Pursuit of lost prestige*

The next five phases of the ongoing general elections will be held, among other places, in the jute hub of India. 75 out of 104 jute mills of the country are located in West Bengal which is still the centre of the Indian jute industry valued at Rs 10,000 crore. This sector directly provides employment to about 2.5 lakh workers and sustains over 40 lakh farm families in West Bengal. There are around 60,000 jute mill workers in the North 24 Parganas district alone. It is reported that two in three workers are working contractually in jobs that give little other than a basic income when there is work.

Jute is grown in major parts of lower Ganges plains, especially in the districts of Midnapur, Bardhman, 24 Parganas, Malda, Murshidabad etc. The jute mills are located along the banks of the river Hooghly. Tribeni, Bhadreswar, Champdani and Sreerampur, Howrah, Budge Budge, Shamnagar, Titagarh are the major production centres where jute mills established in the early decades of last century still produce millions of bales of jute. It is estimated that in the next five phases of election, around two crore citizens who are directly or indirectly associated with the jute sector of West Bengal will cast their vote.

Recently, in an election rally in Darjeeling, West Bengal’s Chief Minister and Trinamool Congress (TMC) supremo Mamata Banerjee has alleged that the Union Government was all out to rob 10 lakh small tea growers of their livelihood. Along with this, she also stated that “the Centre is all set to end the jute industry of Bengal”. Tea and Jute once contributed maximum export earnings for India. Unfortunately, these two major industries of Bengal, which are mostly controlled by the Union government agencies, are struggling to survive now. Lately, Economic Times reported that the jute sector crisis may give edge to the TMC in Bengal polls.

This piece will explore, from a historical perspective, the current position of Bengal's jute industry which provides direct employment to over four million people.

Unfavourable history

The East India Company introduced jute to Europe in the late 18th century. As jute replaced hemp as a natural fibre, jute mills proliferated in Scotland, spurring demand for the raw material from India. In 1855, Scottish industrialist George Auckland had set up India's first jute mill in Rishra (District: Hoogly), north of Calcutta. Historically, for various reasons, jute mills were concentrated on the banks of river Hoogly. By 1870, five mills with 950 machine-powered looms operated around Calcutta. Competition from these Indian mills drove Scottish mill owners and thousands of Bengali handloom jute weavers out of business. Following Indian independence in 1947, British jute mill owners withdrew from India and jute brokers and speculators who sought a quick profit acquired most British mills. Production of finished jute goods increased through mechanisation, resulting to a reduction in the number of mills in Bengal, which fell from 95 in 1951 to 59 in 1991. The same process also triggered widespread layoffs.

Undivided Bengal had a geographical advantage in the jute industry, as the jute mills were located on the banks of river Hoogly in western part of the province, and high quality raw jute was produced in the fertile lands of the eastern part. The Partition of Bengal had robbed the state off that advantage.

Jute export tax

Before independence, jute was mainly exported because demand in the domestic market was low. Since 1937, the jute producing states—Bengal, Assam, Orissa, and Bihar—received 62.5 per cent share of the export tax. The Remaining 37.5 per cent of the tax receipt was earmarked for the Union Government. As Bengal produced 90 per cent of the total jute production at that time, Bengal government earned substantial revenue from jute export. But on the day of the Partition of Bengal (August 15, 1947) when West Bengal attained independence along with India , the Union government slashed states’ share of export tax from 62.5 per cent to 20 per cent and increased the Union government’s share to 80 per cent. It was the second major blow to the jute industry of Bengal.

The British government first imposed export tax on jute in 1916 at the rate of Rs 16 per tonne of jute sack. In 1946, it was raised to Rs 80 per tonne and in 1949, the government of the newly independent India raised the jute export tax to Rs 350 per tonne. In November 1950, the jute export tax was raised further to Rs 750 per tonne and within one month, it was raised to Rs 1,500 per tonne. This rate was maintained till February 1952. After that, the tax rate was steadily reduced to zero by 1955 when the Indian Parliament enacted the Essential Commodities Act (ECA), and jute, among other commodities, was included as an essential commodity. Commodities scheduled under the EC Act, 1955, as essential were: (i) Drugs; (ii) Fertiliser, whether inorganic, organic or mixed; (iii) Foodstuffs, including edible oilseeds and oils; (iv) Hank yarn made wholly from cotton; (v) Petroleum and petroleum products; (vi) Raw jute and jute textile; (vii) Seeds of food-crops etc.

Between 1955 and 1966, the Union government did not impose any export tax on jute. After devaluation of the rupee in June 1966 when Indian goods became more competitive in the global market, the Union government again reintroduced the jute export tax at the rate of Rs 900 per tonne of jute sacks. High export tax was also imposed on tea—another major export product of Bengal. Thus, the competitive advantage of jute and tea due to devaluation of currency in the international market was denied. By 1973, the jute export tax was reduced to Rs 200 per tonne, and in March 1974 when the price of domestic raw jute crashed to bare minimum, the Indian government raised the tax to Rs 600 per tonne.

The Partition of Bengal and Union governments export tax policy on jute had destroyed the backbone of the most vibrant industry of Bengal. In the fifties, Indian jute industry (with 95 mills, employing nearly 2.79 lakhs workers) catered mainly to the international market. 86 per cent of its total products were exported. Presently, it sells nearly 93 per cent of its products in the domestic market only. In 1958, jute commanded 18.23 per cent share of India’s export earnings, which declined to 0.56 per cent in 1998.

Article 273 and grants in aid

The most obnoxious part of this export tax policy was the decision of providing aid in lieu of a share of the money the government earned from taxes imposed on the export of jute and products made out of jute. Article 273 of the Indian Constitution provides for a certain amount of money to be set aside by the Government of India each year to give to the states of Assam, Bihar, Odisha, and West Bengal, as a financial aid to these states.

The second clause of Article 273 of the Indian Constitution states that the financial aid given to the states of Assam, Bihar, Odisha and West Bengal will continue as long as the government continues to collect taxes on export of jute and jute products. This aid could be given for a maximum of ten years from the start of the Indian Constitution, or whichever comes first.

In nutshell, the 20 per cent share of jute export tax, as determined on August 15, 1947, was converted into ‘grants of aid’ by the article 273 when the Constitution came into force in 1950. And by 1960, the jute producing states’ share of jute export tax (in the form of grants in aid) became zero though the Union government continued to impose steep export tax on jute.

Gujarat’s cotton industry flourished at the expense of Bengal jute

Ranajit Ray (1977) has rightly argued that a steep jute export tax was imposed to offer export subsidies to the cotton exporters of Gujarat and Maharashtra. Taking advantage of government subsidies and increasing access to the international market, the cotton growers of western India gained enormously at the expense of jute growers of eastern India. In 1973, the wholesale price index (1961-62 as base) for cotton and jute were 206 and 160 respectively. Within a few months, the cotton price index reached 277 and jute declined to 142. On September 21, 1974, the cotton index reached 413 and the jute index remained low as before at 187. It clearly indicates that the jute growers of Bengal did not receive a reasonable price for raw jute, though, thanks to government policies, cotton growers of western India received a very high price for raw cotton. Inclusion of jute and jute textile under Essential Commodities Act 1955 also helped the union government to suppress the price of raw jute for the benefit of comprador jute mill owners dominated by a merchant community of western India.

Very high price of raw cotton made the swadeshi cotton mills of Bengal uncompetitive. Moreover, when the government announced the ‘freight equalisation’ policy in 1956, cotton was kept out of its purview. It may be recalled that the freight equalisation concept made "essential" items available at relatively constant prices throughout the country. Items included under the scheme were: coal, iron & steel and cement—mostly available in eastern India. But when demands for inclusion of important raw materials like cotton, oil seed, soda ash, methanol was raised, the Union government always negated those demands. In 1972 when the then Chief Minister Sidhartha Sankar Ray demanded equal price for cotton across the country, it was countered with the logic that higher cotton price was justified, as compared to Bombay, labour wages for Calcutta and Coimbatore were lower by 24 per cent and 11 per cent, respectively.

At that time, West Bengal mills had to pay 15 per cent higher price for raw cotton compared to the mills located in Gujarat and Maharashtra. Unable to compete with the western cotton mills due to high input costs of cotton, Bengal cotton mills became sick and by early 1980s many of these old mills were closed. Mohini Mills (closed in 1988) is one such example.

Current situation of Bengal’s jute industry

High price of raw jute and the existence of middlemen are a couple of major problems faced by the jute industry. The middlemen or traders procure raw jute from multiple farmers and then trade it to the mills. It is reported that for the financial year 2022-23, the government procured raw jute from farmers at a fixed Minimum Support Price (MSP) of Rs 4,750 per quintal. It reaches the mill at Rs 7,200 per quintal, that is, Rs 700 more than the Rs 6,500 per quintal cap for the final product.

Jute is primarily procured by the Union government for food grain packaging. A government regulation mandates 100 per cent jute bag usage for food grains and 20 per cent for sugar. However, current government orders for jute bags (1.48 lakh bales in October-November) fell short of the previous volumes (3.50 lakh bales). Performance of the Jute Corporation of India (JCI) is also not satisfactory in procuring raw jute from the farmers. Existence of middle men and traders in between mill owners and farmers points to the failure of JCI.

Flourishing jute industry in Bangladesh

It may be mentioned that while India’s jute industry is faltering, Bangladesh jute sector is flourishing. Bangladesh now accounts for nearly 75 percent of the global jute exports, while India’s share is just 7 per cent, reports Down to Earth. After attaining independence in 1971, Bangladesh consolidated its position in the global jute market. For example, in 1971, India and Bangladesh’s shares in the global market were 53 per cent and 20 per cent respectively. By 1976, India’s share declined to 35 per cent but Bangladesh’s share zoomed to 51 per cent. Between 1992-93 and 1998-99, India’s share in the global export of jute and allied products remained almost stagnant (increased marginally from 23 per cent to 24 per cent). But during this period, Bangladesh has emerged as the major gainer, increasing its share from 54 per cent to 60 per cent.

In January 2017, India imposed anti-dumping duties ranging from USD 19 to USD 352 per tonne for five years on jute exports from Bangladesh. While requesting the Union government to extend the anti-dumping duty, the Indian Jute Mills Association (IJMA) on May 5, 2022 said in a press statement: “Despite the current anti-dumping duty, jute exports from Bangladesh to India, as per Government of Bangladesh statistics, have been increasing. IJMA has contended that the industry would have been completely wiped off by now, had the GOI not imposed anti-dumping duty.” Accepting IJMA’s demand, a notification from the Indian Finance Ministry dated December 30, 2022, said that the duty was extended by another five years at a range of USD 6.3 to USD 351.72 per tonne. This indicates the strength of Bangladesh’s jute sector compared to Bengal/India.

Observations

High-quality raw jute of Bangladesh is a major challenge for the jute growers of Bengal. Industry cannot be protected for long by imposing anti-dumping duty. Though the ruling party of Bengal, the TMC, in its election manifesto has promised to strengthen the economic prospects of Bengal’s tea and jute industry, a long term plan is required to make the industry globally competitive.

Since independence, a small group of traders have been running the Bengal jute industry. Their primary objective is to earn maximum profit in a short period. Now, it is high time that the government starts phasing out all kinds of support and subsidies it had extended so far to the industry. High support price and assured domestic market for low grade products are discouraging the entrepreneurs to look beyond Indian shores with better and diversified products. The fate of the industry hangs on the introduction of modern production processes, induction of medium and small sized firms replacing the large composite firms, better working conditions and, most importantly, on the positive attitude of the entrepreneurs who should be prepared to exploit the emerging global market.

The Chief Minister of Bengal has rightly observed that “the Centre is all set to end the jute industry of Bengal”. Within the first three decades of India’s independence, once flourishing jute industry has been paralysed by the vested West Indian lobby through various suicidal policies.

Jute and tea are still under the control of the Union government. To rescue these two star sectors of Bengal, the state government must exert its rightful claim on the management of these vital industries.

Views expressed are personal