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 thirty two 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 0 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 Formal Informal

Trend rate of growth of Manufacturing

Year 1980-81 to 2004-05 Manufacturing Registered Manufacturing Unregistered Manufacturing 5.78* 5.00* 6.68* 3.57* 5.31* 1980-81 to 1994-95 4.35* 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

40 30 20 10 0 90 80 70 60 50 Large Medium Small Exp. Or.

Large Exp. Or.

Medium Exp. Or.

Small Series1

Table 4: State regulations and the firm Farm size Separate 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 2003-04 2008-09 Frequency of inspection by the state govt. officials on an average per size group per year 2003-04 2008-09 Large Medium Small Firm I, Firm J, Firm K, Firm H Firm A Not applicable None of the small firms have a separate employee Between 25 to 40 Between 30 to 45 Not applicabl e 1.2

Between 20 to 30 Between 30 to 45 1.5

Two to three visits .75

1 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 Large Firms With some export share in their sales Firms Percentage of contract labour Firm J: 15% export share 2005 06 NA 2007 08 51 Totally domestic market oriented Firms Firm H Percentage of contract labour 2005 2006 NA 2007 2008 40 59 Firm I NA 42 Mediu m Firms Firm K: 25% export share 47 Firm A: 40% export share 91 Firm E: 15 % export share 85 Small Firms Firm B: 60 % export share NA Firm C: 65% export share 98 Firm D: 65% export share 100 92 87 90 100 100 Firm L Firm M NA Firm F Firm G NA 93 NA 42 46 95 90

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 Firms Firm J: 15 percent export share Firm K: 25 percent export share Percentage of production farmed out Firms Around 25 Around 20 Firm A: 40 percent export share Around 60 Firm H I Firm Firm L Percentage of production farmed out Information not available Information not available Between 10 to 15 Small Firms Firm E: 15 percent export share Firm B: 60 percent export share Firm C: 65 percent export share Firm D: 65 percent export share Information not available Around 10 Does not farm out Does not farm out Source: Same as Table 4.

Firm M Firm F Firm G Does not reveal information Does not farm out Does not farm out

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.

c.

d.

Creation of land bank Reduction of regulatory hazards 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.

c.

The state should minimize interference in administrative matters and allow administrative institutions to work independently.

The state should pay heed to improving the quality of labour, particularly the skill base.