Bengal means business
Though domestic investors avoid West Bengal, the state has grown as a hub for foreign investments, particularly from the east
West Bengal has so far organised four Bengal Global Summits and the fifth one is on its way this February. Promisingly, each summit had raised big hopes for investment, but all those hopes were ultimately belied. In the previous summit, big houses queued up and they were upbeat on making investments. They included the likes of L N Mittal, Mukesh Ambani, Kishore Biyani and Sajjan Jindal, all of whom announced big plans, reposing trust in Mamata's slogan 'Bengal means business'. Mukesh Ambani even predicted that 'West Bengal will be the Best Bengal'.
Unfortunately, so far, not a single big investment proposal has materialised on the ground. As if, the Singur hangover is still looming large and labour unrest continues to haunt investors. But, in contrast, foreign investors have not felt deterred by Mamata's unfriendly stand against Tata's Nano project or the labour unrest which made most investors run away from West Bengal. During the six-year period of Mamata's rule, more FDI flowed in compared to the 34 years of Communist regime. During 2013-2018 (up to June), FDI in West Bengal was worth $2.6 billion, against $2.2 billion from 2002 to 2013.
Why were domestic investors sulking while their foreign counterparts were upbeat on investing in West Bengal during Mamata's regime? It seems that a trust deficit and lack of a pragmatic policy approach by the state government were the prime reasons. Unlike 'Vibrant Gujarat', the state lacked the policy to create an investment-friendly image through near-term and long-term visions that would boost industry.
The state is yet to announce any comprehensive industrial policy. There is no industrial map, which is important for setting up manufacturing plants in respect to geopolitical advantages and infrastructure facilities required for a competitive investment planning. Nor was any fiscal incentive announced to reinvigorate the state, which was once an engineering hub before the communist regime took over.
Nevertheless, the state has several advantages, the biggest being geographical. Located in the east, it is ideal for border trade with four nations and the North-East by way of road connectivity. Sonar Bangla has abundant natural resources under its soil, consisting of large deposits of coal. It is reckoned as the gateway to the east and paves the way for India's ambitious Act East policy.
Chief Minister Mamata Banerjee has reiterated that the state possesses a big land bank. But, big investors are sceptical over the potential benefit of the land bank. According to state government data, there is one lakh acres of land in the land bank. But, it is difficult to find big areas which are contiguous in nature – an essential requirement for setting up large factories.
West Bengal has distinct advantages to become a potential trading hub for India and a gateway to South East Asia, thanks to its proximity to Bangladesh, Nepal, Bhutan and Myanmar. West Bengal can act as an Indian Silk Road to neighbouring countries. Myanmar has emerged as a prospective trade destination after the return of democracy. Road connectivity provides enough potential for border trade with these countries. With cost-cutting opportunity in logistics, a competitive tool for buoyancy in trade, border trade unleashes greater opportunities to augment investments with neighbouring countries.
West Bengal has a unique advantage to become a strong foundation for global value chain (GVC) manufacturing operations in the eastern region. In the wake of China losing its cost-competitiveness, which resulted in foreign investors looking for alternatives, West Bengal can provide a base for GVC manufacturing operations between India and ASEAN. The state has been considered as hosting one of the lowest costs in manufacturing. To this end, it can offer a unique opportunity as a hub for exports to assemblers in ASEAN and other Asian countries.
Given the present structure of industry in West Bengal – which hinges on labour-intensive products with low and middle-level investment – learning a few lessons from Vietnam and Bangladesh would be pertinent. Success stories of the 'supporting industry' model in Vietnam and the uptick of the garment industry in Bangladesh can be important lessons for industrialisation in West Bengal.
Supporting industry, or component base industry, was the trigger for the growth of the automobile industry in Vietnam, which is the second-biggest manufacturer of motorbikes in ASEAN. Foreign investors played an important role in the development of the supporting industry. West Bengal can also be an important destination for the electronics industry. Manufacturing of mobile phones and electronic components are low-capital and high-labour intensive industries. There are several factors which favour West Bengal as a better destination for mobile phone and electronic component manufacturing. Cheap wages, low land costs, surplus electricity and availability of highly-skilled labour forces (owing to three big technical education institutes) can prove propitious for the development of mobile and electronic component manufacturing in West Bengal
Mamata should focus on Chinese investment in West Bengal. Ever since the trade war has broken out and the USA has begun hurting Chinese exports by punitive tariffs, China has vowed to engage India as an important trade and investment partner. Burying the hatchet of political conflict, India too is eagerly anticipating Chinese investments and the expansion of trade relations by exporting agricultural products.
This was exemplified by Chinese participation in the last Bengal Business Summit. Over 30 Chinese companies attended the summit. Of these, 10 attended it for the first time. Given the historical linkage and a large number of Chinese domiciled in Kolkata, Chinese investment can help boost the state's investment potential.
(The views expressed are strictly personal)