Economic Policies In Search for a Political Strategy for West Bengal

The devolution of financial powers between the States and the Union governments in the Constitutional Federal structure probably does not unambiguously clarify the role of economic policy making at the State level. The US model and the EEC models are as much complex and could have been contrasted with Indian economic federalism for reforming the Indian system. This has not been done and the States have generally used political process to satisfy the State’s demand. West Bengal being the top industrialized State at the time of Indian Independence had to give up much of its legitimate demand for modernization and growth to accommodate the nice little slogans for balanced economic growth and backward region development. Therefore, West Bengal elites and intellectuals never used economics for policy making for the State. Nor did West Bengal have any view on what the State’s economy was, is or would look like in future. Selling dreams that would never be realized constituted economic policy making. For decades, West Bengal economy has been conceptualized primarily as a vehicle to demand, get or forget higher allocation of Government of India projects and expenditure in the state. The State Government published an economic survey every year with economic data and self-congratulatory composition: State Planning Boards and State Planning Department had been there without any perceptible impact on the State’s economic policy making and development.

2. West Bengal is only one among the several States in the Indian Union. In this Federal set up with constitotionally devised devolution of economic/ financial powers between the Central and State Governments, how far can a State pursue a set of economic policies that would effectively contribute to the economic growth, lower inflation/ higher protection against inflation, better employment, better income and wealth distribution and better quality of life for the State's citizens on a sustained basis? This has been discussed time to time in the past mainly from a political perspective but has not really been pursued consistently by Indian economists to yield a reasonable theories so far. When the economic reforms were introduced in the early 1990s, many political parties objected to liberalization, privatisation and globalization but did not have an alternative economic theory of their own (even the Congress which happened to be in Government and had to reluctantly being the economic reforms, did not have any consistent economic model or theory to justify the process of liberalisation). The Communist economist turne politician Finance Minister of West Bengal Dr. Asim Dasgupt proposed some alternative model that was probably unattractive to the economists and politicians including the communists and lost significance with the CPM government of West Bengal seeking collaboration of foreign capital from capitalist economies for the State's industrialisation. Many claim Chandra Babu Naidu of Andhra Pradesh did wonders for Andhra Pradesh and wonder about the economic successes of Gujarat under Narendra Modi. But the issue of economic policy formulation at the State level has benn neglected.

3. The issue had been rather one of getting more resources to the States from the Central pool. With the introduction of General Commodity and Service Tax is likely to intensify the conflict between the States and the Union Government. But how could the individual states pursue economic policies to meet specific goals of the States is not something that Indian economists have attempted. The European Common Marketm European Central Bank and Euro Curency is not yet successful and may be inconsistent with Indian federalism. But Indian economists have not generated any new theories or ideas to deal with the basic issue of economic policy making by individual State.

Economic Policy Paradigm of Government as Son of God
4. This was only natural because the State Government had envisaged a four-fold economic role:
(a) as a machinery to use whatever revenues happen to flow in to the exchequer and borrowings from the households’ savings pool for disbursing salaries (and pensions) to its ever increasing and scarcely performing staff and interest payment on ever increasing borrowings with sky as the limit,
(b) as a mechanism of acquisition of land with paltry or no compensation to the land owners and distributing them at low cost or free to others without land and needing land to do farming, set up factories and build residential buildings,
(c) as a catalyst for proliferating a micro-economic market structure of geographically and functionally distributed muscle-powered ‘license/ permit’ monopolies in the supply of building materials, education and medical services, in intermediation services for various sorts from allowing regularizing various unauthorized businesses like tea stalls, food stalls, vegetable and fish stalls, automobile repairing, construction of residential shanties and baths on footpaths, main roads, strips of lands meant for expansion of roads, as also in intermediation services for getting ration cards, birth certificates, hospital admissions, and
(d) as an unsolicited, unremunerated adviser to the Government of India on the inappropriateness and disastrous consequences of all the economic policies that it happens to pursue except nationalization, higher subsidies, higher corporate taxes, wage and pension increases for public sector employees, higher interest rates on provident funds, reservation of any type for most classes/ castes/ groups of people.

5. One economic policy option for West Bengal at present is to continue to same economic role of the State Government and therefore continue doing nothing more or new. Another variant of this status quo option is continue with the past while tinkering here and there with apparently pro-poor only measures like withdrawing State tax on LPG cylinders, increasing the number of people covered under Rs2/kg Rice distribution scheme, deferring the increase in taxi, auto, mini-bus and bus fares, crediting salaries of Government employees and teachers to their bank accounts on the first working day of each month. This kind of economic policy making would be simple and the consequences are well known. West Bengal economy will continue to grow so long as the Indian economy grows fast enough: if the economies of Bihar, Jharkhand & Oriya become fast developing West Bengal will have the benefit spill-over effects. Yes, the tax to GDP ratio will not improve from 4.5 % as ay present, debt burden will grow soon to such proportions to cause default and force emergency funding arrangements by the Government of India and the Reserve Bank of India. And, of course, West Bengal will witness a fall in her ranking in terms of economic growth rate, per capita income, percentage of population below the poverty line, state of education and health services. How does that future scenario matter to West Bengal now if such long-term objective or strategy or vision has not been of any interest among the elite and intellectuals advising the political rulers in the State? Status Quo economic policy by default is the most attractive option for West Bengal.

A Non-divine Government’s Economic Policy Framework
6. If, however, West Bengal happens to realizes that economic policy making is important, her elite / intellectual class and politicians must first get themselves convinced of the following:
(i) although the overall Indian economic policy remained the same for all States, many States have left West Bengal far behind in economic terms as well as in terms of quality of health and education services by just pursuing economic policies that were geared to certain economic strategy objectives of those States;
(ii) dreams, rhetoric by an all pervasive command and control State involvement at micro-economic level is doomed to failure as has happened in the past and the State role as a facilitator in economic development can only lead to serious economic policy making that has chances of succeeding;
(iii) economic policy making is neither easy nor anybody’s job and West Bengal has to deploy experienced expertise in applied macro-economics, public finance, industrial economics and micro-economics to formulate State-level economic policies designed to achieve certain long-term strategic economic goals: and
(iv) Generating a relevant and consistent set of economic policy options must be preceded by quickly evolving clarity on the long and medium term socio-economic goals and clearly articulated economic problems the State currently faces and their intensity. If the intensity of the problems is severe, the medium term goals may have to be moderated and instead of incremental changes in policy radical changes may have to be implemented.

7. For the purpose of the present discussion, we would assume that the medium term strategic economic goals of West Bengal would be something like this:
(a) To enable all citizens of West Bengal to increase their skills and productivity as well as gainfully deploy themselves in viable economic activities and create wealth for themselves so that they can progressively enjoy a better economic and social standard of living, beating the adverse impact due to inflation and slowdown in the Indian economy,
(b) To pursue such policies as would help maximize the flow and effective utilization of resources from the All-India public and private sector pool of investment and expertise into West Bengal,
(c) To get out of the habit of running State Revenue Budget deficits to a progressively rising Revenue Budget Surpluses to fund State-led development projects and thereby also contribute to (a) and (b) above,
(d) To quickly demolish the system of territorial and functional monopolies and rent-enjoying elements in the economic micro-structure and administrative machinery and bring in transparent, competitive forces at play, thereby reaping a few percentage point gain in State Domestic Product growth currently lost due to corruption, administrative delays, lower productivity, under-utilization of available productive capacity, stifling of innovations and large incidence of shirking, especially by people who are remunerated by the Government. This will in turn contribute to (a), (b) and (c) above.

8. We would now make a few illustration of the economic policy options consistent with the four medium term goals listed above in Para 5. Instead of using new nomenclature, we use the economists’ fashionable terminology and cliché.

Inclusive Growth and Exclusive Subsidies
9. Enhancing the economic power of all households would involve accelerating the rate of growth of State GDP per capita along with subsidies to the poorest (the tribal community in jungle mahal, the under-employed landless labor and the unemployed: (i) maximize utilization of the NREGA, (ii) allow and encourage farmers/ fishermen the access to demand from food/ vegetable/ fish malls in cities and urban areas, (iii) expedite the Central Government’s vegetable cluster centers coming up and (iv) do not apply exclusion principle to restrict farmers and fishermen from taking advantage food/ vegetable mall owned by foreign capital or domestic capital by using the blatant lie that these smalls affect income of small retailers small groceries/ vegetable or fish vendors just to protect the market power of politically supported small club of wholesalers. Finally, augment the production of rice and vegetables by increasing productivity per unit of land – the variety f seed that is about to cause a quantum jump in rice productivity is still eluding West Bengal.

10. Subsidies to the poor is fine, but equally important is to apply exclusion principle to tax households on their purchases beyond four LPG (liquefied petroleum gas) cylinders per year (this isn’t difficult to implement these days where LPG booking and delivery is computerized). Speeding up approvals to GAIL and such other agencies interested in supplying natural gas for cooking through network of pipelines to each kitchen at a costs lower than cost of LPG fuel. Yes, poor buying water is a non-inclusive growth: but exclusion from subsidized/ free water supply should apply to households in multi-stories buildings where a flat costs in excess of Rs. 30 lakhs or for washing cars and taxis. Water consumed can be recorded by meters and consumption beyond a monthly limit per household in such flats. Instead of not delaying the process of revising the fares of buses, taxis, mini-buses and auto-rickshaws to revise in response to change in petrol and diesel prices, agitate with the Government of India to raise the limit of standard deduction (zero tax) for income tax purposes linked to auto-fuel prices movements and hasten the pace of shifting to CNG (compressed natural gas) – using the new hydro-carbon policy of the Government of India.

Human Capital for Growth
11. Creating employment for the youth is fine but not for clerical-manual work in Government and municipalities. Fresh recruits by State Government/ municipality/ Zilla Parishad/ Panchyat service must necessarily have professional qualifications in citizen care administration and demonstrated proficiency in the use of MS Word and Excel. Make graduates turned out by Universities employable would be more productive than giving them state jobs or forcing new business units to recruit them locally through political goons. To rely on employment creation through private sector investments, bureaucratic/ administrative constraints on setting up of industrial units need to be removed, complete lists of land already acquired by Government lying idle in different locations need to in public domain as soon as possible and applications/ bids for lease on a transparent basis needs to be invited. Also, publish lists of land already leased to or acquired by private sector but not being used, giving the owners time limit beyond which such land would be taken over/ back for auction/ new leases (appropriate legislation may be necessary). Liberalize exit policy in respect of industrial establishments with less than 100 workmen so that such units can be down-sized / closed and assets become freely transferable. Department of labour need not wait till industrial disputes are brought up their notice: let the Government officers monitor labour relations in each unit on a continuous basis and be proactive enough to tackle brewing disputes before they become fully blown wars..

12. Encourage young entrepreneurs to run businesses like household plumbing, electrical and electronic repair services based on phone calls/ emails in cities, provided they have police verified service assistants with complete personal identification details. Make regulations on private medical doctor clinics to keep computerized record of all medical treatment service to each patient and issue computerized receipt for fees paid by the patients. For this purpose, require doctors’ private clinics to have a computer-trained patient services attendant and a professional nurse attendant. Have surprise visits and checks with roving squads. Make it mandatory for all pharmacy and drug stores to issue computer print-out receipts against all sales. All this will improve quality of medical service, professional employment and improve revenue collection.

Structural & Institutional Reforms

13. West Bengal needs all pervasive reforms in the market micro-structure to end economic crimes like levy collection by musclemen from business units/ shops, forced intermediation (dalal chakra) in hospital admissions, engagement of medical attendants by patients hospitalized, issue of ration cards, birth certificates, mutation certificates, registered property deeds, political party-sponsored locality-wise monopolies of building material supply and mobile vegetable vending on carts, levy collection by policemen from goods carrying trucks, etc. Inflicting of social costs by private auto-repairing shops, pavement hawkers, trucks awaiting on the road for custom and by shop-owners displaying ware on the pavement and roads must attract hefty financial penalties and cancellation of trade licenses: it is a pity that the roads broadened at public cost for smooth traffic flow are being occupied by stationery cars/ taxis/ trucks queuing for servicing, repair and painting, thereby narrowing the space available for pedestrians and movement of vehicles. Separate Road Clearing Force need to be put in place. This is all part of good economic governance that adds to efficiency gains and growth.

14. Merely repeating that West Bengal is the Gateway to Asian tiger economies is of no use. The State must negotiate with the Central Government to open up duty free trade with Bangladesh in cereals, coal, jute, tea, garments, vegetables, fish (not just hilsa), foot wear, drinking water bottles, etc. This would benefit the citizens of West Bengal more. Similar, State needs to take active interest in shaping trade agreements with Myanmar, Indonesia, Thailand and South Korea to maximize benefits to West Bengal.

Fiscal Prudence

15. A well thought out strategy to get out of the unsustainable debt trap and generating revenue budget surplus is the key to enhancing the State’s ability to pursue prudent economic policy. Immediate need is to target a slowdown in revenue expenditure together with higher revenue collection both by the State and all local self-governments. Only surplus revenue budgets can help the State government, municipalities, and panchayats to make necessary contribution to infrastructure projects and other development projects to get the benefit of attracting central matching grants and aid. State and municipalities have to improve their credit ratings to raise cheaper debts for funding credit worthy projects. Tax leakages are huge at present, partly because of the state-wide web of tax-evasion intermediary services collecting fees in black: this economic crime sector has to be totally crushed with the help of information technology, tracking cash transactions of such economic offence supporting intermediaries and day-to-day surveillance. Tax base needs to be broadened and subsidies need to be more targeted and direct. Industrial promotion may needs very little incentives if the industries do not have to bear costs of getting things cleared in Government and municipal offices. Government does not have a proper system of collection of annual land revenue (Khazna): the system needs immediate computerization, bills (separate for annual khazna installments and interest due on unpaid annual kahzna) may be sent to each household/ land owner and banks may be allowed to accept payments against these bills for direct credit to Government.

PPP Investment For Capacity Expansion

16. Now that the subsidized land acquisition support to private investment is being withdrawn/ minimized in the State and in the whole of India, PPP (public private partnerships) models to tap private sector investment would require fast track single window clearance mechanism and reduced politically convenient obligations on PPP projects immediately and more politically difficult relaxation on industrial exit laws after a while. The scope of the standard application of PPP model needs to widened to reduce the burden on the State exchequer: existing assets like Kolkata Zoo, other forest enclosures, Staid, vintage theater halls, swimming pools, libraries, river bank recreation enclosures and the like could attract private investment under PPP model for up-gradation, expansion and efficient, cost effective maintenance with flexibility in user charges for the rich on particular days of the week. Even in agriculture, PPP model with low equity and low interference from Government could help if contract farming and marketing of agricultural produce are also allowed.

Conclusion

17. Economic policy options appropriate for West Bengal at present and for the medium term future do not require arcane analysis. These options are well-known: what is required is the political will and administrative skills.