Wednesday, November 18, 2009

Late Stage Industrialization: The Curious Case of West Bengal

The West Bengal government, one run by the Communist Party of India [Marxist], is on its way out. Well, almost - they look almost as clueless as Gordon Brown. Their opponents, not exactly as smooth as David Cameron, are united and single-minded, and has the political momentum. Indeed, the West Bengal elections have one additional year compared to the British one, which is due by June 2010, but at the current state, one can't say whether the additional time at hand is an advantage or a liability.

May be a liability, as everything is going wrong for the government. The administration has lost control over the party, and the latter is busy undoing whatever little credibility the government was trying to build by creating a momentum in terms of industrialization and job creation in the state. In the meantime, the opposition seems to be gaining brownie points just by watching the fun - by sitting in sidelines while Maoists take over a number of villages in the state and threaten the sense of security of the Babus, or by making improbable proposals to government regarding the industrialization of the state.

So, every passing day, it gets worse for the government. Once you are in power for more than 30 years, you tend to run out of ideas. Besides, if you have won six elections in a row, you tend to develop a bit of sweet spot, you forget how it feels to lose an election and rule out the plausibility that this could ever happen. Similarly, the West Bengal government seems to be in denial - they are hoping against hope that something will surely get wrong with the opposition in the next few months and the public opinion will turn again. There is very little chance that this will actually happen, though.

Somehow, the government strategists are pinning their hopes on negative possibilities. One big hope is that the temperamental and inconsistent leader of the opposition, Mrs Mamta Banerjee, will fall out with Congress, the mother ship she came out from almost a decade earlier and the one she is now aligned with. This is a realistic possibility, given that the Congress has taken a conscious strategy of asserting itself in many states and undermining its regional allies in a systematic way. And, besides, Ms Banerjee has proved to be as inconsistent as ever, pursuing petty rivalries with state Congress leaders and even proving herself unreliable in the federal cabinet, where she holds an important portfolio.

However, this seems unlikely to happen. While Congress wants to create its own base in some of the other states, it seems ready to wait in West Bengal. The Congress leadership seems to be showing an infinite patience to Mamta Banerjee, in the hope that she can plausibly unseat the CPIM government in the next election. There may be a cynical calculation somewhere in the Congress Policy-making ranks that she will soon burn herself out after winning the election, as she neither has any coherent policies nor any commitment to ideology, and eventually her party will disintegrate and return to Congress fold. Besides, the current Congress leadership include a few prominent leaders from West Bengal, who are happy to hold onto their cabinet portfolios and keep away any challenge within the party to their supremacy. They are better off ceding the state to Mamta Banerjee, at least for the moment.

The other great hope of the CPIM was that Ms Banerjee's ambivalence to industrialization will be exposed once the West Bengal government made some progress in their own projects. Ms Banerjee has earned her anti-industrialization credentials by fighting against allocation of land to the Tata Car factory in Singur. She took a lot of support from Maoists during the time, and as Maoists are now fighting an often violent, low intensity war in the state, she has found it difficult to extricate herself from the association. However, this anti-progress credentials are not sticking yet, as there is very little progress to show on the other side. After Tatas decided to walk out of Singur and open the factory in politically safer [and sensitive] Gujrat instead, the government's efforts to encourage setting up other industrial units ended in a whimper. Since then, a number of projects have been quietly abandoned; some, like the promised land issue for Infosys and Wipro, two of India's largest IT companies, blew up on the government's face when disputes surrounded the land earmarked for them in Calcutta outskirts. Instead of exposing Ms Banerjee, the recent events ended up exposing the government's own indecision and ambivalence on the industrialization issue.

Yet, this could indeed have been the Government's biggest vote winner. The government could have built a positive argument around this, make a break with its own past and could have projected Ms Banerjee, indeed, in a very poor light. Yes, notwithstanding the Tata withdrawal from Singur, all of these could be done; it can still be done. However, the problem of the West Bengal government is neither luck nor its internal rift - the cadres are mortified and they would do anything that will keep them in power - but a complete lack of understanding of the challenges involved in the late stage industrialization.

For example, the West Bengal government did not fully appreciate that it is not operating in a vacuum, and unless political will to keep the Tata project on track is displayed, they will be incentivized to move to another state. They were in denial even when the Tata Motors management started talking about it: they were expecting that the quantum of investment will keep Tatas tied down in West Bengal. There was no understanding that another state, in this case, Gujrat, can offer so many incentives to shift this prestige project away that Tatas in fact made up their losses upfront from the incentives they received.

Besides, the West Bengal's industrialization programme was too dependent on inviting businessmen from elsewhere to set up units in West Bengal, and too little on encouraging local entrepreneurs starting up. I would consider the success of some of the West Bengal based PC manufacturing units exemplary, but these make no news and completely go under the radar. This also makes the Government's success limited, open to interstate competition and restricted in terms of shirt term and long term impact. The industrial policy of the state failed to take cognizance that there is no value in copying what Maharastra, Tamil Nadu or Karnataka did two decades ago, and will need complete rethink if one has to start industrialization today.

Lastly, the West Bengal government also failed miserably to work on three enabling factors of late stage industrialization - Energy, Education and Environment. The state has become power deficient, and too dependent on coal-fired thermal power plants. This makes the power supply unreliable, and difficult to scale up at the time of demand. The gas from Bangladesh remained unavailable; the Communist Party itself campaigned against nuclear power at the federal level, and as a result, the state is unlikely to benefit from the expansion of nuclear energy infrastructure which will happen in India over next few years. The state has also neglected education, allowing the state-funded schools and colleges become bastions of party politics and removed the last vestiges of meritocracy in favour cronyism in selection and appointment of the teaching cadre. And, indeed, the state did not have an environment policy nor thought it is important to have one. Calcutta became one of the most polluted city in India despite its low level of industrialization, and one in six people there suffered from bronchial diseases. It is only recently, pushed by environmental activists and the Supreme Court, the government has started taking some action, though as reluctantly as ever.

It is indeed possible to turn a page in industrialization and make a fresh start. Eighteen months is still good enough time to get some momentum. But as long as the policymakers of the state continue to take their lessons in industrialization from early twentieth century Soviet Russia and not adjust themselves to the realities of the late stage industrialization, they are unlikely to make any headway. They will only continue to supply brownie points to the opposition; worse, they will also continue to supply wrong ideas, which the opposition will pursue when their time comes.

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