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West Bengal: The Long Road Ahead

Debraj Bhattacharya

Updated: March 16, 2011, 3:04 PM IST
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In a little over a month from now, the West Bengal electorate will have the opportunity to choose a new set of legislators to guide the state’s fortunes for the next few years. All signs at the moment point towards Mamata Banerjee’s Trinamool Congress (TMC) poised to finally break the Left Front’s thirty three uninterrupted years at the helm. While some of the disaffection with the Left Front government is probably related to anti-incumbent feelings borne out of over three decades of the same coalition in power, most of it is more likely due to concerns regarding the performance of the government and the direction of the state. If the TMC is indeed able to win the upcoming election, its most pressing task will be to manage the expectations of the voters. Part of this process would be to identify areas where demonstrable results are possible in a relatively short period of time. So, how big are Bengal’s problems? Are there some areas of strength? What should the new government focus on? This article will examine some of these issues. We shall start with a review of Bengal’s overall economic trends since 1960 as well as the record during the Left Front’s time in power. This progress report will then be used to frame the issues and possibilities that might face the next government in Bengal.



1 Then and Now

In order to understand the frustrations felt by the typical Bengali today, it is probably most illuminating to review the performance of Bengal relative to the rest of India over the past 50 years. Figure 1 plots the per capita net domestic product (NDP) of West Bengal relative to per capita NDP of India as a whole. The picture shows that in 1960, Bengal’s per capita NDP was 10 percent greater than India’s. In fact, Bengal was the second richest state in the whole country at that time. In just five short years starting from 1966-67 (when the First Left-led United Front government came to power), Bengal’s relative per capita SDP declined to below 95 percent by 1971.



This period also coincided with the rise of the Naxal movement in the state. For the rest of 1970’s Bengal’s relative income hovered between 95 and 100 percent of India, The 1980s witnessed yet another decline to below 90 percent with the bottom being reached around 1991-92. The rest of the 1990s saw resurgence with Bengal actually going above the Indian average by the early 2000s before settling back around the 95 percent mark after 2004.







Underneath the aggregate numbers of course there were important sectoral developments during the period 1960-2010. Figure 2 shows the sectoral shares of agriculture, industry and services in total output for West Bengal and India as a whole. Two features of the Figure are noteworthy.



First, while there was a decline of agriculture’s share of total output everywhere, starting from the late 1970s, the decline in Bengal became much more muted relative to the rest of the country. As a result, by 2009, Bengal’s agricultural output share was almost 8 percentage points above that for the country as a whole despite starting with a lower share.



Second, Bengal’s industrial share of output was initially about 8 percentage points greater than the Indian average. However, by 2009, it was about 8 percentage points lower than that for India as a whole. This decline of industry in Bengal really set in between 1980 and 1995 during which its share of output fell from around 30 per cent to 15 percent. Strikingly, this de-industrialization took place when industry was expanding in the rest of the country!!







Notes: The figures show the sectoral shares of domestic product for West Bengal and India. The shares do not add to one as some sectors have been omitted.





The sectoral movements highlighted above reflected a clear shift in the relative importance accorded to the different sectors of the state’s economy under the Left Front government. Specifically, while agriculture retreated in importance to third amongst these three broad sectors, in Bengal its share remains greater than industry’s even now! This may have partly reflected a clear ideological stand against industry combined with a land reforms initiative launched under Operation Bargha in 1977. Indeed, a number of authors have commented and conjectured about the productivity and growth effects of the land reform in Bengal. Figure 3 shows the evolution of sectoral labor productivities in West Bengal relative to the corresponding labor productivity in India as a whole.







Two features about the Figure are clear. First, in 1960, West Bengal was over 60 per cent more productive than the rest of India in agriculture. Even as late as 1976-77, on the eve of the Left Front government coming to power and the launch of Operation Bargha, agricultural labor in Bengal was 35 percent more productive than in the rest of the country. By 2009, Bengal’s agricultural productivity was 33 percent greater than the rest of India. While Bargha probably did benefit the rural sharecroppers as rural poverty levels in Bengal fell much faster than in the rest of country, it’s supposed beneficial effect on agricultural productivity is debatable.



The second noteworthy feature of Figure is the sustained relative decline of labor productivity in industry since the early 1970s. From being about 20 percent more productive than the rest of the country, industrial labor in Bengal is currently only 25 percent as productive as the average industrial worker in the country. This is a shocking relative decline of almost 100 percentage points in labor efficiency in just 40 years!!



In terms of human development in West Bengal, two indicators are particularly important: education and poverty. Tables 1 and 2 report the relevant statistics. As in the other indicators, Bengal’s literacy rates in 1961 were significantly greater than the Indian average. By 2001 though the lead relative to the Indian average had narrowed. As a counterpoint, the table also shows that

Maharashtra, which was very similar to Bengal on most indicators including income levels in 1961, comfortably outperformed West Bengal during this period.









Table 2 reports the poverty figures as captured by the number of people living below the poverty line. While the numbers for 2005 are not directly comparable with the numbers for other years due to different sources, it is clear that poverty alleviation has been one area in which West Bengal has not been a laggard state. If anything, it has lowered poverty rates faster than the country average. Impressively, it has also performed much better in poverty alleviation than Maharashtra which was one of the fastest growing states in India during this entire period.







2 The Left Front Legacy

The Left’s time in power over the past three decades can be divided into two contrasting periods: 1977-1993 and 1994-2010. The first half was a period without too many positives to record. Per capita income in Bengal declined by almost 10 percentage points relative to India as a whole. The period saw an alarming de-industrialization in the state with industry’s share of output declining from 26 percent to 19 percent while for India overall the share rose from 22 to 25 percent. Moreover, the state appeared to be out of sync with the rest of the country during this time. Thus, the correlation between the agricultural share of output in Bengal and India was 0.33 while that for services was 0.73. Most amazing was the behavior of industry whose share of output in Bengal and India had a correlation of negative 40 percent!! All of this was accompanied by a decline in labor productivity relative to the rest of the country in all sectors of the economy. The one silver lining during this phase was the impressive 50 percent reduction in rural poverty in Bengal. From 1994-2009 however, West Bengal’s performance relative to the rest of the country has been quite impressive. Growth was strong during this period, especially till 2005. As a result, per capita income of Bengal actually overtook per capita income in India as a whole by 2001. This was the first time this had happened since 1968. Moreover, the economic patterns in the state became more aligned with the rest of India. Thus, the sectoral shares of output in Bengal and India became more correlated for all sectors (0.99 for agriculture, 0.92 for industry and 0.97 for services). Labor productivity in the three sectors became stable relative to the rest of the country. However this second phase has not seen improvements in social indicators like poverty and literacy. In fact in education the state has continued to lose its relative advantage while the improvements in poverty alleviation witnessed in the first phase have not been similarly matched.





3 The Road Ahead

So what does all of this suggest for the residents of West Bengal in general and the new government in particular? A few things are obvious. The data reviewed above clearly shows that Bengal’s prospects are the strongest when linked to the prospects of the country as a whole. This has never been truer than now when India is on a tear away growth path. Industry has begun to boom and economic activity is on the rise across the board. West Bengal needs to take advantage of this period of collective optimism and growth. Entrepreneurship and competition are the two concepts that will drive the country over the next decade. For West Bengal to ride on this collective coat-tail, the new state government needs to make a concerted effort to encourage entrepreneurs and embrace competition. Moreover, with the industrial sector in the country finally breaking o¤ the shackles, the way forward for the state is to actively compete for industry.

The challenges are myriad. The continued decline/tepidity of labor productivity in Bengal relative to the rest of India has to be addressed. Given that this trend is common to all sectors of the Bengal economy, the causes cannot be solely sectoral. Rather, there are likely more general reasons. One such factor is the quality of human capital in the state. As we saw above, Bengal has steadily lost its relative advantage in human capital over the past 40 years. Focusing attention on education and health investments may have huge long term payoffs. Another area is social infrastructure including roads, electricity, transportation, etc., most of which also need priority attention. Improvements in the human and public capital stocks have the additional benefit of making the state attractive to businesses. A third factor is competition since nothing encourages productivity like intense economic competition. A related factor is the scale of operation. One of the most striking developments in Bengal between 1960 and 1995 was the decline in the share of registered manufacturing firms in total manufacturing output from 79 percent to 47 percent. Most of this flight to the unregistered sector was an attempt by businesses to avoid the pressure of dealing with organized labor. Unfortunately, it came at the cost of declining productivity. Encouraging economic entities (including agricultural farms) to grow to their optimal size may be a key area for the new government to focus on. Lastly, rural poverty continues to remain unacceptably high in Bengal. Some bold new experiments like cash transfers rather than the broken public distribution system for food might go a long way towards helping the poor. It has been tried with some success in Bihar.



If Mamata Banerjee’s TMC is elected, could they usher in a new era for West Bengal? The answer depends hugely on the approach that Ms. Banerjee takes. If her party gains power, it will be on the back of the votes of millions of voters who are currently disillusioned with the Left. These voters will however be looking for tangible results. A recent study by two economists, Poonam

Gupta and Arvind Panagariya, has shown that state elections in India have tended to become more performance oriented lately. Examples of this can be seen in the recent elections in Gujarat, Orissa and Bihar. Given the outcome of the Left Front’s approach to industry during the first half of its rule, it may be foolhardy for the TMC to try to "out-left" the Left by appealing to populism. Encouraging the industrial and service sectors, which are the high growth sectors in the country, may also raise the resources available for attacking poverty and inequality. The climb in West Bengal is steep and the challenge difficult. However, as the Nitish Kumar led government in Bihar has shown, it is possible to show tangible results within a term even in the most dire of cases. One just needs to take a long term view.

First Published: March 16, 2011, 3:04 PM IST