nineteenth century as a result of the establishment of railways and river transport, and the jute industry to take advantage of the traditional local cultivation of jute used for making hand-woven cloth, emerged under British rule.

The iron and steel industry was also started at Asansol on the Grand Trunk road. The British also established tea gardens along the foothills of the Himalayas near Darjeeling. Of all these, the jute and engineering industries still provide the largest sources of employment in the state, employing well over 500,000 persons. These four industries—coal, engineering, jute, and iron and steel, referred to as traditional industries—dominated Bengal’s economy for many years and are also the cause of a skewed pattern of industrialisation in the state. Early industrialisation had a catalytic effect on both the nationalist movement and the trade union movement and helped link them.

Many of the early union leaders like C R Das and Netaji Subhash Chandra Bose were freedom fighters and nationalist stalwarts. The more extremist form of the nationalist movement, furthered by intellectual revolt against pacifist trends in the Indian National Congress, probably helped establish a tradition of militancy in the union movement in Bengal. Following India’s independence in 1947, and the partition of Bengal, the state’s economic, industrial and political situation was severely affected by the refugee influx.

Various estimates have put the initial and subsequent inflow of persons fleeing from East Pakistan, now Bangladesh, to India and West Bengal in particular, at over 20 million, larger than the populations of many European countries. It was a virtual inundation, and the state’s economy faced this onslaught with mixed results. West Bengal’s culture, as reflected in its literature and cinema, was dominated right up to the 1980s by the social themes of poverty, lack of employment, alienation and anti-establishment ideologies. An extremely turbulent period between 1967 and 1970 was dominated by various movements and militant trade unionism, which many believe was the cause of subsequent de-industrialisation with industrialists fleeing to other states and widespread sickness and closures of industrial units. Kolkata is the third largest among the mega cities in India in terms of population. A vast rural captive market is also available in West Bengal.

Four decades later in 1987, West Bengal was ranked fourth in terms of employment and fifth in terms of net value added, accounting for only 8.9 per cent of all India net value added for organised industries. This trend continued up to the mid to late 1990s. By 1997, West Bengal’s share in the all India net value added for manufacturing industries was down to 6.63 per cent and the state was just marginally ahead of the underdeveloped province of Bihar.

From the mid-1970s up to the mid 1990s, this trend was also accompanied by the large-scale flexibilisation and ancillarisation of production into small-scale units, less than 20 workers, usually manned by contractual labor. The third and final trend during 1980-1991 was a differential impact of this ancillarisation on basic goods and consumer goods industries, with the former performing much better than the latter.

In analysing the consequences of worsening income inequality for industrial growth, they also brought to the fore the more specific issue of agriculture-industry relations. Reducing the purchasing power of the majority of the population, can slow down the growth of industries in 1981. There are three of the most influential formulations. First, Bagchi (1970) analysed income distribution in the context of the import substitution-industrialization (ISI) strategy. He argued that without a change in property relations, even an ISI strategy would end up with severe problems.

Specifically, if income inequality worsens owing to structural exploitation, the demand for mass consumer goods from lower income groups falls. This results in excess capacities in the relevant industries and also in the capital goods industries catering to them. Therefore, further investment and growth in these areas is discouraged. Moreover, this problem is not solved by the rising incomes of the rich, who demand increasing amounts of either luxury goods or imported goods. Second, Mitra (1977) argued that the vast improvement in the terms-of-trade (TOT) of agriculture vis-à-vis industry from the early 1960s to the mid-1970s was due to a political arrangement entered into by the urban bourgeoisie and the rural oligarchy.

Minimum prices as well as the administered prices for agricultural commodities, particularly those products where surplus-producing rich farmers were the majority, were repeatedly raised. This meant that the urban workers as well as the poor net-food consuming agricultural workers suffered from higher food costs. The final result was industrial stagnation due to adverse movements in both demand and supply factors. Rising prices of food reduced demand for manufactures among both rural and urban workers whereas high prices of raw materials eroded profitability of many agro-based industrial units.

Third Patnaik (1972) emphasised the more direct link between agricultural growth (and incomes) and industry. In his model, Patnaik argued that a slowly growing agriculture can impose limits on industrial growth, since the former implies rising food prices, lower real wages and lower consumer demand. Raj (1976) argued that despite the ‘Green Revolution’, the overall rate of growth in agriculture remained modest and this affected industrial growth from the demand side by reducing agricultural incomes and on the supply side by slowing down the supply of raw materials to agro-based industries. This analysis emphasised the crucial importance of markets and aggregate demand for industrial expansion. Exports and government expenditure are also components of demand that may sometimes be able to compensate for the lack of direct consumer expenditure.

In fact, Chandrasekhar (1988), among others, has argued that expansion in government expenditure was a major factor behind the modest all-India industrial recovery during the late 1970s and early 1980s.

Although the argument ran that the government expansion could not be sustained as it was based on external borrowing that led to a balance-of payments crisis, the existence of the government and external markets as sources of demand does mean that we need a workable typology of industries to better understand the pattern of industrial growth in West Bengal during 1980-1991. Developing such a typology is not straightforward however, since industries do not serve either foreign or local markets exclusively. There is also no reliable data source on the final destination of goods produced within West Bengal. (To be continued)

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