Wednesday, June 25, 2008

West Bengal sees spurt in growth

By Jayati Ghosh

30 May, 2008

The state of West Bengal has been the focus of national discussion because of the various implications of its proposed industrialisation policy. For the past three decades, West Bengal has been among the middle ranking states of India, in terms of both per capita income and human development indicators. This has been despite the special feature of the state, that it has been ruled continuously by a Left Front government that has provided political stability and also, particularly in the first two decades, a clear orientation towards improving the conditions of workers and peasants.

The Left Front government made West Bengal the most active state in respect of land reform, leading the rest of the country not only in recording and legal recognition of the rights of sharecroppers but also in enforcing land ceilings and distributing surplus and vested land. (It should be remembered that even now the government of West Bengal distributes more land to landless peasants than it acquires, and continues to distribute more than any other state.) The state was also a pioneer in the decentralisation of powers to the panchayats, well before the 73rd and 74th Amendments to the Constitution encouraged greater devolution in other states.While these measures certainly contributed to the breaking of the "agrarian impasse" in Bengal and allowed for more rapid and diversified agricultural performance in the state, in other respects the economic performance of the state has been below expectation. This reflects the inherent difficulty of an autonomous development trajectory within a single state, even with a federal system of government, and the role of broader macroeconomic processes in determining outcomes even within the state.To this must be added several other constraints on growth, which are essentially the effects of history and geography.

At Independence, West Bengal was among the more industrialised states of the country. Subsequently, however, a combination of factors meant that organised manufacturing industry generally stagnated, especially compared to other regions. These included the absence of a local bourgeoisie with an inherent interest in investing within the state; reduction in public investment in railways that had previously encouraged the local engineering industries; and national policies such as the freight equalisation policy that eliminated the state’s regional cost advantages from proximity to coal and steel resources.

In addition, West Bengal has been situated in what has been a relatively poor and economically stagnant region of India, such that there have been very few economic growth stimuli coming from the surrounding region. Indeed, for the better part of the past two decades the economy of West Bengal has been the only dynamic one in the region.Despite these constraints, it is not generally known that over the 1990s West Bengal was one of the fastest growing states in India, and actually showed the second highest rate of aggregate State Domestic Product growth among major states, after Karnataka. This tendency was even more marked in per capita terms, because West Bengal has been successful in controlling fertility to a greater extent than many other states.While agricultural output growth was the dominant reason for this, industrial output also grew rapidly, not so much in the organised sector but in the non-registered and unorganised manufacturing industries that proliferated as a consequence of greater rural prosperity. For the past decade, West Bengal has had the largest number of and the most rapid growth in small-scale and cottage industries among all the states of India.

However, much like small manufacturing units elsewhere in the country, such small units in West Bengal have recently been adversely affected by neo-liberal economic policies implemented by the Centre, which have led to rising costs and greater competition from both organised manufacturing and liberalised imports. The negative fallout of these processes on small manufacturers and traders has been particularly evident since the start of the current decade.These tendencies in turn form the backdrop to the new industrialisation strategy of the government of West Bengal especially since 2004, which has sought to engage, attract and provide incentives for large corporate capital in order to increase the rate of industrial investment.

From 1999-2000 to 2004-05, West Bengal grew slightly faster than India as a whole in per capita terms, but thereafter its expansion has been slightly less rapid. The per capita income of West Bengal is now slightly lower than the national average.This growth was accompanied by even more rapid changes in the sectoral composition of output than have occurred in the rest of India. The share of the secondary sector has been almost unchanged at 18-19 per cent. But the share of the primary sector (which in West Bengal is dominantly agriculture) has shrunk from 34 to 27 per cent points in just five years, with the gap being taken up by services expansion.But only a few services (banking and other financial services and real estate and business services) have increased their share of income. Other services like transport and communications, trade, hotels and restaurants, and public administration and community services have actually "fallen" in terms of share of SDP in these five years.The critical issue from the point of view of well-being of the people is the extent to which changes in output share have led to changes in employment over the same period.

On this the evidence is disconcerting. Even though the primary sector’s share of output fell sharply, its share in employment has barely changed at all, and it continues to account for around 46-47 per cent of the work force. The manufacturing sector shows a slight decline in terms of the share of output and a bigger decline in terms of the proportion of workers.Meanwhile, the services sectors that have accounted for the biggest increases in share of output have hardly increased their share of employment. In particular, financial, real estate and business services accounted for 23 per cent of the SDP in 2004-05, but only two per cent of the work force.

So both in the manufacturing sector and in the more dynamic services sectors, growth of output has involved very little expansion in employment.This discrepancy between output and employment is of course the central problem of development today, not only in West Bengal but in all of India. Clearly it cannot be solved by a concentration only on corporate-driven growth in industry or services, even if this forms one part of the strategy. This is because corporate investment is typically more capital-intensive and generates less employment per unit of output than investment by smaller producers. So there is need for the state government (as well as the Central government, of course) to develop a multi-pronged strategy for employment generation that encompasses several different approaches.

There is a further issue on the regional spread of recent growth in West Bengal. Income growth after 1999-2000 has been overwhelmingly concentrated in the metropolitan area of Kolkata and the surrounding hinterland, thereby widening income gaps between Kolkata and the rest of the state that were already very large. In 2004-05 no other district had a per capita income that was even half of that of Kolkata. More than half the districts had per capita incomes of around one-third that of Kolkata, or even less. For almost every district, the per capita income gap with respect to Kolkata has widened over this period.It is well known that growth in aggregate income need not always translate into improvements in material consumption of the people in general. This is evident from the estimate of per capita consumption obtained from the NSS 61st Round survey, which is well below half the per capita income of the state. Assuming that workers and small peasants consume all or most of their income (and may even dissave through debt) this suggests a very large share of surplus in the form of profits, rents, etc.This knowledge allows for a further refinement of the basic development question mentioned earlier: how can existing surpluses be tapped and mobilised to ensure both expansion of productive capacity in a way that creates gainful employment opportunities and better material and human development conditions for the people?

It is this very difficult question that must be answered if the development strategy of West Bengal government is to be successful in creating unambiguous and widely welcomed gains for the citizens of the state.

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