By: Aruni Mukherjee
June 27, 2004

West Bengal, a pioneer in industrial growth in India is today well geared to take up challenges and provide attractive investment opportunities - Howard Hughes, Price Waterhouse Consultancy (London)

A recent report by WBIDC was titled ‘Perceptions do matter’. Indeed, the image of Bengal within the Indian and international media has been anything but positive. A BBC article last month branded the state ‘[an] industrial wasteland’. Through out the years, the only mention Bengal got in the national and international press was to be cited as an example of a laggard among the Indian states and as a backwater of the Indian economy which was, among others, a drag on India’s development. Far from the truth, this type of depiction clearly has a political tone to it. Between 1993/4, when Bengal hopped on the liberalisation train, and 2001/2, the SGDP of West Bengal grew in excess of 7% compared to a 6.4% of the rest of the states. In the 2003-04 fiscal year, the Bengal figure was 7.6% to a corresponding national figure of 5.6%. Even during the post-Pokhran period, when national growth slowed down, West Bengal’s growth figures were consistently higher than the national average. Hardly an entity which brings the average down!

Slowly, but surely however, the perceptions are indeed changing, though the state gets nowhere as much credit as some of the other top performers in the country. The much hailed rise of Karnataka and Andhra Pradesh are indeed justified, yet with all their hype, their per capita SGDP figures are roughly the same as West Bengal at $384, $370 and $373 respectively. The national press has recently begun to shun out some pro-Bengal articles but sadly enough, this is not a precursor, but a mere realisation of the facts pointed out by foreigners. It was the investment by Japanese companies and the praise showered upon Buddhadev Bhattacharya’s administration by the Japanese consulate that first drew attention towards Bengal. Consequently the UK-India Round Table headed by Lord Swaraj Paul lauded the state’s efforts in attracting investment and offered to co-operate on various training schemes. Congressman Gregory Meeks spoke about the thriving bio-technology sector in West Bengal and New York wants a ‘sister state’ relationship with Bengal in business, tourism, education and health projects. It’s a poor show by the national media, which by political reasons or otherwise, failed to see the potential in one of India’s 5 top states in terms of SGDP and had to be shown the way by outsiders.

Well, Bengal is back in the headlines! There is no doubt about it. And it’s here to stay. Especially since Buddhadev Bhattacharya took over as Chief Minister, the state has really worked hard for an image change and carried out pro-investor policies and structural reforms, the results of which are now becoming clearer as the potential of Bengal is finally starting to show. As the catch phrase in modern Indian politics goes, its ‘Bengal Shining’!

The state’s traditional strength has been agriculture. Its ideologically motivated land reforms made sure that agricultural holdings remain widely distributed rather than concentrated paving the way for a greater product range and reduction of dependence on any sole market. With the rise of the service sector, which today amounts to 51% of the SGDP, the importance of agriculture has rather diminished. Even so, the agro-based industries are increasingly moving up the value chain and diversifying. The traditional strength was concentrated mainly within sectors like tea, jute, fisheries, flowers, etc. New sectors like food processing have really come on in recent years. McKinsey is embarking upon a project of private involvement and integration in the agriculture sector across the value chain, from the producer to the consumer. Companies like Dabur, Pepsi, HLL, Nestle, Marico, etc. are all setting up bases in the state for food processing. The leather sector has really matured too, with the Leather Complex in Kolkata getting international attention. Tuscany, Italy based companies are now collaborating with their Indian counterparts in areas such as leather goods, food processing and jewellery.

The IT revolution in West Bengal is the event which is getting most of the spotlight. The state has a clear vision of where it wants to be in terms of the national stage. It wants to capture 15-20% of the national IT revenue, from 3% today, by 2009. The state has carried out constructive policies wooing investors to the state regarding this. The first stage was setting up of WEBEL, which plays the role of a nodal point for IT companies’ access to the state by formulating policy specifically with the aim of attracting more investment in the IT sector. The second and much more radical step was the IT Policy 2003, whereby the sector was declared a ‘public service utility’, thus eliminating what investors have traditionally been apprehensive of about Bengal- strikes. The sector now performs on a 24 X 7 X 365 basis, giving a huge boost to productivity and has been the key to making the state attractive for IT companies, who have literally flocked on Bengal, especially Kolkata. Currently there are over 175 IT/ITeS companies operating in the city including giants like IBM, Wipro, TCS, PWC, CTS, etc. Wipro is planning its second biggest centre in India in the city, with a 40 acre expansion project on the cards that eventually plans to hire 1,500 staff. Satyam’s next mega centre is also in the city with a 3.5 acre being planned. IBM is on a hiring spree in the city and after its Millennium Park centre is complete, its workforce in Kolkata is set to reach 600 initially. TCS and CTS are also increasing their manpower by 1,500 and 2,500 respectively. The state is catching up on the BPO craze in India too. Wipro is planning a 2,000 seat call centre in Kolkata and numerous other ITes companies have moved to the state with 100-200 seat call centres. The animation sector is set to receive a boost after the Kerala based Toonz Animation set up an academy along with WEBEL. The government itself is revamping its traditional bureaucracy by increasingly making use of ICT. For instance, the land records have now been totally computerised. It is working with TCS to set up a comprehensive e-governance project with a 70-30% stake division in an ASP model named Seva for further restructuring its administrative structure and increasing efficiency of the system. The workforce is large and extremely skilled with 52 engineering colleges and 15,000 experienced IT professionals. This number is also tipped to rise year on year.

Power has been, and is, a traditional thorn in developmental issues in most states across India. Thankfully, the West Bengal government has been serious in securing the long-term future of the state. From a power deficient state in the 1980s, today it generates surplus power. The problem remains in the distribution system, and with Japanese soft loans and Rs. 216 crores from ARDRP for 8 zones, the upgradation and implentation of the distribution network is underway with 22 new sub-stations being created and 9 being upgraded. In terms of power generation, loans from the JBIC are being utilised for the 4th and 5th units of Bekreshwar Thermal Power plant. The 900MW Rs. 3,180 crore Purulia Pumped Storage Project is the first of its kind in India and the state has offered 70% of its stake upon completion to the National Hydro-Electric Power Corporation. Rs. 2,619 has been issued by the JBIC in this regard which will reduce the thermal: hydel ration from 97:3 to 77:23 thus bringing stability to the grid.

Financial services in West Bengal have seen a steady growth with numerous foreign banks and financial institutions entering the state markets. At 1993-4 prices, the banks and insurance sector comprised of 12.23% of the SGDP in 2001-02, up from 7% in 1996-7. Currently, the total amount of savings in West Bengal is 1/6th of the all-India figure, ahead of more populous states like UP and Maharasthra.

The state sponsored health care system remains a drag on the fiscal deficit and the quality of service, with some exceptions like the SSKM Hospital in Kolkata, is poor. This being said, West Bengal ranks 2nd among all states in India in terms of health care efficiency, including indicators such as infant mortality rates and effectiveness of the system in countering disease and its extent. However, with increased private participation, health care, at least in urban areas, is comparable to the best India has to offer. Kolkata’s health industry is also increasingly emerging on the international scene- the 325 bed Apollo Hospital was made in collaboration with Singapore’s Parkway Group for Rs. 2.1 billion and attracts many patients from South and South East Asian countries. Tertiary companies like Atlast Medical has chosen Kolkata to set up its first Indian base for developing software for the health care industry.

The retail sector is another area of solid growth- with giants like Westside, Shopper’s Stop, Landmark and the local giant Bara Bazaar all doing brisk business in Kolkata. In fact, the City of Joy is the only city where Pantaloons has more than 1 outlets and planning a third soon.

Coupled with the retail boom, Kolkata’s affluent middle class is also out on a spending spree on entertainment products, which has given a lift to the sector. The city already has a rich tradition of theatre, art galleries, golf and racing courses. Added to these are new attractions like Millennium Park, Nalban boating complex, Science City, Aquatica, Swabhumi, etc. The first multiplex cinema theatre Inox has recently propped up in Kolkata. A further boost is government policies such as replacement of the Luxury tax with a much lower Entertainment tax, which has helped the companies pass on the lower costs to the consumers, resulting in soaring demand.

The real estate sector in Kolkata is also enjoying a high ride. As an Economic Times columnist put it, ‘Kolkata is turning into a happy hunting ground for some of the country’s largest real estate developers. DLF Group, Unitech, Ruchi Soya, Zoom Developers and the Sahara Group, are all vying for a slice of the city’s real estate pie’. Impressive housing projects are propping up regularly around the Eastern Metropolitan Bypass. The 1,245 acre New Town Housing Project, undertaken by West Bengal Housing Infrastructure Development Corporation is tipped to be a huge nest for business houses, a variety of training institutions, industry and trading bodies.

Industrial relations and infrastructure- the two traditional nightmares of investors in Bengal are still a concern. However, its high time we looked at the steps being undertaken to reverse the trend rather than stick with the same old criticism of the state regarding the issue. The IT Act was a crucial reversal of policy and a break from tradition regarding labour reforms. Overall, the total number of man-made days lost due to strikes/lockouts has gone down in Bengal. However, the problem still remains one of the worst in India especially in the jute sector. A possible solution could be the new social security plan devised by the state whereby the workers will get adequate pensions, health care, insurance cover after retirement with the deposit of Rs. 50/month. The government is also taking a sector by sector approach in holding talks with unions and trying to reduce militancy. However, a radical labour reform legislation seems unlikely in the near future in the industrial sector, as TU organisations like AITUC still flex considerable muscle in state politics.

Infrastructure development ranks very high on the priority list of the state government keeping in tune with the Union Ministry’s emphasis on this. In 2001, ADB cleared a $210 million loan for developing the Bengal road network especially due to its strategic location enabling it to ensure connectivity with Nepal, Bhutan, Bangladesh China including about 340 km of national highways north of Barasat, and two state highways providing connections to the Bangladesh border. Recently, a further $1 million was granted for technical assistance to the state in this matter. The JBIC is currently funding the construction of 4 flyovers in Kolkata, of which 2 have been completed. To facilitate the communication network in the state, a submarine cable landing project at Haldia is underway and Reliance has been invited to bring its FLAG line to the state, the likeliness of which materialising is very high. The Kolkata port is the most important one of eastern India and hence, P & O Ports have been invited to upgrade it. The company is taking up a mega project, the first of its kind in India, whereby they are planning to utilise the SEZ status of West Bengal to channel more activity through the Kolkata port, especially due to its strategic location in terms of international neighbours.

State fiscal deficits are a big headache for the Union Finance Ministry. However, the figure is set to decline from 4.7% during the last fiscal year to 4.2% in the current year. West Bengal has been traditionally one of the worst states in terms of fiscal deficits, and currently it operates the most number of loss making PSUs along with Delhi. However, it is increasingly keeping in line with the national trend in this regard with increased efficiency in mobilising resources, reduction in non planned expenditure, divesting and closing loss making PSUs, computerising sections of the bureaucracy and increasing taxes on luxury items that has seen its fiscal deficit fall during the 03-04 fiscal year. The vote on account deficit stood at Rs. 85 crore compared to Rs. 92 crore in 2001-02. Tax revenue also went up by 25% compared to a meagre 8% rise in 2001-02. The 04-05 fiscal should see a 18.4% rise in tax revenue, further soothing the fiscal wound.

One may dismiss my arguments as overt optimistic fantasies. If indeed Bengal was doing so well, it should have reflected in investment figures. Surprise Surprise! It is! Between 1991-02, the state received Rs. 30,000 crore in terms of investment, putting it among the best performing states in India. True, states like Gujarat and Maharashtra fare far better, but it has to be kept in mind that Bengal only moderately liberalised in 1994 due to the arm twisting of the left, and really started pushing through the reforms post-2000. Results are clear- in 2001-02, West Bengal was the second most popular destination for investment among all states in India, so says a CMIE report. It’s in the FDI area that Bengal really needs to improve and the real effect of labour reforms and taming the unions can have. Nevertheless, the situation is not nearly as bad as some conceive it to be. In 2002-03, Bengal was ranked 5th, up from the 8th spot it had occupied in 1991-02. Definitely an improvement, but it still doesn’t do justice to the tremendous potential this state holds. Already Bengal is the largest receiver of Japanese FDI, with a Rs. 1,600 crore petro-chemical plant at Haldia by Mitsubishi leading the way. Several secondary and tertiary sector investment stemming from this plant are also flowing into the state with as many as 250 companies poised for investment in the next few years.

The good thing about this development is that West Bengal, unlike states like Andhra, has a much better distribution of the fruits of growth, making it broad based and really justifying the notion of ‘shining’, an adjective not really applicable unless all stratas of the society are enjoying the benefits of the growth. Over the 9th Plan period (1997-2002), 1/4th of Bengal’s rural residents moved into the middle class category. Added to this is the stable and prospering urban class in the towns and cities. As a recent survey by Business World shows, Kolkata itself is developing into a top performer among the metros and its public distribution system, poverty rates, infrastructure is comparable and in some cases, far better than the political and financial capital of India. The RK Swamy’s Guide to Urban Markets placed Kolkata as the 3rd most prosperous markets based on 18 categories right after Mumbai and Delhi.

Is everything about Bengal positives these days? No. The state’s infrastructure needs revamping, labour reforms in the industrial sector are needed, the fiscal deficit is still extremely poor, there are 10 million illegal immigrants in the state due to the porous borders, causing a drag on the economy and worsening the crime situation (which incidentally is the best in India). Power transmission is a serious problem that needs addressing immediately too. Other problems could easily be dug up.

But haven’t we heard the negatives enough? Haven’t we got used to the continuous ranting by the press about how perilous the condition is in the state? Now the time is to realise that appreciating the achievements of a state of the Indian Union is not surrendering your political beliefs. So what if it does not run a government based on religious issues or dynasty charisma? The fact is that it’s a state of India, and we should be happy for the progress it is making.

And progress is coming in Bengal, not in step by step, but in leaps and bounds. The Royal Bengal Tiger is on the run, and India is taking notice.

Aruni Mukherjee