MacroScan - Recent Growth in West Bengal

For the greater part of the past three decades, West Bengal has been among the middle ranking states of India, both in terms of 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.

This has made West Bengal the most active state in respect of land reform in the past two decades, 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 West Bengal distributes more land to landless peasants than it acquires, and certainly distributes more than any other state.) It also made the state 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 as well.

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 SDP 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 elsewhere in the country, such small units in West Bengal have recently been adversely affected by neo-liberal economic policies implemented by the central government, 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. This article considers the available evidence on growth trends in the state since 1999-2000.
Chart 1 >>

Chart 1 indicates that after 1999-2000, West Bengal was growing slightly faster than India as a whole in per capita terms until 2004-05, after which its expansion has been slightly less rapid but still creditable. The per capita income of West Bengal is now slightly lower than the national average.

Charts 2a and 2b show that growth up to 2004-05 was accompanied by even more rapid changes in the sectoral composition of output than have occurred in the rest of India. As for India as a whole, the share of the secondary sector has remained almost constant, increasing only very slightly. But the share of the primary sector (which in West Bengal is dominantly agriculture) has shrunk by as much as 7 percentage points in just five years, with the gap being taken up by services expansion.
Chart 2a >> Chart 2b >>

Within services, only a few sub-sectors account for this growing share. The transport and communications sectors, trade, hotels and restauranats and public administration and community services have actually fallen in terms of share of State Domestic Product in these five years. However, banking and other financial services and real estate and business services have increased their respective shares sharply.

The critical issue from the point of view of well-being of the people, of course, is how far the changes in sectoral composition of output have involved changes in employment patterns as well. Therefore, Table 1 presents some calculations of the relative shares in output and employment by major sectors in 1999-2000 and 2004-05, using NSS estimates based on the two recent large-sample Employment and Unemployment Surveys.
Table 1 >>

The evidence presented in Table 1 is disconcerting. While the share of the primary sector in outout has fallen sharply, as noted above, its share in employment has barely changed at all, and it continues to account for around 46-47 per cent of the work force. This is also true of India as a whole, of course, although the absolute share of the primary sector in employment is lower in West Bengal (at less than half of all workers), and the decline in share has also been smaller than in the average for India.

But the manufacturing sector has also declined in relative importance, to some extent in terms of the share of output and even more in terms of the proportion of workers engaged in such activity. Meanwhile, the services sectors that have accounted for the biggest increases in share of output have increased their share of employment to a much lesser extent. In particular, financial, real estate and business services accounted for 23 per cent of the State Domestic Product in 2004-05, but only 2 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 is of course in a nutshell 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, as such investment is typically more capital-intensive and generates less employment per unit of output than investment by smaller producers. So the state government obviously has to develop a multi-pronged strategy for employment generation that encompasses several different approaches.

There is a further issue on the nature of recent growth in West Bengal, which is in terms of its regional spread – or rather, the lack of it. Post-1999 income growth 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.

Chart 3 show the disparity between per capita income in Kolkata and in all other districts in 2004-05. No other district had a per capita income that was even half of that of Kolkata, not even those that are contiguous or nearby the capital. More than half the districts had per capita incomes of around one-third that of Kolkata, or even less. While it does not appear on the chart, it should also be noted that for almost every district, the per capita income gap with respect to Kolkata has actually widened since 1999-2000, indicating that the recent pattern of economic growth has accentuated spatial inequalities within the state.
Chart 3 >>

Finally, of course, 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 a comparison of the per capita income of the districts with estimates of mean per capita consumption obtained from the NSS 61st Round consumer expenditure survey. Table 2 presents this information.

The district-level data on per capita consumption is derived by using Small Area Estimation techniques to arrive at estimates with the least variation for each district. They do have a number of limitations, since the sample sizes are generally not large enough to permit generalisation. Nevertheless, the data presented in the table reveal several interesting facts. Firstly, and expectedly, there is substantial variation between the per capita income and mean consumption in general and across districts. Second, in several cases the variation is so large as to change the rank of the district quite significantly, as for example for North 24 Parganas (where the rank improves hugely for per capita consumption) and Jalpaiguri (where the rank falls sharply for per capita consumption).
Table 2 >>

While the disparities between Kolkata and the rest of the state in terms of per capita consumption were also large, they were slightly less than has been observed for per capita income. Overall, this table suggests the need for caution in interpreting per capita District Domestic Product as an accurate indicator of either consumption or overall well-being of the local people.

It is evident that the estimated per capita consumption in the different districts was somewhere around one half and one-third of the per capita output. 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 citiziens of the state.