West Bengal Economic analysis


Published on

Published in: Education
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

West Bengal Economic analysis

  1. 1. ECONOMIC REVIEW WEST BENGALProject Report submitted as part of EEP course (Term2) 12/16/2012 Submitted by Group 10 Section D Arpit Jain (12P189) Girish Chandra Joshi(12P199) Kumar Abhinav(12P209) VarunChopra(12P219) SantoshGarbham(12P229) VikashV(12P239)
  2. 2. ECONOMIC REVIEW WEST BENGAL 2 AcknowledgementWe would like to express our gratitude to all those who made it possible for us to conduct thisanalysis.We would especially like to thank Prof. Sunil Ashra for providing us with an opportunity to work onthis topic thereby helping us gain valuable insights about the economy of West Bengal, as well as forproviding us guidance and support with respect to our project.We are also grateful to our college for providing us with the infrastructure which served to be auseful aid and would like to thank the library staff for rendering significant cooperation towards thesame.We would also like to thank our friends who helped us with suggestions and encouragementthroughout our course of analysisGroup 10 Section D Page 2
  3. 3. ECONOMIC REVIEW WEST BENGAL 3Contents 1. Growth performance of West Bengal………………………………..5 2. Inflation………………………………..………………………………..…….…23 3. Sector-wise contribution to GSDP…….…………………..…………25 4. Sector wise contribution to Employment.……………….………34 5. Debt situation in West Bengal………………….………………………38 6. Fiscal Deficit.......................................................................40 7. Conclusion………………………………………………….……………………41 8. References………………………………………………….……………………42Group 10 Section D Page 3
  4. 4. ECONOMIC REVIEW WEST BENGAL 4Group 10 Section D Page 4
  5. 5. ECONOMIC REVIEW WEST BENGAL 5ECONOMIC REVIEW OF WEST BENGALThis report is a comprehensive study of various macroeconomic parameters of West Bengal state. Itanalyzes data qualitatively and quantitatively since 1970s in various parameters like GSDP, inflation,sector-wise distribution of GSDP, employment, analysis of various sectors and the financials of thestate.1. Growth performance of West Bengal1.1 Current Position:West Bengal is the fifth largest state in terms of GSDP as a percentage of GDP after Maharashtra,Uttar Pradesh, Tamil Nadu and Andhra Pradesh. It is the third largest contributor in agriculturalsector of real GDP. In services sector also, it’s fifth largest contributor to GDP. Area wise it ranks 12th.But it’s ranked fourth in terms of population. As a result despite its spectacular contribution, percapita GDP is not high. It’s a densely populated state with rich natural resources. As a result, theprimary sector output is always on a high in West Bengal. A comparative analysis with some majorstates is shown in graphs below.The data is taken from Table 1.1 Real GSDP (in absolute values) West Bengal 33,35,831.80 Uttar Pradesh 42,00,165.10 Tamil Nadu 41,65,494.10 Rajasthan 21,54,535.80 Maharashtra 80,50,313.20 Madhya Pradesh 20,29,708.70 Kerala 20,84,681.90 Karnataka 29,16,614.80 Andhra Pradesh 40,76,110.00 0.00 20,00,000.00 40,00,000.00 60,00,000.00 80,00,000.00 GSDP( Rs.million)Group 10 Section D Page 5
  6. 6. ECONOMIC REVIEW WEST BENGAL 6 Real GSDP (%ge contribution) West Bengal 6.41 Uttar Pradesh 8.07 Tamil Nadu 8.01 Rajasthan 4.14 Maharashtra 15.47 Madhya Pradesh 3.90 Kerala 4.01 Karnataka 5.61 Andhra Pradesh 7.83 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 as a %ge of Real GDP GDP per capita (real) India 46,555 West Bengal 37,070 Uttar Pradesh 20,708 Tamil Nadu 61,531 Rajasthan 31,468 Maharashtra 70,885 Madhya Pradesh 27,850 Kerala 60,063 Karnataka 48,789 Andhra Pradesh 47,848 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Per Capita GSDPIt’s compared in nominal terms in the graphs below. GSDP Nominal West Bengal 54,15,855.60 68,78,362.80 Tamil Nadu 63,90,246.00 36,83,195.20 Maharashtra 1,24,84,528.00 31,53,866.60 Kerala 32,66,928.90 45,89,027.40 Andhra Pradesh 67,57,980.00 0.00 20,00,000.00 40,00,000.00 60,00,000.00 80,00,000.00 1,00,00,000.00 1,20,00,000.00 1,40,00,000.00 in Rs.millionGroup 10 Section D Page 6
  7. 7. ECONOMIC REVIEW WEST BENGAL 7 GSDP Nominal West Bengal 6.58 8.35 Tamil Nadu 7.76 4.47 Maharashtra 15.16 3.83 Kerala 3.97 5.57 Andhra Pradesh 8.21 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 as a %ge of GDP1.2 Contribution to Agriculture, Industry and Service sectors:The data below reveals that major contribution to Indian GDP from West Bengal comes fromagricultural sector. At next stands the tertiary or services sector. The manufacturing industry outputis very low compared to the GSDP output of this state in other sectors. The sources for this is dataare Table 1.1 and Table 1.2. Percentage Contribution to Nominal GDP in Agriculture West Bengal 9.13 Uttar Pradesh 14.86 Tamil Nadu 5.82 Rajasthan 7.48 Maharashtra 9.38 Madhya Pradesh 6.15 Kerala 3.22 Karnataka 5.17 Andhra Pradesh 10.35 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 As a %ge of GDP agricultureGroup 10 Section D Page 7
  8. 8. ECONOMIC REVIEW WEST BENGAL 8 Percentage Contribution to Nominal GDP in Industry West Bengal 4.59 Uttar Pradesh 7.00 Tamil Nadu 8.84 Rajasthan 4.84 Maharashtra 17.60 Madhya Pradesh 4.16 Kerala 3.20 Karnataka 5.79 Andhra Pradesh 8.56 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 As a %ge of GDP industry Percentage Contribution to Nominal GDP in Services West Bengal 6.76 Uttar Pradesh 7.38 Tamil Nadu 7.95 Rajasthan 3.54 Maharashtra 15.41 Madhya Pradesh 3.15 Kerala 4.54 Karnataka 5.57 Andhra Pradesh 7.53 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 As a %ge of GDP services Sectoral Contribution to GDP West Bengal 9.13 4.59 6.76 Uttar Pradesh 14.86 7.00 7.38 Tamil Nadu 5.82 8.84 7.95 Rajasthan 7.48 4.84 3.54 Maharashtra 9.38 17.60 15.41 Madhya Pradesh 6.15 4.16 3.15 Kerala 3.22 3.20 4.54 Karnataka 5.17 5.79 5.57 Andhra Pradesh 10.35 8.56 7.53 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% GSDP agriculture GSDP industry GSDP ServicesGroup 10 Section D Page 8
  9. 9. ECONOMIC REVIEW WEST BENGAL 91.3 Growth Performance in 2011-12:The growth performance of West Bengal has outperformed India’s growth in agricultural sector. Theagricultural sector saw a growth of 19.95% (nominal) while India’s average was at around 9.45%. Butin real terms, we didn’t see so much of growth in this sector. That can be attributed to high foodinflation in the country. But still as per RBI Economic review for 2011-12, West Bengal, Bihar andJharkhand registered significant increase in yield, production and cultivated area. Bengal is thelargest producer of rice in the country. Though there is spectacular growth in agriculture, the growthin other sectors was below average. A look at table below reveals that. The complete data can befound in the annexure in Tables 1.3 and 1.4.Growth in SDPAt current prices : India : 2011-12 : % change per annum GSDP NSDP Per capita Per capita GSDP GSDP GSDP services GSDP NSDP agriculture industryWest Bengal 15.87 15.92 14,80 14,86 19.95 14.68 15.04India 15.02 15.06 13,86 9.45 12.02 17.6Growth in SDPAt constant prices : India : 2011-12 : % change per annum GSDP NSDP Per capita Per capita GSDP GSDP GSDP GSDP NSDP agriculture industry services West Bengal 6.55 6.66 5,57 5,67 3.6 3.71 8.37India 6.48 6.48 5,43 3.05 3.38 8.911.4 Historic Growth Performance of West Bengal:Methodology: Data is available with base years at 1970-80, 1980-81, 1993-94 and 2004-05.Converting from one base to another base is not a straight methodology. This is so because whendata is converted, the individual components would vary drastically if only composite figures aretaken. Similarly if individual components are converted individually, the composite values change.Also, long term doesn’t reflect the performance effectively. So the methodology followed here is asfollows: 1. Series wise absolute values are taken and growth rates are analysed for real GSDP 2. As the values of GSDP are not available in 1970 series, NSDP values are analyzed 3. As the current values can be easily converted, the long term evolution is analyzed on the basis of current values of GSDP. 4. As growth percentage remains constant irrespective of bases, real GDP growth rate is also analysed for long runGroup 10 Section D Page 9
  10. 10. ECONOMIC REVIEW WEST BENGAL 101.4.1 Growth Performance (1970 series):The following graph shows the growth rate for the data available in 1970-71 series for NSDP. (ReferTables 1.5) 1970-71 series NSDP 6,00,000.00 5,00,000.00 4,00,000.00 3,00,000.00 2,00,000.00 1,00,000.00 0.00 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 NSDP in Rs.lakh NSDP Agriculture Industry Services 1970-71 series NSDP 40.00 30.00 20.00 10.00 0.00 -10.00 -20.00 NSDP Y-o-Y Growth NSDP Y-o-Y Growth Agriculture Y-o-Y Growth Industry Y-o-Y Growth Services Y-o-Y GrowthThe growth rate of real NSDP is highly fluctuating during the year 1980 and 1983. From the data onthe net state domestic product andits components, it would appear that NSDP growth ratespickedup in the 1980s, the main contributor to thatacceleration being agriculture.As pointed by planningcommission report of 2010 on West Bengal, many analysts havefound, the land reforms carried outby the Government of West Bengal, combined with the operationalization of theelected PanchayatiRaj Institutions provided bothresources and incentives to the small and marginalpeasants andthereby helped raise the rates of agriculturalgrowth to a historic high.Group 10 Section D Page 10
  11. 11. ECONOMIC REVIEW WEST BENGAL 11Regression analysis for NSDP across three sectors would reveal how economy was heavily driven byagriculture in those days and that also shows why West Bengal was a major state due to strength ofits natural resources then. So, primarily it can be seen that the state was agrarian economy during1970s.Dependent Variable: GROWTHMethod: Least SquaresDate: 12/15/12 Time: 13:42Sample (adjusted): 1971 1987Included observations: 17 after adjustments Variable Coefficient Std. Error t-Statistic Prob. AGRI 0.404200 0.008469 47.72795 0.0000 INDU 0.285490 0.021646 13.18885 0.0000 SERV 0.292710 0.024128 12.13174 0.0000R-squared 0.997641 Mean dependent var 3.522371Adjusted R-squared 0.997304 S.D. dependent var 5.639742S.E. of regression 0.292844 Akaike info criterion 0.540428Sum squared resid 1.200603 Schwarz criterion 0.687466Log likelihood -1.593642 Durbin-Watson stat 1.7889201.4.2 Growth Performance (1980-81 series):The constant GSDP for real values is analyzed in the graphs below. (Refer Table 1.6) GSDP 1980-81 series 30,000 25,000 20,000 15,000 10,000 5,000 0 GSDP GSDP agriculture GSDP industry GSDP servicesGroup 10 Section D Page 11
  12. 12. ECONOMIC REVIEW WEST BENGAL 12 GSDP Growth 1980-81 series 30.00 25.00 20.00 15.00 10.00 5.00 0.00 -5.00 -10.00 -15.00 GSDP Y-o-Y Growth Agriculture Y-o-Y growth Industry Y-o-Y Growth Services Y-o-Y GrowthDependent Variable: GSDPGEMethod: Least SquaresDate: 12/15/12 Time: 17:12Sample (adjusted): 1981 1997Included observations: 17 after adjustments Variable Coefficient Std. Error t-Statistic Prob. GSDPAGE 0.289911 0.008816 32.88348 0.0000 GSDPIGE 0.310889 0.028730 10.82099 0.0000 GSDPSGE 0.384527 0.020359 18.88776 0.0000R-squared 0.992884 Mean dependent var 5.366823Adjusted R-squared 0.991867 S.D. dependent var 2.943956S.E. of regression 0.265489 Akaike info criterion 0.344300Sum squared resid 0.986784 Schwarz criterion 0.491338Log likelihood 0.073447 Durbin-Watson stat 1.640075Here it can be seen that agriculture is predominant and 1981-82 was the golden year for WestBengal. This is true but as 1990 approaches we can see a gradual shift increase the services sector ofthe state. The transportation services are a major contributor in this state.In the above graph we see an interesting situation. This is stage when West Bengal graduallytransformed from being an agrarian state to a service sector dominated state. If we look at 1996-97, towards the end of the graph, the state has a healthy services sector growing at a rate of 10.46%whereas agriculture sector was growing at a dismal 1.87%. Nonetheless the state’s primary outputhas more than doubled in two decades cumulatively.Group 10 Section D Page 12
  13. 13. ECONOMIC REVIEW WEST BENGAL 13There exists a problem with manufacturing sector. The state has a good manufacturing sector during1960s and it remained stagnant since. It again started growing mid 1990s. Strong trade unionism inWest Bengal is often allegedas a major cause for industrial slowdown in the state.Labour militancyreached a peak in the late 1960s andcontinued for several years thereafter, particularly inWestBengal. But probably that militancy was an expression ofthe workers’ anger against the massivelabourdisplacement. The sharp fall of employment, especially inthe late 1960s, led to acute labouragitations in WestBengal. Sometimes strikes were provoked or evenengineered by the managementof firms as an excuse fordeclaring lockouts.When we compare the growth of the state with the country’s growth, we see that the economyhasn’t performed at the rate at which the country is growing. But post 1990, we can see that WestBengal’s growth rate has outperformed India’s growth rate. But in spite of a growing industry, thecontribution to GDP by West Bengal has declined over the two decades. GSDP vs GDP 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 -2.00 -4.00 GSDP Y-o-Y Growth GDP Growth Rate GSDP as %ge of GDPGroup 10 Section D Page 13
  14. 14. ECONOMIC REVIEW WEST BENGAL 14 GSDP as a %ge of GDP 8.60 8.40 8.20 8.00 7.80 7.60 7.40 7.20 7.00 6.80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 GSDP as %ge of GDP1.4.3 Growth Performance(1993-94 series):Refer Table 1.7 for data. GSDP 1993-94 series 1,20,000 1,00,000 80,000 60,000 40,000 20,000 0 GSDP GSDP Agriculture GSDP Industry GSDP ServicesGroup 10 Section D Page 14
  15. 15. ECONOMIC REVIEW WEST BENGAL 15 GSDP Growth 1993-94 series 20.00 15.00 10.00 5.00 0.00 -5.00 -10.00 GSDP Y-o-Y Growth Agriculture Y-o-Y growth Industry Y-o-Y Growth Services Y-o-Y GrowthDependent Variable: GSDPGEMethod: Least SquaresDate: 12/15/12 Time: 18:26Sample (adjusted): 2 12Included observations: 11 after adjustments Variable Coefficient Std. Error t-Statistic Prob. GSDPAGE 0.281882 0.022021 12.80086 0.0000 GSDPIGE 0.180011 0.038815 4.637721 0.0017 GSDPSGE 0.527229 0.023120 22.80377 0.0000R-squared 0.669082 Mean dependent var 7.066391Adjusted R-squared 0.586353 S.D. dependent var 0.530530S.E. of regression 0.341213 Akaike info criterion 0.914378Sum squared resid 0.931408 Schwarz criterion 1.022895Log likelihood -2.029082 Durbin-Watson stat 2.571900The regression analysis above reveals the fact that GSDP is now predominantly dependent onservices sector. Agriculture sectors coeff and the other got interchanged. The manufacturing sectoris declining towards early 2000. But there was a steep rise in services sector performance. Thecontribution of the services sector to the WestBengal’s GDP has been increasing rapidly during thepost-reformperiod. Within this sector trade-related activitiesare growing faster in West Bengal. Inthe countryside ofthe state, transport-related activities under own accountservice enterprisesaccounted for the highest share. But inurban areas, ‘education’ accounts for the largest numberofown account service enterprises.Group 10 Section D Page 15
  16. 16. ECONOMIC REVIEW WEST BENGAL 16The state outperformed the country’s growth rate and its contribution to GDP has increased overthe last decade. GSDP vs GDP 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 GSDP Y-o-Y Growth GDP growth GSDP as %ge of GDP 8.60 8.40 8.20 8.00 7.80 7.60 7.40 7.20 7.00 6.80 6.60 1 2 3 4 5 6 7 8 9 10 11 12 GSDP as %ge of GDPGroup 10 Section D Page 16
  17. 17. ECONOMIC REVIEW WEST BENGAL 171.4.4 Growth Performance (2003-04 series):In recent years, West Bengal’s manufacturing and agricultural sector performance have come downdrastically. But its services sector still plays a major role. In fact this sector did well during the yearsof recent global slump also. In the years before 2007-08, India was growing at a very fast pace. ButWest Bengal was not able perform at that pace. This can be attributed to the government that isthere for 33 years in rule. As a result we can also see that the its overall contribution to GDP hascome down. Refer Table 1.8. GSDP 2003-04 Series 4,00,000 3,50,000 3,00,000 2,50,000 2,00,000 1,50,000 1,00,000 50,000 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 GSDP GSDP Agriculture GSDP Industry GSDP Services GSDP Growth 2003-04 Series 12.00 10.00 8.00 6.00 4.00 2.00 0.00 -2.00 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 -4.00 GSDP Y-o-Y Growth Agriculture Y-o-Y Growth Industry Y-o-Y Growth Services Y-o-Y growthDependent Variable: GSDPGEMethod: Least SquaresDate: 12/15/12 Time: 19:19Sample (adjusted): 2 8Included observations: 7 after adjustmentsGroup 10 Section D Page 17
  18. 18. ECONOMIC REVIEW WEST BENGAL 18 Variable Coefficient Std. Error t-Statistic Prob. GSDPAGE 0.203125 0.030212 6.723275 0.0025 GSDPIGE 0.217931 0.026177 8.325392 0.0011 GSDPSGE 0.574328 0.013253 43.33435 0.0000R-squared 0.981310 Mean dependent var 6.937639Adjusted R-squared 0.971965 S.D. dependent var 1.111892S.E. of regression 0.186171 Akaike info criterion -0.226777Sum squared resid 0.138638 Schwarz criterion -0.249958Log likelihood 3.793720 Durbin-Watson stat 0.428481 GSDP 2003-04 Series 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 GSDP Y-o-Y Growth GDP Y-o-Y Growth GSDP as a %ge of GDP 7.20 7.00 6.80 6.60 6.40 6.20 6.00 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 GSDP as %ge of GDPGroup 10 Section D Page 18
  19. 19. ECONOMIC REVIEW WEST BENGAL 191.4.5 Growth Performance Long Term:In WestBengal, the overall economic growth rate improved in the1980s, and accelerated further inthe 1990s compared tothe performance in the 1970s. The rate of growth of thestate economy afterthe 1980s (1991-2006) had beennearly double the rate prevailed in the 1970s.During late 1970s and early 1980s West Bengal rate of growth rates were rapid though they were inaccordance with country’s growth rate. The rapidity shows greater contribution to GDP and heavydependence on primary sector. This table shows how WB growth rate has varied on a compoundedon 5-yearly basis. It shows West Bengal was doing well in during periods 1970-75, 1980-85, 1990-2000 and again 2005-2012. Refer Table 1.9 CAGR GSDP WB GDP 1970-1975 3.14 2.82 1975-1980 2.45 2.86 1980-1985 4.03 3.75 1985-1990 3.82 4.37 1990-1995 5.03 4.31 1995-2000 6.96 4.54 2000-2005 5.69 5.64 2005-2010 7.13 6.51 2010-2012 6.89 4.9The economy performed at a much better pace during early 1990s. Of late it can be seen that theeconomy was slower that India’s growth pace during 2004-08 period.Group 10 Section D Page 19
  20. 20. ECONOMIC REVIEW WEST BENGAL 20 GDP vs GSDP WB 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 -2.00 -4.00 -6.00 -8.00 GDP growth rate WB GSDP growthWest Bengal performed better in agriculture since theearly 1980s. According to a planningcommission report, the state started to lose its prominence inmanufacturing growth since the mid-1960s. But it can be seen that the rate ofmanufacturing growth increased after the mid-1990s.In WestBengal, the overall economic growth rate improved in the1980s, and accelerated further inthe 1990s compared tothe performance in the 1970s. The rate of growth of thestate economy afterthe 1980s (1991-2006) had beennearly double the rate prevailed in the 1970s. It went up from 3% toalmost 6%.The graph below shows how sector-wise contribution to GSDP varied over time. It is clear thatagriculture sector prominence has declined. However, it’s disheartening that manufacturing sector isalso now healthy given its natural resources. The major contributor is Services sector clearly.Agriculture in West Bengal marked the end of‘impasse’ in the 1980s.Manufacturing in West Bengalgrew at around the rates of 2 per cent and 3 per cent,respectivelyduring the 1970s and 1980s and the rateimproved to 6.6 per cent during 1991-2006. Thegrowthperformance of this sector turned better after the mid-1980s compared to the period of statecontrol.Industrial growth in West Bengal, as in otherconstituent states in India, has largely been determinedbythe stance of economic policy adopted by the Centralgovernment, the allocation of central publicinvestment inindustry and infrastructure, the allocation of credit bybanks and term lendinginstitutions under the control ofthe Central government and the general attitude of largebusinesshouses and multinational corporations towardsinvestment in that particular state.Group 10 Section D Page 20
  21. 21. ECONOMIC REVIEW WEST BENGAL 21The slow growth of manufacturing inthe eastern part of the country, particularly in WestBengal, wasa damaging consequence of the license permitraj. The policy ofequalising the prices of coal and steelled to the loss of comparative advantage of resource-rich states such asWest Bengal, Bihar, Orissaand Madhya Pradesh as reported by Planning Commission survey. Percentage Sectoral Contribution to GSDP 70 60 50 40 30 20 10 0 Agriculture Industry ServicesThe growth of the services sector isa subjectof much discussion. Income from the services sector hasbeen growingat a faster rate since the early 1990s. A careful observation at component break-up ofGSDP shows that the higher growthof services income is largely due to the rapid growthincome fromtrade-related activities followed by bankingand financial services.The graph below reveals that West Bengal is not performing at the pace of its other major states inrecent years. Its GDP contribution has come down over the years from around 8% to little more than6% of late.Group 10 Section D Page 21
  22. 22. ECONOMIC REVIEW WEST BENGAL 22 GSDP %ge of GDP 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 GSDP as a %ge of GDPNote that Tables 1.5 to 1.9 are computed from Tables S7, S9, S8 and S11.Tables S1 – S14 give complete data about West Bengal and India in terms of GSDP(Constant,Current), NSDP(Constant, Current), GDP(Constant, Current) NDP(Constant, Current) respectively.Group 10 Section D Page 22
  23. 23. ECONOMIC REVIEW WEST BENGAL 23 2. INFLATION:Since CPI WPI is not available for every year, the deflator method for inflation was done for bothWest Bengal and India. The graph below shows that the price levels are consistent with the country’sprice levels. They are relatively on a little higher side historically. A clearer picture can be revealed byyear on year inflation as shown in the next graph.Refer table 2.1for data. It is computed from S14 and S7-S12.S15, S16, S17 give data for CPI, WPI(India) and CPI WB. GSDP vs GDP Deflator 180 160 140 120 100 80 60 40 20 0 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 GSDP Deflator GDP DeflatorGroup 10 Section D Page 23
  24. 24. ECONOMIC REVIEW WEST BENGAL 24 WB vs India Inflation 16 14 12 10 8 6 4 2 0 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 -2 WB Inflation India InflationThis shows that historically WB is more than that of the country. However it got stabilized in early2000s but still it is often more than the country’s average.Group 10 Section D Page 24
  25. 25. ECONOMIC REVIEW WEST BENGAL 25 3. Sector-wise Contribution to GSDP3.1 Agriculture SectorThe Agriculture Sector consists of the following  Agriculture  Forestry and Logging  FishingIn West Bengal, productivity growth in agriculture, particularly in food grain production, contributedsignificantly to overall economic growth of the state since the early 1980s.There has been a growing concern in recent years about the deceleration of agricultural output inmost of the agricultural states in India since the early 1990s. The positive impulse of the fast growingyield rate to output growth of the major crops as observed in the 1980s have been petered out inthe phase of neo-liberal reforms in India. In the context of agricultural growth in India, a significantGroup 10 Section D Page 25
  26. 26. ECONOMIC REVIEW WEST BENGAL 26fall in public sector capital formation in agriculture was a major constraint on productivity growth inagriculture. Declining trend in the supply of institutional credit in the post-reform period in India hasalso been responsible for near stagnation in yield levels.West Bengal which took up the implementation of Establishment of an Agency for Reporting ofAgricultural Statistics (EARAS) scheme in 1980-81 on a pilot basis has been able to cover a samplesize of about 14 percent only. Efforts are underway to increase the sample size adequately in thecurrent year. Kerala which had modified the sampling design with effect from 1987-88 have alsobeen advised to follow the stipulated pattern.With reference to Table 3.1, Total food grain production in West Bengal was roughly 16 milliontonnes contributing 7.4 per cent of the country’s total food grain output and ranked 4 th among themajor states in India in 2006-07. With rice output of 14.51 million tonnes in 2006-07, the state led allthe major states in production of rice and contributed nearly 16 per cent of the country’s total riceoutput. The share of the state in food grains production has been increasing steadily during the pasttwo and a half decades.Group 10 Section D Page 26
  27. 27. ECONOMIC REVIEW WEST BENGAL 27In line with the changing trend across the country, West Bengal has experienced a structural shift inoutput front as the share of agriculture in the State’s GDP is recorded to have come down fromabout 33 % in 1999-2000 to about 25 percent in 2007-08. However, increasing trends of real wagesin the latter half of the 1980s were not sustained in the subsequent years. The decline in wage ratehas been observed in the first half of the 1990s. The latter half of the decade started with recoveryof the wage rate but again declined in the beginning of the 2000.3.2 Industrial SectorThe Industry Sector consists of the following  Mining and Quarrying  Manufacturing  Construction  Registered Services  Unregistered ServicesGroup 10 Section D Page 27
  28. 28. ECONOMIC REVIEW WEST BENGAL 28West Bengal, over the past three decades. In India,different regions have been growing at unevenrates. Theregional disparities in growth have been highly associatedwith unequal incidence ofindustrial development.Capital intensity in registered manufacturing increased during 1981-2002, but it is much lower in thefactory sector in West Bengal. Labour productivity measured by value-added per employee in thissector in the state also increased, but emolument per employee remained at the same level duringthis period as surveyed by Planning Commission.Group 10 Section D Page 28
  29. 29. ECONOMIC REVIEW WEST BENGAL 29With reference to Table 3.2, In West Bengal, the manufacturing sector has not performed as anengine of growth over the past three decades in a causal sense. The rate of growth of labourdemand is given by the excess of the rate of growth of output over the rate of growth of labourproductivity. Output growth in the manufacturing sector has played an insignificant role inpromoting employment growth in the state. Also there were several criticisms of the countrysindustrial policy framework, mostly on the regime of licensing, for regional diversities in growth.Group 10 Section D Page 29
  30. 30. ECONOMIC REVIEW WEST BENGAL 30Many studies have documented a mismatch between output growth and employment growth inIndian manufacturing in the 1980s, leading to virtually jobless growth. The situation has been nodifferent in West Bengal. Industrial output grew up consistently with some fluctuations, but the levelof employment in registered industries declined in the 1980s followed by a stagnating or risingphase in the earlier decade.Group 10 Section D Page 30
  31. 31. ECONOMIC REVIEW WEST BENGAL 313.3 Service SectorThe Industry Sector consists of the following  Electricity,Gas and Water supply  Transport,Storage and Communication  Railways  Transport by other means  Communication  Trade,Hotels and Restaurants  Banking and Insurance  Real Estate,Ownership of Dwellings and Business Services  Public Administration  Other ServicesIn West Bengal, the responsiveness of the growth of the services activities to the growth of thecommodity sector (agriculture and allied activities and manufacturing) and to the growth of realincome of the rest of the economy is found to be more than proportional in such sub-sectors astrade, banking and transport. Growth in sectors like real estate and public administration was lessthan proportional to the growth in the rest of the state’s economy.As per capita income rises, demand shifts away first from the agricultural commodities and, then,even from industrial goods; more and more demand is created for services such as education,health, tourism, etc. Thus, an increasing share of national/state income originates in the services. Ifthe labour productivity remained unchanged, the services sector also generates relatively moreemployment.Group 10 Section D Page 31
  32. 32. ECONOMIC REVIEW WEST BENGAL 32With reference to Table 3.3, the size of the tertiary sector—comprising transport andcommunication, trade, hotels and restaurant, banking and insurance, real estate and ownership ofdwelling and business services, public administration, other service in terms of share of NSDP atconstant prices, has been larger than either the primary or the secondary sector in the state.In the urban, ‘education’ accounts for the largest number of own account service enterprises. Thiswas followed by ‘other transport and related activities’. Of the urban services establishments, thelargest is ‘restaurants’, in numbers. In terms of employment, however, ‘education’ is the leadingsub-sector within the rural ‘own account service enterprises’, this was followed by ‘other communitysocial and personal services’. The highest share of employment in rural service establishments wasthat of ‘mechanised’ road transport’.Group 10 Section D Page 32
  33. 33. ECONOMIC REVIEW WEST BENGAL 33All the above factors collected from various reports show how the contribution of services sector toGSDP has increased over years.Group 10 Section D Page 33
  34. 34. ECONOMIC REVIEW WEST BENGAL 34 4. Sector wise Contribution to Employment:The fluctuation in employment or unemployment has tocome to terms with the periodic instabilityof the growthprocess. The trend in employment, in fact, is the‘outcome’ of the changingcombinations of capital,technology and the labour market institutions. This is state is predominantlya rural state with most of them dependent on agriculture. Of late, services started contributingmore. However, there is a steep decline in manufacturing sector. A comparative analysis between1999 and 2002 shows this. Industry-wise Employment in Organised Sector in West Bengal (1990 and 2002) (In lakh) Public Private TotalIndustry 1990 2002 1990 2002 1990 2002Agriculture and Allied 0.3 0.22 2.05 1.77 2.35 1.99Mining and Quarrying 1.78 1.65 1.78 1.65Primary Sector 2.08 1.87 2.05 1.77 4.13 3.64Manufacturing 2.82 1.81 5.14 3.89 7.96 5.7Electricity & Gas 0.43 0.4 0.16 0.17 0.59 0.57Construction 0.54 0.61 0.04 0.04 0.58 0.65Secondary Sector 3.79 2.82 5.34 4.1 9.13 6.92Wholesale and Retail Trade/Hotels and Restaurants 0.12 0.12 0.21 0.23 0.33 0.35Transport, Storage and Communication 3.58 3.3 0.08 0.06 3.66 3.36Finance, Insurance & Real Estate 0.95 1.02 0.2 0.17 1.15 1.19Services 6.33 7.26 1.02 1.14 7.35 8.4Tertiary Sector 10.98 11.7 1.51 1.6 12.49 13.3Total 16.85 16.39 8.9 7.47 25.75 23.86The growth is happening predominantly in services sector while the other two sectors declined withtime. A more detailed break-up of the employment is given in the annexure.Group 10 Section D Page 34
  35. 35. ECONOMIC REVIEW WEST BENGAL 35This is the growth rate between 2000 and 2005 and it is very clear that the tertiary sector in ruralareas is growing at a rapid pace. The above table is taken from Economic Review 2009-10 of westBengal by state government.It is seen from above table, that daily employment increased between 2002 and2008 in all majorindustry groups like Rice, Tea, Printing and Allied, Rubber & RubberProducts, Chemical and ChemicalProducts, Glass & Glass Products, Engineering, Electricity and for all industries as a whole. theGroup 10 Section D Page 35
  36. 36. ECONOMIC REVIEW WEST BENGAL 36growth of the State Domestic Product atconstant prices from the tertiary sector has registeredsignificant growth in recent years.The growth of employment in the tertiary sector has been quiteimpressive. The rapid growth ofemployment in shops, commercial establishments,cinemas, theatres and other establishments ofpublic entertainment in the State conform tothis observation revealed from NSS data. The total dailyemployment in theseestablishments increased to 7.82 lakh on 30th September, 2009 from 6.83 lakhon 30thSeptember, 2007. This is evident from table below that in spite of the adverse effectofrecession the employment in these establishments increased considerably.Data is taken from S18for the next two figures.Group 10 Section D Page 36
  37. 37. Axis Title per 1000 persons 0% 0% 100% 100% 20% 30% 40% 50% 60% 70% 80% 90% 10% 20% 30% 50% 60% 70% 80% 90% 10% 40% July 1987-June 1988 July 1987-June 1988 July 1989 -June 1990 July 1989 -June 1990Group 10 Section D July 1990-June 1991 July 1990-June 1991 July-December 1991 July-December 1991 January-December… January-December… January-June 1993 January-June 1993 July 1993-June 1994 July 1993-June 1994 July 1994-June 1995 July 1994-June 1995 July 1995 -June 1996 July 1995 -June 1996 January-December… January-December… January-June 1998 January-June 1998 July 1999-June 2000 July 1999-June 2000 July 2000-June 2001 July 2000-June 2001 India India July 2001 -June 2002 July 2001 -June 2002 July-December 2002 July-December 2002 January-December… January-December… January-June 2004 January-June 2004 July 2004-June 2005 July 2004-June 2005 to improve manufacturing sector for a better economic development. July 2005-June 2006 July 2005-June 2006 July 2007-June 2008 July 2007-June 2008 July 2009-June 2010 July 2009-June 2010 S19 gives recent distribution of employment across various sectors in West Bengal. Sector wise employee distribution of Rural Sector wise employee distribution of Urban ECONOMIC REVIEW WEST BENGAL tertiary sector tertiary sector primary sector primary sector 37 secondary sector secondary sector rural areas also. As a result of its services sector, its economy is doing well. But there is a lot of scope change much in its share whereas in West Bengal the tertiary sector is growing at a rapid pace inPage 37 A sharp change in trend between west Bengal and India is the tertiary sector in rural India didn’t
  38. 38. ECONOMIC REVIEW WEST BENGAL 38 5. Debt Situation in West BengalThe fiscal situation of West Bengal is characterized by the fact that it has the Debt/ GSDP ratio of42.5 % which is the second highest amongst the non special category states in India. Another fact isthat West Bengal has own tax revenue(OTR)/ GSDP ratio of 4.1%, which is the lowest for any nonspecial category state. These are two reasons for the huge debt of West Bengal.Problem of High Debt/GSDP ratio in West Bengal:On analysis of the Debt/ GSDP Ratio of all the states from the above figure, we can conclude that theDebt/ GSDP ratio of all the states have increased from 1997 onwards and started to decline from2003-2004. But in West Bengal the ratio started to decline from 2005-2006. Moreover the Debt/GSDP ratio was higher for West Bengal as compared to all the other states of India.One of the main reason for the rise of Debt/ GSDP ratio of all the states can be attributed to thefeatures of the State Government Finances of India. One of the key features of the FederalGovernment has been that the resources are mostly concentrated in the hands of CentralGovernment with the states having limited power to collect taxes and mobilise resources. In additionto it all the development work is done by the state government which adds to the expenditure of theState Government. This asymmetry in relations leads to the dependence of State Government onthe Central Government in order to carry out their expenditure responsibilities. Against thisbackdrop, the following features of state government finances can be ascertained:  Revenue Receipts: The revenue receipts of the states, as we know, consist of not only its own revenue receipts,but also revenue transfer from the centre in the form of grants and shares in the central taxes. Sincethe level of revenue transfers remains outside the purviewof the states own economic policies, thedetermination of total revenue receipts also becomes exogenous to the state governmentGroup 10 Section D Page 38
  39. 39. ECONOMIC REVIEW WEST BENGAL 39  Interest Rate The interest rate is determined exogenously by the Central Government dependingon the monetary policy of the country. In India it is determined by RBI. For all the states theRBI has constitutional power to determine both the extent and the terms of borrowing from allthe resources.During the liberalization of the economy the interest rate has a tendency to rise. If the rate ofincrease of interest rate is more than the rate of increase of GSDP the debt/ GSDP ratio will increasewhich happened with all the states in India from 1997 onwards.The Debt/ GSDP ratio for West Bengal is higher than other states because of the fact that therevenue receipts of WB is lower than the other states and the effective rate of interest is higher forWB compared to other states. The effective rate of interest for WB is higher mainly because of thecomposition of liabilities of WB having a higher share of NSSF loans. States have to compulsorilyborrow a fixed portion of NSSF funds that they collect. Since WB has a much higher proportion ofNSSF loans, it has to borrow more from this pool. The higher interest rate on these loans in turnincreases the interest burden of WB.But if we analyze the relationship between Debt and GSDP of West Bengal, it is evident from theabove graph that their GSDP has increased at a higher rate as compared to the Debt.Data is taken from table 5.1.Group 10 Section D Page 39
  40. 40. ECONOMIC REVIEW WEST BENGAL 40 6. FISCAL DEFICIT The Fiscal Deficit of West Bengal has steadily increased over the past 25 years. As evident in thegraph the fiscal deficit of West Bengal is above 8 % of the total fiscal deficit since 1999 till now whichis a major concern of the West Bengal Government.Group 10 Section D Page 40
  41. 41. ECONOMIC REVIEW WEST BENGAL 41 7. CONCLUSIONThe economy of West Bengal had a history of outpacing the Indias growth rate and be a majorcontributor to the countrys GDP. A major shift from agriculture to services sector was observedthroughout this time period. But manufacturing was always stagnant. Though it ranks in top 5 statesin GSDP output, it doesn’t figure even in top 10 for per capita GSDP. This is because of its densepopulation. But beyond population growth, proper resource utilization was not there in manysectors. So, we would conclude that given the natural resources and human capital of West Bengal,it has a prospect of growing at a faster rate with a proper policy to revive manufacturing sector andconsolidate other areas.Group 10 Section D Page 41
  42. 42. ECONOMIC REVIEW WEST BENGAL 42 8. REFERENCESwww.statesofindia.cmie.comwww.indiastat.comDomestic Product of States of India by EPW Research Foundationwww.rbi.orgEconomic Review 2009-10West Bengal Human Development Report -Development and Planning Dept, Govt of WBWest Bengal Development Report - Planning Commision of India 2010Transforming West Bengal by BibekDebroy and LaveeshBhandariGroup 10 Section D Page 42