Industrializing West Bengal?
The case of institutional
stickiness
Deepita Chakravarty
Indranil Bose
Introduction
• Indian states have revealed divergent outcomes in industrial
growth
• Uniqueness of West Bengal (WB):
• (i) ruled by an uninterrupted Leftist regime for the last thirtytwo years
• (ii) witnessed a turnaround of sorts in its outlook towards
private capital within this period.
•
Focus on last thirty years with special reference to
manufacturing
Backdrop to the Left Front Regime
Reasons contributing to industrial decline
• Central government policies
• Confrontationist strategy on part of the state
• Radical trade unionism backed by the Leftist intellectual support
• Central government disinvestment in the infrastructure sector
WB’s manufacturing firms tended to get locked in a low productivity- low
wage segment of the spectrum of products dominated by the small firms
largely in the informal sector. Consequently, informal manufacturing in
the state emerged as an important sector.
Left Front Regime
• The expansion of informal manufacturing
• Implementation of agrarian reforms followed by
decentralization
• Prolonged neglect of basic infrastructure:
decline of formal manufacturing
Backdrop to the Industrial Policy of 1994
• decline in the traditional industries :workers in large numbers
were losing jobs
• Alienation of the Left Front Government
• Liberalizing drive of the Indian economy
• Positive implications of these changes for the state.
• Catalytic role of business associations
The New Industrial Policy, 1994-95
The Salient features of the new industrial policy of 1994
• Welcomes foreign technology and investment, as may be appropriate or
mutually advantageous.
• Highlights the key role of the private sector in providing accelerated
growth.
• The State Government also welcomes private sector investment in power
generation.
• Alongside Public and Private sectors, the State Government looks upon the
joint and assisted sectors as effective instruments for mobilizing necessary
resources and expertise in important areas of economic activity.
• Improvement and up-gradation of industrial infrastructure is indispensable
for accelerated growth of industries.
• Other areas are improvement in roads, communications and development of
Growth Centres. These programmes would require massive investments in
projects for the development of industrial infrastructure through the
Government or through the private and joint sectors, wherever feasible.
In estimating policy outcomes we divide the LF regime into pre and post
1994-95 periods
The Performance
• Predominance of the unorganized sector continues
• Rate of growth of organized manufacturing is
consistently lower than that of unorganized
manufacturing
• Magnitude of the growth rate in the organized
manufacturing increased in the second period.
• The relative decline of the organized sector in relation
to rest of India
The percentage share of the formal and informal manufacturing in WB,
1980-81 to 2004-05 (at 1993-94 prices)
70
60
50
40
30
20
10
19
80
-8
1
19
82
-8
3
19
84
-8
5
19
86
-8
7
19
88
-8
9
19
90
-9
1
19
92
-9
3
19
94
-9
5
19
96
-9
7
19
98
-9
9
20
00
-0
1
20
02
-0
3
20
04
-0
5
0
Formal
Informal
Trend rate of growth of
Manufacturing
Year
Manufacturing
Registered
Unregistered
Manufacturing
Manufacturing
1980-81 to
2004-05
5.78*
5.00*
6.68*
1980-81 to
1994-95
4.35*
3.57*
5.31*
1995-96 to
2004-05
4.62*
4.24*
5.01*
The Performance
• Uniqueness of WB: domination of
the informal manufacturing in output
• Is it inadequate infrastructural
development?
• Do labour issues suggest further
clues?
Vulnerable organized labour?
• Strikes declined significantly, lockouts increased
phenomenally
• Labour productivity, wage rate in comparison
with other states
Some More Contradictory Macro
Observations
In the post new industrial Policy era
• Growth rate of productivity declines but the wage rate
increases
• Rate of decline in the wage share to NVA shows an
insignificant trend
• Sharp absolute decline in employment: rate of growth was low
as (-) 7.19 percent per annum
The Findings: Views of Business Associations and
Bureaucrats
• The physical infrastructure is still wanting: electricity
and ports
• No clear and consistent thinking about a land bank
• regulatory regime simplified on paper
• Regulation hazards turned out to be a major reason
behind small firms desiring to operate from the
informal sector
Findings cont.
• Political interference continues to retard development of infrastructure in
WB
Efforts at such upgradation are thwarted by infighting within and among
political parties patronizing vested interests and seeking to ensure contracts
for their own clients.
• The entire domain of policy-making and implementation has become
complicated.
Previously, the businesses had to negotiate with the government and vice
versa.
Presently, the businesses have to negotiate with the government, the party
and also with the Opposition.
• The omnipresent phenomenon of the institution of ‘party’ seems to have
encroached upon administrative spheres increasingly often paralyzing
administration .
• The increasing tension between formal governance and informal party
control is affecting the credibility of the government.
Large Firms
• No definite position regarding infrastructure
• Own captive power generation facility
• Excessive cost of power leading to farming out
• More advanced production outlets outside the state
• Apprehensive of land issues but appreciative of road
conditions
Medium and small firms
• share the opinion about the improvement
of roads
• critical about power and water facilities.
• Favouritism of the state in land matters:
“elite capture”?
Figure 3: Time of starting business in different categories of
firms
90
80
70
60
50
Series1
40
30
20
10
0
Large
Medium
Small
Exp. Or.
Large
Exp. Or.
Medium
Exp. Or.
Small
Table 4: State regulations and the firm
Separate
Farm size employee
for
dealing
with the
governme
nt
Percentage of senior
management’s time spent
for dealing with the
government on an
average per size group
per year
Frequency of inspection by
the state govt. officials on an
average per size group per
year
2003-04
2008-09
2003-04
2008-09
Large
Firm I,
Firm J,
Firm K,
Firm H
Not
applicable
Not
applicabl
e
1.2
.75
Medium
Firm A
Between 25
to 40
Between
20 to 30
1.5
1
Small
None of
the small
firms
have a
separate
employee
Between 30
to 45
Between
30 to 45
Two to
three
visits
Two to three
visits
• Regulatory hazards have not reduced
significantly
• Intrusion of the multi-layered party:
emergence of several local power
structures
• long-term vs. short-term goals: clash of
interests
Table 4: Percentage of Contract/casual labour in the sample firms
With some export share in their
sales
Firms
Large
Firms
Mediu
m
Firms
Small
Firms
Percentage of
contract labour
200506
200708
Firm J: 15%
export share
NA
51
Firm K: 25%
export share
47
Firm A: 40%
export share
Totally domestic market
oriented
Firms
Percentage of
contract labour
20052006
20072008
Firm H
NA
40
59
Firm I
NA
42
91
92
Firm L
NA
42
Firm E: 15 %
export share
85
87
Firm M
NA
46
Firm B: 60 %
export share
NA
90
Firm F
93
95
Firm C: 65%
export share
98
100
Firm G
NA
90
Firm D: 65%
export share
100
100
Table 5: Percentage share of production farmed out by the sample firms
Totally domestic market oriented
With some export share in their sales
Large
Firms
Mediu
m Firms
Small
Firms
Firms
Percentage of
production farmed out
Firms
Percentage of production farmed out
Firm J: 15 percent
export share
Around 25
Firm
H
Information not available
Firm K: 25
percent export
share
Around 20
Firm
I
Information not available
Firm A: 40 percent
export share
Around 60
Firm
L
Between 10 to 15
Firm E: 15 percent
export share
Information not
available
Firm
M
Does not reveal information
Firm B: 60 percent
export share
Around 10
Firm
F
Does not farm out
Firm C: 65 percent
export share
Does not farm out
Firm
G
Does not farm out
Firm D: 65
percent export
share
Does not farm out
Source: Same as Table 4.
Firm’s perspectives
 Unions bargain for higher wages but are not insistent on
filling up vacancies
 union leaders always resist any work load increase
 got habituated not to work and work only on overtime
payment
 Difficulty in taking the permanent workers in confidence
to promote technical modernization of a large-scale
The perspectives of the unions and the
contract labourers
Benefit of limited informalization
Subcontracting of the contract workers
Power of control
Union’s role in determining the renewal of the
contracts
Development of patron- client relationship
Why does the CITU let this happen?
 Central control over the rank and file has
diminished
 Distrust about the CITU leadership: emergence
of a formidable opposition at the shop floor
 Lack of consensus among the leadership
Conclusion
• There exists a multi-layered power structure in the state where
each local unit of the party wields enormous power over the
local people.
• The party has encroached upon every sphere thwarting
smooth transactions. Even if the top leadership wants the
cadres to change their behaviour, unless the cadres see the
prospect of immediate gains, it is unlikely for them to behave
otherwise.
Conclusion
• The leadership at the top is at present not as united as
it was during the earlier policy-implementation years.
Intra-party and inter-party differences are surfacing
increasingly and eroding the strength of the
government. This is in contrast to China where not
only there is no opposition, but also where there is
unified party control over policy making.
Policy implications
The obvious implications:
a.
Improvement in infrastructure
b.
Creation of land bank
c.
Reduction of regulatory hazards
d.
Improvement of work ethic
The far-reaching implications:
a.
Need for alteration in the outlook of the ruling party, ruling coalition and the
opposition. Industrialization by any means, particularly those having harmful
implications for the poor, will only alienate the state from its own people.
b.
The state should minimize interference in administrative matters and allow
administrative institutions to work independently.
c.
The state should pay heed to improving the quality of labour, particularly the
skill base.