Transcript Industrializing West Bengal? The case of institutional

Industrializing West Bengal?
The case of institutional
stickiness
Deepita Chakravarty
Indranil Bose
Introduction
• Despite the pursuit of similar industrial policies during the post
1990s, Indian states have revealed divergent outcomes in
industrial growth.
• Such divergence suggests different levels of policy
implementation which is itself a resultant of the interplay of
formal and informal institutions, historically shaped.
•
We try to explain this divergence in the context of the
evolution of state-business relations in West Bengal (WB), a
coastal state in Eastern India, and unique among Indian states
not only by virtue of being ruled by an uninterrupted Leftist
regime for the last thirty-two years, but also by having
witnessed a turnaround of sorts in its outlook towards private
capital within this period. We narrow down to the last thirty
years thus, and concentrate on the manufacturing sector alone.
The Policy and Performance
• Though industrially advanced at independence, two sets of central
government policies - freight equalization for coal and steel and emphasis
on import-substitution- dealt a heavy blow to Bengal’s industry.
• This was aggravated by the confrontationist strategy on part of the state followed since the beginning of Congress rule and carried on by the Left
Front Government (LFG) - which prevented it from lobbying pragmatically
to obtain licenses and industrial investment.
• Further deterrents emerged in the form of a radical trade unionism backed
by the Leftist intellectual support in the state.
• central government disinvestment in the infrastructure sector in the mid1960s, which badly hit WB’s engineering industry and precipitated largescale unemployment in formal manufacturing in the state.
• 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.
The Policy and Performance continues
• The expansion of informal manufacturing continued
unabated during Left rule since 1977 mainly for two
reasons .
• First, implementation of agrarian reforms followed by
decentralization helped generate effective demand for
non-agricultural goods produced mainly in the village
manufacturing units in the informal sector.
• Second, as a result of prolonged neglect of basic
infrastructure, large units gradually decelerated and the
skilled workers employed therein opened shops in the
neighbourhood, carrying on businesses either
subcontracted - from medium and some large industries
– or independently, fuelling further growth of the informal
sector.
The percentage share of the formal and informal manufacturing in WB,
1980-81 to 1994-95 (at 1993-94 prices)
70
60
50
40
30
20
10
19
80
-8
19 1
81
-8
19 2
82
-8
19 3
83
-8
19 4
84
-8
19 5
85
-8
19 6
86
-8
19 7
87
-8
19 8
88
-8
19 9
89
-9
19 0
90
-9
19 1
91
-9
19 2
92
-9
19 3
93
-9
19 4
94
-9
5
0
Formal
Informal
The Policy and Performance continues
• During the end of 1980s as a result of the decline in the traditional
industries such as jute, cotton and engineering in WB, workers in large
numbers were losing jobs.
• Alternative job prospects were bleak as no new industrial initiatives were
emerging in the formal sector. Consequently, it was argued that the trade
unions lost their strength; the number of strikes declined, the number of
lockouts increased.
• At this juncture the already-liberalizing Indian economy took a more
specific turn towards dismantling of the License Raj and opening up to the
world market in a significant way.
• The ruling party and the government of WB could see the positive
implications of these changes for buttressing the cause of industrialization
in the state. This thinking was reinforced by the LFG’s realization of its
increasing alienation from the urban voters, faced with growing
unemployment. Under these circumstances the chambers of Commerce
could convince the LFG to take up the cause of industrialization.
The New Industrial Policy, 1994-95
The Salient features of the new industrial policy of 1994-95
• (a) Welcoming foreign technology and investment, as may be appropriate
or mutually advantageous.
• (b) highlights the key role of the private sector in providing accelerated
growth.
• In the context of the changes in the policies of the Government of India, the
need for meeting the increased demand for power and the constraints on the
budgetary resources, the State Government would also welcome private
sector investment in power generation.
• (c) Along with the 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.
• (d) Improvement and up-gradation of industrial infrastructure is
indispensable for accelerated growth of industries.
• (e) 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.
The Performance
• A vulnerable workforce, as was claimed in the case of WB, generally
creates favourable conditions in the economy for renewed investment
prospects.
• Moreover, with the changes in the policy regime at the centre since early
1990s followed by changes proposed in the new industrial policy of the
state, it was expected that there would be a boost in the investment scenario
of the state.
• But a few changes apart, the trend of predominance of the unorganized
sector continues over the years.
• Figure 2 shows that since the mid 1990s unorganized manufacturing, in
fact, has been contributing almost as much as the organized sector and
lately even more.
• Moreover, the rate of growth of organized manufacturing is consistently
lower than that of unorganized manufacturing both in the post as well as in
the pre new-industrial-policy regimes of the state. However, the magnitude
of the growth rate in the organized manufacturing has increased in the
second period.
• The relative decline of the organized sector in the case of WB becomes
striking when we see how the state’s position deteriorates with respect to
the country as a whole during the last three decades when only the
organized factory sector is considered.
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
Table 1: Trend rates of growth (per cent per annum) of some selected variables in
West Bengal manufacturing before and after the New Industrial Policy of the state
in 1994-95
!980-81 to 1994-95
1995-96 to 2002-03
Employment
- 2.02*(-6.30)
- 7.19* (6.91)
Net value added
3.54* (3.88)
- 5.53 (-1.95)
Labour productivity
5.56* (7.37)
1.70 (0.87)
Wage rate
3.86* (12.66)
4.13* (10.17)
Wages to nva
- 1.7* (-2.76)
2.47 (1.15)
Variables
Source: ASI.
Note: * indicates statistical significance at 5 per cent level. t-values are given in the parentheses.
The research question
• In the employment front the importance of the unorganized sector also
accentuates over the last three decades. In 2001 only around 13 percent of
the workforce was engaged in organized manufacturing.
• The domination, and increasingly, by unorganized manufacturing in
employment is not unique to WB. What is unique is the domination of
unorganized over the organized sector in relation to output. This is
surprising, given the notable changes in the attitudes of the state towards
large industry since the early 1990s.
• A related study by Roychoudhuri et al in 2007, argues that the main reason
for WB’s failure to attract large investment is poor infrastructure and
related inability of the state to improve it over time
.
• Do labour productivity figures suggest further clues?
Figure 2: The levels of Labour productivity in the four states:
1980/81 to 2002/03
350000
300000
250000
200000
150000
100000
50000
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
0
Gujarat
TN
Maharash
WB
Figure 3: The levels of emolument rates in the four states: 1980/81
to 2002/03
120000
100000
80000
Gujarat
60000
TN
Maharash
WB
40000
20000
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
0
The Research question continues
• It is interesting that when the growth rate of productivity
declines in the post- 1994-95 era, the wage rate actually
increases.
• The rate of decline in the wage share to net value added shows
an insignificant trend in the period after the new industrial
policy regime.
• This is happening when there was a perceptibly sharp decline
in the rate of growth of employment in the factory sector of
manufacturing of negative order with the second period
showing as low as (-) 7.19 percent per annum.
• We wonder to what extent the organized workforce in the state
has been rendered vulnerable as claimed by others.
• We try to address these apparently contradictory trends along
with the increasing emergence of the unorganized sector with
the help of primary data.
The Findings
•
The physical infrastructure is still wanting particularly in the domains of
power, water and, ports.
•
In a densely-populated, highly fertile agrarian state like WB there is no clear
and consistent thinking about a land bank to facilitate industry, which has
momentous implications for the future of industrialization in the state.
•
While the regulatory regime has been simplified to a great extent on paper,
in practice its secret presence at lower levels of the bureaucracy frustrates
the emergence of a benign relationship between state and business.
•
In fact regulation hazards turned out to be a major reason behind small
firms desiring to operate from the informal sector. Further, infrastructural
inadequacy, particularly power shortage, is a major reason leading largescale units not to expand their capacity but farm out to the informal sector.
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
Findings
• Political interference continues to retard development of infrastructure in
WB as 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.
• Besides, 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 and incapacitating it for action.
• The increasing tension between formal governance and informal party
control is affecting the credibility of the government.
Findings
•
•
•
•
•
•
•
Turning to the other dimension of the problem, our research prompts us to strongly
suspect the apparently docile character of organized labour and their unions.
In the guise of cooperative behaviour, organized labour in the state is showing an
extreme path dependency arising out of uncertainty in the prospect of future gains.
True, the ‘gherao’ culture , which terrorised managers in the sixties and seventies,
is no longer in evidence. Management in many firms confirm that militancy in the
bargaining process reduced significantly as the patronage from the state leadership
in favour of pressure tactics is now unavailable.
However, the unions still bargain quite adamantly for higher wages , although not
insistent on filling up vacancies or making the contract workers permanent.
Till the abolition of the licensing policies, the state and the ruling party were
indifferent to the ground realities of industrial relations and improving work ethic at
the shop floor. But in the changed scenario, the senior trade union leaders are
seeking to improve the work ethic among permanent workers of the manufacturing
units.
But the management feel that the permanent workers have got habituated not to
work and work only on ‘overtime’ payment, which in Bengal, virtually means extra
payment without extra hours of work.
While senior leaders at the state level ask cadres and unit-level leaders to cooperate
with the management at the shop floor, the workers resist passively. The
management inform about the tremendous increase of absenteeism among
permanent workers in recent years. Can the permanent workers, accustomed to
wages without work, start working sincerely at the instance of the party whip?
Nowadays the management seldom have to encounter a written charter of demands;
what they have to face is some kind of continuous indirect pressure, which is a
serious deterrent to new investment in the state.
Table 4: Percentage of Contract/casual labour in the sample firms
Totally domestic market oriented
With some export share in their sales
Firms
Percentage of contract
labour
2005-06
Large Firms
Medium Firms
Small Firms
Firms
200708
Percentage of contract
labour
20052006
20072008
Firm J: 15 percent
export share
NA
51
Firm H
NA
40
Firm K: 25 percent
export share
47
59
Firm I
NA
42
Firm A: 40 percent
export share
91
92
Firm L
NA
42
Firm E: 15 percent
export share
85
87
Firm M
NA
46
Firm B: 60 percent
export share
NA
90
Firm F
93
95
Firm C: 65 percent
export share
98
100
Firm G
NA
90
Firm D: 65 percent
export share
100
100
Source: Field survey, conducted during December, 2008 and January, 2009. Note: “NA” refers to not available. Only blue
collar workers have been considered.
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.
Table 6: Incidence of Trade Unionism in the Sample Firms
No Union
One dominant union
Firm type
Large export market
oriented
Firm J: CITU, INTUC
Firm K: Trinamul
Congress, CITU
Large domestic
market oriented
Medium export
market oriented
Firm I: CITU
Firm H: CITU,
Trinamul Congress
Firm L: CITU
Firm M: CITU,
Trinamool Congress
Firm A, Firm E
Medium domestic
market oriented
Small export market
oriented
Firm B, Firm C, Firm
D
Small domestic
market oriented
Firm G
Source: Same as Table 4.
More than one
dominant union
Firm F: Trinamul
Congress
Findings
• Consequently management is weary of technology-intensive investments
that can lead to human asset specificity and in turn costly haggling.
• We detect an implicit understanding between entrepreneurs, organized
labour and their unions. It seems that the state has also played a passive
role in this regard.
• This particular outcome has serious implications for the perpetuating
informalization in the state.
• This is all the more due to easy availability of unorganized cheap labour
and an old practice of farming out production to the small units in the state.
• Management informalize production in more than one way by employing
contact workers and farming out production. Trade unions also recognize
the fact that to retain power in a situation of decline, informalization to an
extent is beneficial .
• On the one hand, they have succeeded in achieving higher wages even in
the absence of corresponding productivity gains for a small group of
insiders (permanent workers); on the other, they have been able to develop
a typical patron-client relationship with the contract workers.
Concluding remarks
• Clearly the right institutions for creating a more enabling
environment for organized industry do not seem to exist in the
state.
• Not only do they not exist, but also their growth or emergence
is frustrated by an overarching institution –the multi-layered
party- which seems to widen its domain increasingly.
• While large firms do seem to confirm certain changes in
operation, which may give the impression of WB being an
investor-friendly destination, these changes are neither
sufficient ( because vital problems like inadequacy of
infrastructure and absence of work ethic remain) nor pervasive
( relatively small and medium scale firms feel discriminated
against and unable to cope with bureaucratic hurdles).
Concluding
…
• Having been in power for so long the ruling party or its mass organs are
no longer monolithic.
• There thus exists a multi-layered power structure in the state where each
local unit of the party wields enormous power over the local people
through ‘management of illegalities’ on the one hand and promotion of
‘clientelism’ on the other.
• 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 in a ‘non-sticky’ fashion.
• Furthermore, when the LFG implemented its earlier programmes of land
reforms and decentralization, howsoever successfully, the power structure
within the party had not got fractured.
• 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 both the strength of the government
and the people’s perception about the government’s seriousness and
ability to execute its own decisions. This is in contrast to China where not
only is there no opposition, but also where there is unified party control
over policy making. It is unlikely that the party cadres in WB would fail to
note these dissensions and not use them to their advantage.