bihar gains bengal wanes

8/8/2019 Bihar Gains Bengal Wanes

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Change of State: Bihar Gains,Bengal Wanes

1. Sometime during the next few decades, if trendscontinue, the neighboring Indian states of West

Bengal and Bihar could see their fortunes reversed. Bengal,

the most industrially advanced state at the time of

Independence in 1947, has seen its position weaken during

30-plus years of communist rule. Meanwhile, Bihar, one of

the Bimaru states (including Bihar, Madhya Pradesh,

Rajasthan, Uttar Pradesh) is a rising economic star.

2. The Bimaru acronym has been appropriate all these

years: In Hindi, bimarmeans "sick." But there was much

jubilation in Patna, Bihar's capital, when the state

announced an 11% GDP growth for 2009, second only to

progressive Gujarat. "Between 2004-2005 and 2008-2009,

[GDP] grew at an average rate of 11% per annum," says

Dharmakirti Joshi, director and principal economist atCRISIL, a Standard & Poor's company.

3. While Patna cheered, Kolkata (formerly Calcutta) -- the

capital of West Bengal -- mourned. What had millions in

tears on the city's streets was the January 17 death of Jyoti

Basu, the state's 95-year-old former chief minister and

leader of the Communist Party of India (Marxist), or CPIM.

4. On November 24, Bihar's chief minister, Nitish Kumar,

presented a report card on his government's completion of

four years in office. "Bihar is poised to be one of the leading

states in India," he said. "We have endured years of insults


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from other states. But today, they are copying us.... We

have made tremendous strides in many areas, but our

mission is far from accomplished."

5. Indeed, Bihar has received some good press lately. An

International Finance Commission (IFC) report titled, "Doing

Business in India 2009," has given Patna a number-two rank

in the category of starting a business. (New Delhi is number

one.) "Business start-up is least expensive in Patna,"

according to the IFC report. Bihar has also taken several

initiatives on the social development front. It has won the

Manthan award for e-governance for its Jaankari program, a

project in the right-to-information arena.

6. Bengal, meanwhile, is drawing more brickbats than

laurels, for problems ranging from trade union issues to

government policies that critics say have stifled industrial

growth.

'A Miracle in the Making'

7. Bihar's new dynamism has two sorts of skeptics. First are

those who doubt the numbers. "The estimates of GSDP

[gross state domestic product] are always prepared by the

state governments, not only for Bihar but for other states as

well," says Shaibal Gupta, economist and member secretary

of the Patna-based Asian Development Research Institute(ADRI). "The Central Statistical Organization [CSO] makes

comparable estimates of the states based on this data. It

has been found that there is an error of 3% to 7% between

the estimates prepared by the states and final estimates

prepared by the CSO." Data are used selectively. For


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instance, while Kumar is promoting the high Patna rank

under "Starting a Business" in the IFC study, Rajesh

Chakrabarti, assistant professor of finance at the

Hyderabad-based Indian School of Business (ISB), points

out that the city's overall rank in "Doing Business" is actually

14. For the record, Kolkata is last of the 17 Indian cities

studied.

8. The second school of thought is that the numbers may

well be correct -- but while the figures indicate a move in

the right direction, the change is only minimal because the

base is so low. "Bihar has the lowest per capita income

among Indian states," says Joshi of CRISIL. "Even if Bihar

continues to grow at this rate for the next 10 years, its per

capita income will still be below the 2007-2008 national

average. It is starting from a very weak base and has lot of

catching up to do."

9. Wharton management professor Saikat Chaudhuri says he

is "happy to see how Nitish Kumar has unlocked the

potential" of Bihar, which "should have been one of the

richest states" because of its large amounts of fertile land

and industrial development. (Some of those industries have

since gone to the new state of Jharkhand that was carved

out of Bihar.) However, he agrees that Bihar is starting

"from a very, very low base," and that its growth should be

viewed in perspective.

10. "It's a wonderful example of how good governance and

responsible, accountable leadership can make a difference,

even in Bihar," says Wharton management professor
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JitendraSingh. However, assuming the numbers are correct,

he adds that "GDP growth is not the be-all and end-all of

economic development" and wonders "if the quality of life is

improving or declining." Another factor likely to affect Bihar's

prospects, he notes, is the stigma of corruption and political

cronyism that Bihar has carried over the years.

11. Bihar's growth has been largely spurred by government

investment. "The total plan expenditure of Bihar at US$1

billion in 2005-2006 has more than tripled in just the first

three-year period of the present government," says Gupta.

"In 2008-09, it stood at [more than] US$3 billion. Such a

substantial increase in development expenditure could not

but improve the economic environment of the state." Joshi

adds a warning, however: "Unless private activity picks up,

this kind of growth will be unsustainable."

12. Chaudhuri points out that non-resident Indians and

other investors are beginning to show interest in the state.

Large stretches of the proposed Rs. 37,000 crore (US$8.2

billion) Eastern Dedicated Freight Corridor linking Punjab

and Bengal passes through Bihar, and will be "a tremendous

draw to all kinds of investors."

13. "It remains to be seen whether this can be sustained,"

agrees Chakrabarti. "But it does look like Bihar is undergoing

a great transformation, possibly a miracle in the making."

14. What was wrong with the state all these years? "Bihar

has historically been a non-functioning state," says Gupta.

"The main challenge before the state government was to

build a functioning state structure, where [economic]
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inclusion is inbuilt. This is not possible without banishing the

last vestiges of feudalism." Adds Chakrabarti: "For very

long, Bihar was stalled in caste battles, focused on fighting

over the pie rather than on expanding it. Developmental

institutions and law and order did not get the necessary

attention. If anything, it worsened over the past few

decades. A corrected focus on growth rather than fighting

over the share of a dwindling pie and the necessary

attention to institutions have contributed to the growth."

15. Joshi gives an example of how things were actually

going downhill. "About 10% of households in Bihar had

access to electricity in 2001, lower than the 12% in 1991.

Bihar looks very poor on major development parameters.

The overall investment climate was quite unattractive in

Bihar."

Bengal's Setbacks

16. Bihar is tomorrow's story. Is Bengal yesterday's? "The

share of industry in the state's GDP is around 18%, much

lower than the national average of 28%," says Joshi.

"Between 2004 and 2008, registered manufacturing grew at

an anemic 3.4% per annum, whereas unregistered

manufacturing grew at 7.0%, much below the national

average. Lack of adequate infrastructure, trade union issues,

licensing requirements and the policies of the governmentare to blame. More recently, lack of clarity in land

acquisition and violence at Singur [where the Tata Motors

attempted to set up a plant to manufacture its Nano

automobile] and Nandigram [where the Salim group of


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Indonesia had been allotted land for a chemical hub]

thwarted attempts at reviving industry."

17. The problem with Bengal "is not that people today

oppose industrialization, but [they oppose] the manner in

which it was done," according to Chaudhuri, who points out

that force was used in land acquisition from farmers for the

projects. "In a state where people have not seen new

industrialization [and there are] many closed factories, and

people are conservative and risk averse by nature, the

mindset of farmers sitting on fertile land is going to be, 'I

can feed my family off it,'" he says. While crediting former

chief minister Basu for land reforms that led to small

holdings and "an incredible revolution in agricultural output,"

Chaudhuri says those reforms backfired when the

government decided to take back some of those land

holdings for the Singur and Nandigram projects.

18. According to Chaudhuri, Singur and Nandigram are

setbacks "more in terms of delaying progress as opposed to

derailing it and plunging the state into stagnation once

again." He argues that Bengal has inherent competitive

advantages, such as its strategic location on the Far East-

West corridor, cheaper land and lower costs of living

compared to many other states, and a collection of elite

educational institutions. Significantly, both the ruling CPIM

party and its rival, the Trinamool Congress led by Mamata

Banerjee, are in favor of industrialization, except that each

approaches it in the context of its respective political base,

he adds. For example, the CPIM's top leadership was willing

to embrace industrialization, but it had to then sell that idea


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to its party cadres, and then to its political base and the

middle class, he explains.

19. Against that backdrop, the Nano project in Singur "may

have been a little early," says Chaudhuri, pointing out that

"it is difficult to change mindsets overnight." Over the last

10 years, Bengal's chief minister and Jyoti Basu's successor,

Buddhadeb Bhattacharjee, had "reversed course" from an

unfriendly business policy to one that brought forward

momentum, "and Singur was to have been the catalyst" to

push the state towards a 10% growth rate," he notes. But

that attempt at showcasing the state's growth opportunity

was aborted by a confluence of forced land acquisition and

political opportunism, as he sees it.

20. Going forward, Chaudhuri believes a two-phase growth

agenda would be beneficial for Bengal. In the first phase,

between now and the next state elections 18 months away,

he does not recommend "an iconic project" like that of Tata

in Singur, but action on five relatively smaller fronts: (a)

steel plants proposed by the Jindal group and a few others,

(b) the Rs. 10,000 crore (US$2.5 billion) Durgapur

Aerotropolis project that combines an airport and a business

park, and is backed by Singapore's Changi Airports

International, (c) the proposed Panargarh Industrial Park in

Burdwan district that includes a steel plant project, (d) a

proposed petrochemical hub in the Haldia district and (e)

continued growth of the IT sector, boosted by investments

of major players like Wipro Technologies and Infosys

Technologies.


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"If these go through, they will demonstrate not just the

potential but [that] it can be implemented on the ground,"

says Chaudhuri, adding that "these showcases" can be used

to trigger the next phase of investing in Bengal.

Ideological Baggage

21. All the same, Bengal has ideological baggage to rid itself

of, according to Wharton's Singh. He feels the state may not

be able to catch up with other, more progressive states

"after years of wrong-headed thinking." While

Bhattacharjee's efforts at industrialization are impressive,"the real work has to be carried out by a succession of

leaders," and it cannot be done overnight. "Eventually all

economic activity sits in a societal context, with its set of

values and psychology," he says.

22. In fact, Bengal set itself on the wrong track decades

ago, according to Singh. "Communism as a way to organize

an economy is one of the most expensive mistakes in

human history and the 20th century," he says, adding that he

is "surprised that we still have states in India with

communist governments."

23. Chakrabarti of ISB agrees. "In the initial years of left

rule, aggressive trade unionism and the resulting industrial

relation problems practically chased industry away fromBengal. In the eighties, Bengal had become synonymous

with labor trouble -- a branding issue that, rightly or

wrongly, dogs it to this date. Economists Timothy Besley and

Robin Burgess of the London School of Economics have

shown that the 'pro-labor' states in India have ended up


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with higher unemployment, lower wage rates and lower per

capita income. Bengal, under Left rule, would be the poster

boy of that analysis."

24. Gupta of ADRI feels that Bengal's problems had taken

root earlier; the Left just helped them along. "Bengal started

sliding back on the industrial front immediately after

Independence," he says.

25. "The left rule has been inimical to investment and

growth, especially for the manufacturing sector," says

Laveesh Bhandari, director of Indicus Analytics, aneconomics research firm. Bhandari is also a visiting faculty

member at Indian Institute of Technology Delhi where he

teaches economics. "More than ideology, there has been

inefficiency and lack of a coherent plan on industrial

development. The state bureaucracy has become non-

functional."

26. In his February 2009 Indicus Analytics report titled,

"Transforming West Bengal -- Changing the Agenda for an

Agenda for Change," published jointly with economist Bibek

Debroy, Bhandari notes: "It used to be said that what

Bengal thinks today, India thinks tomorrow. It is unlikely

that anyone will say this today. Instead, what India thinks

today, West Bengal doesn't think about even tomorrow. It

doesn't even think about it the day after tomorrow."

27. According to Bhandari, Bengal has gone from being one

of the more successful states in India in the 1960s to "just

below average" in 2008, lagging Haryana, Maharashtra and

Gujarat. Bengal's per capita gross domestic state product of


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US$637 in 2007-2008 ranked 18th in the country -- "not a

rank one can be inordinately proud of," he adds.

28. The Indicus report has had its share of critics. In

response to it, The Asian Age, a morning daily, wrote: "How

does one interpret a supposedly 'independent' exercise in

evaluating the performance of one particular state -- West

Bengal -- which is actually funded by the major opposition

party in the state and released with much publicity just

before general elections?"

29. Still, many believe that the big triumphs -- or perceivedtriumphs -- of the left in the past are coming back to haunt

the government and the party. The biggest achievement in

West Bengal has been land reforms. The left came to power

in 1977. In 1978, it launched Operation Barga. Under this,

sharecroppers (bargadars) were effectively made owners of

the land they tilled. Small and marginal farmers own 84% of

the total agricultural land in Bengal today, compared with

the 43% average in the rest of India. This created a huge

vote bank that has kept the left in power, but it has also

created problems. During the time of the reforms, land

holdings were adequate for one family -- but that is not

necessarily the case today, when several sons might need to

share the original holdings.

30. Another challenge that Bengal has faced is the falloutfrom the partition that presaged Independence. As a result

of the partition, the state lost a lot of its jute-growing areas

to East Pakistan (now Bangladesh). It also had to cope with

three million refugees.


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31. In addition, some observers believe that the policies of

India's central government were biased against the eastern

part of the country. According to Gupta of ADRI, both Bengal

and Bihar have been disadvantaged by certain policies.

"Freight equalization was the most glaring example," he

says. Under freight equalization, transportation charges of

minerals and raw materials were subsidized by the

government, so the eventual cost was the same for factories

all over the country. The result: Mineral-rich Bihar and West

Bengal no longer attracted investment. Chakrabarti,

however, doesn't believe this has any real bearing on

Bengal's current situation. "Freight equalization may have

had a marginal effect during the pre-liberalization eighties,

but much of Bengal's woes are of its own making."

32. Bengal's state government has also shot itself in the foot

on several occasions. For instance, in 1983, it abolished the

teaching of English in primary schools in the government

education system. This was to create a level playing field forunderprivileged and rural children. It ended as a disaster in

a globalized era. In the process, the state missed out on the

rise of the IT and BPO industries, where knowledge of

English has given the country an edge over China.

33. Much damage occurred over time. According to a 2009

report by the Associated Chambers of Commerce and

Industry (Assocham): "West Bengal occupied prime position

at 4th place as a favorable investment destination in

calendar 2007. However, it witnessed a major shift to 13th

position in the current financial year (2008-09)." In calendar

2008, expression of interest to invest in West Bengal by


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India Inc dropped 63% over calendar 2007. "The effects of

the economic slowdown, the credit crunch along with the

Singur saga spelled troubles for the region," adds Assocham.

34. Basu was Bengal's chief minister for 23 continuous

years, an international record. Nitish Kumar, Bihar's chief

minister, has just completed four years in office. Meanwhile,

anyone comparing the two might well wonder whether West

Bengal will recover, and whether Bihar's renaissance will be

a brief wonder.

35. Wharton's Singh sees broader implications for what isunderway in Bengal and Bihar. "The real hope for India is

[that] its leaders are smart enough to see that these

comparisons across provinces will get people thinking about

the right issues," he says. "People may start asking what is

going wrong [in their states]."

bihar gains bengal wanes

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