Sustainable economic development in West Bengal A Perspective

December 2007
KPMG IN INDIA

Message from Confederation of Indian Industry (CII)

I am pleased to present a study on Sustainable Development in West Bengal Jointly done by CII KPMG involving a cross section of eminent people from different works of life. Industrial and economic development in the state has experienced a journey which has brought to force social and economic issues which have become subject of debate and discussion across the country.

The issues are complex and do not have easy and final answer. The ideal and best answer may differ from person to person and their point of view.

The team of researchers engaged in the project have tried their best to chart a sustainable road map for a balanced growth of agriculture and industry.

Some action points have been suggested both for the Government and the industry for the smooth journey of West Bengal towards the destination of a more developed and prosperous state.

We hope that the study will help in understanding the real situation and in facilitating the policy formulation of the Government and industry in such a manner that all the stakeholders have a sense of security and feel confident in the process of industrialization will bring prosperity for all.

Biswadip Gupta Chairman, Confederation of Indian Industry (Eastern Region)

Foreword
The state of West Bengal is currently experiencing significant economic activity. The government is taking pro-active steps to make the state an attractive investment opportunity and make it a key part of the India growth story. The state is unique in terms of the social, economic, political and demographic factors. An interesting interplay of these factors affects the investment scenario and hence deserves greater attention.

The CII-KPMG study on Sustainable Economic Development in West Bengal A Perspective aims at highlighting the various factors which affect the investment scenario in West Bengal. During this study we have sought the opinions of over fifty stakeholders in the state including industrialists, bureaucrats, media etc. across the state Kolkata, Kharagpur, Medinipore, Siliguri and Jalpaiguri. Over 30 of these were CEOs/ CFOs of leading companies based in West Bengal.

The views received during such interactions have been followed by internal analysis on key issues. The report consolidates the various opinions and presents some of the key steps that need to be taken to facilitate sustainable economic development of the state.

It is quite likely that some of the points highlighted in this report are either intuitive or have been highlighted elsewhere. We think, however, that sometimes repeating the obvious is also of help. Too often, we get so caught up in our quest for the perfect solution that even incremental improvement is put on the backburner.

A number of improvement steps have already been taken in the state. We think that even greater effort will be needed from here on. The responsibility lies not just on the government but also on the shoulders of other stakeholders the industry, state officials, media, politicians, intelligentsia and other opinion leaders. The world is watching and we all have to deliver collectively to make West Bengal a shining example to others.

Arvind Mahajan National Industry Director Infrastructure and Government KPMG in India

Table of Contents

Executive Summary Overview Economy

Agriculture Industry

1 3 7

13

Action Points Annexure

List of respondents Bibliography

26 29

31

Executive Summary
In recent times the economy of West Bengal has demonstrated an improvement in many aspects. The GSDP of the state at current estimate is growing at a rate of 7 percent. In the IT sector the state recorded a growth rate of 48 percent as .2 against national growth rate of 30 percent. The value of projects implemented during the period 1991-2006 was around INR 33 billion, whereas the fresh investment committed during the year 2006-07 itself stands at around INR 96 billion. The FDI inflow in the state increased by 26 times in the year 2006-07 when compared with to that in the year 2003-04. In terms of social infrastructure, the number of hospital beds in the state has increased by 31 percent during the period 2001-02 to 2005-06. Around 7 lakh students graduate every year from universities, colleges and other professional institutes providing West Bengal with a robust talent pool. Despite these improvements, the state has slipped to 10th position in terms of per capita income. In 1999-00 nearly 32 percent of the rural population was below poverty line and urban unemployment was 7 percent. The manufacturing .6 sector contributes only 11 percent to the states NSDP These clearly indicate that . new challenges are the horizon and are required to be dealt with. The income levels of persons dependent on agriculture in the state is low and is likely to reduce further with the increase in population dependent on the same quantum of land. Their income level can increase by way of enhanced farm productivity, better crop mix and by a gradual reduction in the population directly dependent on agriculture. It may be noted that rice productivity in West Bengal is lower than in states like Punjab and Karnataka and much lower than countries like Egypt and China. There is ample scope for improvement on this count. Our survey of CEOs/ CFOs of leading companies in West Bengal showed interesting results. To boost the states rural economy, many felt that contract farming should be encouraged to provide farmers an access to better farm inputs, latest technology and an assured price for their produce. A regulator for contract farming needs to be established to lay down rules and to monitor compliance. Roads and canals in rural areas need urgent attention. Procurement of agricultural produce by the state needs to be enhanced. Land is essential to establish new industries. To bring about the balanced development of different regions of the state while ensuring minimal displacement of people, first attempt should be made to develop non-arable or less fertile land for industrial purposes. Given the fact that West Bengal has a low quantum of non-arable land, many respondents felt that the conversion of some agricultural land for industrial use would also have to be considered.

Acquisition of land requires a transparent procedure and clarity on the steps involved. This will require a suitable land policy. The land policy should identify land for industrial use, valuation principles, compensation modes and put in place roles and responsibilities of each party to this transaction. The current market value of land is not always the best indicator for estimating compensation as land market is imperfect with information asymmetries abound and does not capture the expected appreciation. Similarly, a one-time monetary compensation may not be the ideal mode of transfer of financial benefit to the land-loser. The compensation package should ensure that the land-loser gets an annuity payment and a part of the upside that the land-developer enjoys. Our survey also brought out the fact that the Government and the entire administrative machinery need to have a shared vision for facilitating economic growth of the state. The pro-investor attitude needs to be a collective attitude and should percolate to the lower bureaucracy as well. Its the lower bureaucracy that the farming and industrial communities interact with on a day-to-day basis. The Government needs to initiate a sustained mass communication campaign to create a widespread buy-in for successful implementation of developmental initiatives. Many respondents felt that the private sector on its part should step up its commitment towards corporate social responsibility. The private sector should take a leading role especially in developing ITIs and other vocational training institutes, which would enhance the employability of the states young human resources. West Bengal is blessed with a favorable strategic location, availability of fertile farm-land, access to ports and mineral wealth, and a huge talent pool. A shared vision and collective effort of the Government, administration, industry and the farm sector is what the state needs to reach the commanding heights that it rightly deserves.

Overview
At the dawn of freedom, West Bengal had lost 2 million acres of jute land producing 1.22 million tones of the crop, that fed its 106 mills before partition; 133 estates yielding 18 million kgs of tea (approximately 7 percent of the countrys production), and the linkages that supported its two major industries before independence. Additionally, the state had to deal with the influx of 3 million refugees, including an estimated 6.5 lac into Calcutta city alone. By the time of 1951 census, only 33 percent of the citys population had been born in it. Yet, even as late as 1960, West Bengal had the highest per capita real GDP of any state in India. It had 15.8 percent of the countrys factories and contributed 24 percent each of national value-add and employment. These numbers did not mean, of course, that income distribution was equitable. Rural Bengal was one of the poorest regions in the country, with 65 percent of its population living below the poverty line in 1973, compared to the national average of 56 percent. Nevertheless, when India was entering the stagnant 60s and 70s, West Bengal was still Indias pre-eminent industrial state. Between then and the next forty years, a gap opened up that the state is still trying to bridge. Today, West Bengal is still Indias third largest economy, producing 10 percent of its steel, 20 percent of its tea, 22 percent of its leather, and 13 percent of its total polymer production, with one of the largest petrochemical hubs in the country at Haldia. However, the state has also slipped to 10th position on per capita income, has 5.8 percent of the countrys factories, and contributes 5 percent of national value add. As an investment destination for foreign capital, West Bengal comes after Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, Gujarat and Haryana. Cumulative FDI flows into West Bengal from 2000 to 2007 amounted to INR 1,587 cr, as against INR 38,867 cr for Maharashtra, the leading FDI state. To appreciate the significance of FDI, one must note that from 2000-2005, developing countries or transitioning economies like Malaysia, Taiwan, China, Mexico, Brazil, Thailand, Vietnam and Russia, FDI inflows were between 8 percent and 52 percent of their net national savings. West Bengal is in a situation where it probably has to look at a large dose of equity funding for its developmental expenditure (see box). Here is where FDI can play a crucial role.

West Bengal: private investment needed West Bengal needs more money, and not from central grants alone. On a per capita basis, West Bengals total expenditure (capital and revenue) towards development in 2003-04 was budgeted at INR 1,573 substantially lower than states like Andhra Pradesh (INR 3,071), Gujarat (INR 3,697), Haryana (INR 3,451), Maharashtra (INR 2,476), Punjab (INR 3,866), Tamil Nadu (INR 2,484), and the national average at INR 2,478. Its debt burden crowds out developmental expenditure comparing budget estimates of 200304 again, the national average for capital expenditure towards developmental purposes was 50 percent, while the statistic for West Bengal was only 12 percent, with 60 percent going towards debt repayment. In the budget for 2006-07 interest payments amounted to nearly 42 percent of the states revenue receipts. Per capita development expenditure was approximately INR 2,152 at 2003-04 prices (consumer price inflation 4-5 percent during the period). To come on par with the national average on per capita developmental expenditure in 2003-04, West Bengal would still need to spend another INR 26,000 mn. Even if central grants were doubled from 2003-04 levels, it would be short of this figure. West Bengal clearly needs a massive dose of private investment if it is to just keep up with the rest of the country.

While its steep industrial decline has been the subject of much research, West Bengals agricultural resurgence in the eighties and upto the mid-nineties has also been well documented. Progressive land reforms is believed to have played a major role in encouraging private investment in irrigation, by securing sharecropper rights and granting them a share of production.1 Ownership distribution in West Bengal is today amongst the most equitable in the country, with small and marginal farmers owning 84 percent of total agricultural land in West Bengal, as against 43 percent in the rest of India.

1. It is sometimes stated that land redistribution was the driving force behind agricultural growth.

However, it is often overlooked that 253,556 hectares had already been redistributed till 1977 while the , next 26 years added another 186,029 hectares not the quantum leap that could explain West Bengals agricultural resurgence in the two decades. Statistically, the rise in number of recorded sharecroppers from 3.49 lac to 11 lac in the same two periods would be of greater significance. It is difficult to quantify the contribution made by peace of mind to West Bengals agricultural growth, but it is nevertheless worthwhile to note that prior to Operation Barga, 74 percent of tenancy contracts were of a years duration or less.

Other reasons advocated have been the cultivation of Boro Rice, and effective decentralization of power through a three tier Panchayati Raj system. Though the positive externalities of institutional changes are hard to measure, exhibit shows that the increase in rice production in the 80s was almost entirely on account of a whole new winter rice crop. The plateau hit in boro production since the late 90s therefore prompts the question of whether agriculture in West Bengal needs to look at other avenues for growth. Today, West Bengal is the largest producer of rice, the second largest of potatoes, and a major producer of fruits, vegetables and oilseeds. However, the state is a net importer of pulses and oilseeds, and has not achieved food security in any food-crop except rice and potatoes.2 West Bengal is Indias most densely populated state, at 904 people per square kilometer. Seventy two percent of its population depends on agriculture, nearly 80 percent of whom have an average land holding size of 0.64 hectares.

While land reforms have addressed the problem of acute poverty to an extent, problems still remain: 54 percent of its population earns INR 1500 per month or less. Amongst the big states, only Karnataka, Madhya Pradesh, Uttar Pradesh, Bihar, Chhattisgarh, Orissa and Jharkhand fare comparably or worse. Rural poverty continues to be a vexing problem: In 1999-2000, 18 million people comprising 32 percent of the rural population was below the poverty line, a number exceeded only by Uttar Pradesh, Madhya Pradesh and Bihar. In the same year, urban unemployment was at 7 percent, much above the .6 national average of 4.5 percent. With the population in the working age group estimated to increase by an additional 7 million through 2011, 17 million by 2016, and 20 million by 2021, a high incidence of unemployment is not unrealistic where manufacturing contributes a modest 11 percent of the states NSDP .

2 It produces 11 percent surplus rice and 40 percent surplus vegetables, but it is 50 percent deficient in wheat production, 75 percent deficient in pulse production and has to buy 60 percent of its oil seeds requirement from other states.

West Bengal has to adopt a model that stimulates growth in all sectors in a sustainable manner. Does it have any role models to follow? The sheer magnitude of its population density makes importing successful models from elsewhere difficult. Exhibit shows countries with a population between 20 and 150 million, with a population density of more than 125 persons per sq km. The only comparable geographies for West Bengal are Bangladesh, whose political and economic problems are far greater than its own, and Taiwan, whose population barely reaches above the 20 million mark. Countries like Vietnam or Thailand, both transitioning from an agrarian to an industrial economy, have population densities less than one-fourth and one-ninth of West Bengal. The unique situation in West Bengal is the fact that against the Indian average of 17% ; less than 1% of the land is unfertile and that too non-contiguous. Balance needs to be maintained keeping in perspective the availability of land, infrastructural needs and proximity to urban centers.

West Bengal has to find its own approaches for sustainable development. It does not have comparable precedents.

Economy
Agriculture
Dependence of population on agriculture as a source of sustenance should be reduced How much money does the small and marginal landowner make in West Bengal? If he grows two crops of rice, then with an average yield of 2.5 t/ha. an average land holding of 0.64 ha, and a price of INR 700 per quintal significantly on the higher side the small and marginal farmer earns a little more than INR 2,000. Subtracting the cost of inputs, he is left with very little, if anything. If the farmer grows potatoes, then at a yield of 21 t./ ha and a price of INR 400 per quintal, he makes INR 10,752 in revenues - in a year.3 Undeniably, the farmer gets other benefits from his land apart from the crops he grows on his land, he also indulges in animal husbandary and small crafts, and thereby keep his family adequately fed and sheltered but little else. There is of course a limit to how many individuals can derive even their subsistence from the same patch of land: West Bengals working population is estimated to increase by an additional 7 million through 2011, 17 million by 2016, and 20 million by 2021. For incomes to grow, a significant portion of the workforce has to be gradually shifted has to be shifted out of agriculture, and the average size of land-holding has to be increased. Rice productivity has to be increased Boro rice cultivation has been the cornerstone of West Bengals agricultural resurgence. However, the water intensity of this crop limits its cultivation in dry areas. As exhibit shows, production has greatly increased in all districts since 1980-81, but has been stagnant or declining everywhere from 1998-99 to 200203. The production of Boro rice appears to have plateaued. Furthermore, Boro cultivation has not been a success in Bankura and Purulia, which receive lower rainfall; while production in Darjeeling, Cooch Behar and Jalpaiguri has been low. The production of Aman rice increased from 6.01 million tonnes in 1985-86 to 8.35 million tonnes in 1994-95, but subsequently rose and fell in cycles, finally hitting 7 million tonnes in 2000-01 before rising again sharply. Over the period .02 1994-95 to 2002-03, the production of Aman rice increased 12 percent, whereas it rose 39 percent over 1985-86 to 1994-95. To that extent, the rise has been more modest from the second half of the nineties.

The net cropped area in West Bengal is already close to 100 percent of cultivable land in most districts and hence cannot be increased. The only alternative is to increase yield. This is an eminent possibility, as West Bengals yield of nearly every important crop except pulses is significantly less than that of the respective leading state in the country, which in turn is well below international standards. To illustrate: West Bengals rice yield is 2.5 t/ha while both Punjab and Karnataka record slightly more than 3.8 t/ha. The yield in Egypt is more than 9.54 t/ha while China manages 6.26 t/ha. In most cases, the development of higher yielding hybrids has been the solution. For instance, China grows hybrid rice in 50 percent of its 30 million hectares under rice cultivation (see box). Farmers have to be supported on inputs and procurement Following the reformed APMC act in 1998-99, grain can flow freely between states. This subjects the average farmer in West Bengal, with one of the tiniest land holdings in the country, to the volatility of market prices, even as his peers in other states have the cushion of greater state procurement and lower electricity tariffs. Currently, the minimum tariff for rural domestic supply is INR 2.09 per kWh and for agriculture is INR 1.5 per kWh for metered consumers while it ranges from INR 6,750 to 10,800 per annum for un-metered consumers, which is amongst the highest in the country. Paddy cultivators have been hit with rising input costs, particularly in irrigation (rising prices of electricity and diesel, on which an estimated 75 percent of tubewells run, have increased production costs).

China continues to innovate in hybrid rice technology Chinas success in hybrid technology has been well documented. Two-line hybrid rice was successfully commercialized in 1995, following the success of three-line hybrid rice in the 1970s. In 2002, two-line hybrid rice covered 2.6 million ha, or 18 percent of the total hybrid rice cultivation area. The latters yield is 5 to 10 percent higher than that of existing three-line hybrid rice. Since the initiation of the super rice research programme in 1996, encouraging results have also been achieved in developing super hybrid varieties: several pioneer varieties have shown a yield advantage of around 20 percent over current three-line hybrids on a commercial scale. In 2002, the area planted under super hybrid rice was 1.4 million ha with an average yield of 9.1 tonnes/ha in 2002. At the extreme, a two-line super hybrid P64S/E32 and a three-line super hybrid II-32A/Ming86 create record yields of 17.1 tonnes/ha and 17.95 tonnes/ha respectively. Current efforts are focused on developing second generation super hybrid rice, with a yield target of 12 tonnes/ha. In 2005, five locations with 7 ha each in Hunan Province, saw an average yield was over 12 tonnes/ha. If super hybrid rice covered an annual area of 13 million ha in China, and yielded an incremental 2.25 tonnes/ha, the additional production of 30 million tonnes could feed 75 million more people every year. China has also exported its hybrid technology to other rice growing countries with encouraging results, A number of experimental trials and large-scale demonstrations in farmers' fields conducted in these countries showed that hybrid rice can significantly outyield local varieties. For example, in the Philippines, a super hybrid rice variety called SL-8 was developed and planted in about 3 000 ha in 2003.The average yield was 8.5 tonnes/ha -more than double the country's average. On the basis of this achievement, the Government of the Philippines made an ambitious plan, with a goal of 3 million ha of hybrid rice planted by 2007. At the same time, wholesale paddy prices have been stagnant for much of the period from 1999-00 to 2006-07 while input costs have risen. In this period, state , procurement at the minimum support price in West Bengal, has been lower than in other rice producing states. For instance, in 2002-03, when the WPI was at its lowest in this 8-year period, state procurement in West Bengal was 1.26 lac tonnes compared to 74.9 lac tonnes in Punjab. Even its peak procurement of 12.75 lac tonnes in 2005-06 was smaller than 17 lac tonnes for Orissa, 49 lac .85 tonnes for AP 31 lac tonnes for UP 20 lac tonnes for Haryana, 88 lac tonnes for , , Punjab and 32 lac tonnes for Chhattisgarh. West Bengals farm sector is in need of greater support in subsidies 4 and procurement. While a full fledged investigation is beyond the scope of this report, we think there is scope for Public-Private-Partnership (PPP) in activities like development of rural roads or canal irrigation (which would be a form of indirect subsidy as production and logistics costs would come down). Procurement is easier: contract farming and organized retail, by reaching out to the producer directly, can deliver a better price to the farmer. Contract farming delivers other advantages, like subsidized seeds, pesticides and fertilizers, adoption of scientific farming practices, and institutional credit.
4 A cornerstone of electricity distribution reforms has been the emphasis on moving tariff closer to cost of service, and phasing out cross subsidies. However, such a step would be pointless if consumers remain too poor to afford electricity, light bulbs, or other electrical implements. A case in point is rural electrification in Bengal, where 82 percent of villages are electrified while only 37 percent households have access to electricity. The government has to design an effective subsidy delivery mechanism that does not rely wholly on industrial and commercial consumers to pay for agricultural consumption. If the subsidy is to be funded directly by the government, there is a need to increase tax revenues, which once again underscores the need for industrialization in the state.

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Survey Results - 1

Minimum support prices should be provided Eighty three percent of our respondents strongly agreed that contract farming could help agriculture become more financially viable in the state. The respondent from a large company operating the agribusiness space felt that building trust with the farmers was very important, and providing guaranteed minimum prices was a vital part of that. The same respondent also pointed out that acidic fertilizers were still being used in the highly acidic soil of Purulia, which implied inadequate knowledge transfer and training. Another respondent, a top bureaucrat, shared this view, and said that long term sustainability of the farm should be a key concern underlying any contract for farming. He added that the duration of the contract should be for a short period like five years or less, after which the farmer would have the opportunity to re-negotiate terms to his advantage. The respondents also identified lack of corporate involvement in farming to be one of the biggest weaknesses of agriculture in the state. Other reasons which received a median rating of 8 on a scale of 0 to 10 were lack of access to modern farm practices, lack of mechanization, and fragmentation of land. Contract farming would address three out of the top four issues, while land fragmentation is a problem that needs to be resolved through a government-led initiative like forming co-operatives (discussed in the next section).

A policy on contract farming needs to be framed West Bengals fragmented landholdings create a problem for contract farming 5. Typically, a firm would like to negotiate as few contracts as possible, so that monitoring costs are low. Small farmers could circumvent this problem by organizing themselves into co-operatives, similar to fruit growers in the U.S. selling to large canneries. However, the process should be facilitated by the state. We are of the opinion that the state should lay down the rules of the game, communicate the same to all stakeholders (farmers, consumers, corporates), and facilitate their adoption. The first step would be to have a contract farming policy.

5 Generally, corporates, find it more profitable to contract with small landholders where the crop grown is labour-intensive. The farmers family supervises their farming operations for free, whereas with large farms the cost of extra supervisory manpower has to be factored in. However, even this has its limits. For instance, to procure 40,000 tonnes of tomatoes at an average yield of 52 t/ha, as Pepsi was doing in Punjab (see box overleaf), the total area under contract would be 769 hectares. If the average size of land holding was 1 hectare per farmer, the contractor would have to negotiate and monitor 769 contracts not an easy task.

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A detailed discussion of a model contract farming policy for West Bengal is beyond the scope of this report, but we would like to highlight some points it ought to cover: Operating model for co-operatives: While success of a mammoth, state-level co-operative like Amul for agricultural produce in general is a challenge 6, it is possible to have state-level co-operatives for specific products like potatoes and chillies. Alternatives would be to have co-operatives at the level of a district for all or specific crops, or to leave their formation to market forces, with just a minimum size specified. Fit with overall strategy: A common fear voiced against contract farming is that it could lead to dwindling food security: crops would get diverted to food processing industries, or the export market, leaving little for domestic consumers. Ordinarily, any demand supply imbalance would be met by trade. But food supply is limited, and cannot rise in response to demand as quickly as a manufactured product, if it can rise at all. The consequences of two or three independent state-level policies could be profound: let us take rice as an example. While at the moment India has a surplus of rice that is also because artificially boosted Minimum Support Prices have given farmers a perverse incentive to grow rice in areas that are not suitable for its cultivation. As a consequence, the water table in states like Punjab and Haryana have receded significantly. Now if this market distortion were to be corrected, and even 25 percent of the acreage under rice cultivation in these states were diverted for other uses, the resulting shortfall could be 3 million tonnes. If West Bengal at the same time were to reduce its output of rice, there would be no choice but to import. The question is: from where? The large exporters of rice in the world are Thailand, Vietnam, China, U.S., Pakistan and India itself. The impact of India becoming a net importer on global prices could only be to send them soaring upwards. Therefore, a contract farming policy cannot be developed in isolation from the overall strategy for agriculture in the state. Regulatory body: The contract farming policy should specify the nature and role of a contract farming regulator. Ideally, the regulators principal functions should be to lay down market rules within the broad framework of the contract farming policy body, administer licenses, monitor compliance and frame model contracts till the market matures. Model contracts: While a contract price protects the producers downside price risk, it also prevents him from reaping windfall profits when market prices soar. A suitable contract would balance risks and rewards by contracting for less than the farmers total produce, and leaving him with an amount to sell in the open market. Similarly, it would specify mechanisms for dispute resolution and penalties for default; spell out violations; and cover the legal and administrative angles. The regulator would have to frame several alternate model contracts that can then be adopted by the farming cooperatives or individual farmers.

6 Amuls success rests on an efficient supply chain, the key feature of which is that it carries a single product. Economies of scale can be thus achieved in storage, transportation, handling and distribution.

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Haryanas contract farming policy In August 2007, the Haryana government notified the Punjab Agricultural Produce Markets (General) Haryana Amendment Rules, laying down the rules for contract farming. Salient features of these rules are: Registration of parties wishing to sponsor contract farming. Applications to be accompanied by information on the sponsors financials, IT returns, proof of registration and detailed project report Contract to be as per model agreement laid down in the rules. As per this model agreement: If the farmer is forced to sell his contracted produce in the open market as a result of the buyer reneging on his terms, then he would be compensated by the buyer. The compensation amount will be the difference between the contract value and the realized value to the farmer, on selling in the open market. In case of the seller reneging on his commitment, the buyer is entitled to ask for compensation from the prescribed authority under the Rules. The farmer cannot mortgage, lease or sell his property during the period of the agreement.

Additionally, sincehas theare principal-based, there fields and monitor his progress - The buyer IFRS authority to enter the farmers is significant room for exercise of judgment and detailed implementation guidance is often not available. Minimum contract price specified as the Minimum Support Price for the proceeding year However, U.S. GAAP is generally rule-based and detailed implementation or, in its absence, the prevailing market price guidance is available. This may result in application differences between IFRS and Sponsor has in areas where amount or no conceptual differences. U.S. GAAP evento deposit a securitythere are bank guarantee equal to 15 percent of the , contract value with the agricultural marketing committee.

Contract farming of tomatoes in Punjab A case study In 1989, Pepsico set up a tomato processing plant at Zahura in Punjab for producing pastes and purees for the international market. However, the plants crushing capacity of 30 MT per hour needed a total of 40,000 tonnes of high-solids processing-variety tomatoes over a procurement period of 55 days for efficient operations. Not only was the required variety not grown in Punjab, but also the states average yield was 16 t/ha., and its total annual output a mere 28,000 tonnes. Pepsico embarked on a then novel contract farming initiative, in which it also involved Punjab Agricultural University (PAU) and Punjab Agro IndustriesCorporation (PAIC). Ten year later, the yield was up to 52 t/ha, with an annual output of 200,000 tonnes. What made this change possible? Planting hybrids, doubling the growing season from 28 to 55 days, and adopting scientific farming practices. Contrarian opinions have described Pepsicos contract farming operations as a failure, in light of the fact that its tomato processing plant was sold to HLL in 1999. However, the facts are that Pepsico is still actively pursuing contract farming operations in Punjab, while the benefits of higher yield and larger output to the state are undeniable.

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Industry
Diversion of agricultural land for industrialization needs consideration West Bengal has only 37 ,574 hectares of land classified as barren and uncultivable. This includes around 6000 hectares of degraded mine land of the Ranigunj coal field in Burdwan, 4500 hectares in the Northern hilly areas, and 4700 hectares in the Terai-Tista flood plain, areas far from demand and supply centres, and with poor connectivity. The total area of vested non-agricultural land available in the state for industry is even smaller, at only 9073 hectares; only half of that land is in South Bengal. Land required for all the proposals pending before West Bengals commerce and industries department is 36,437 hectares. That prompts the question: can industrialization proceed without acquiring agricultural land? Although the land required for industry amounts to about 0.6 percent of total cultivated area, acquiring even this quantum of land is proving to be a problem. In the meantime, critics have advocated theories of all shades to argue against land acquisition, from the rational (e.g. circle rates underestimate market value), the emotional (land is ones mother), and the notional (food security would be threatened). Of these explanations, the argument of food security is the weakest. As pointed out earlier, average yields in West Bengal are two or three times lower than domestic or international benchmarks. The problem is not so much about availability of land, as the efficiency of its use. Food security is a serious issue for not only West Bengal but also for India as a whole, addressing it would require making public investments in irrigation 7, adopting high yielding varieties, correcting market distortions, shrinking the population dependent on agriculture, and changing cropping patterns. The loss of less than 1 percent of cultivable land would not make a difference if the more pressing issues were addressed. At the same time, this does not mean that industry should necessarily be sited on agricultural land. Indeed, a number of our respondents felt that land acquired for industry should be barren or of little fertility. From a practical point of view, this also makes sense because fewer people, including (presumably) illegal settlers and sharecroppers would be dependent on it, compensation would be restricted to a smaller set of people and would be easier to administer, and landowners would be more willing to sell in areas where the land market is relatively illiquid.

7 Public investment in irrigation would include, most significantly, canals. West Bengal has 701,000 ha under canal irrigation, which as a percentage of net irrigated area is ahead of only UP MP Gujarat, , , Jharkhand, Himachal Pradesh, Goa and Rajasthan. There are differing points of view about whether West Bengal is adequately exploiting its groundwater resources. While on the one hand data suggests that it is using only 48 percent of its groundwater potential, which would not qualify as overdrawal, there is the issue of arsenic contamination. A 19- year study by SOES-DCH (a collaboration between School of Environmental Studies, Jadavpur and Dhaka Community Hospital) showed that 9 out of West Bengals 19 districts have severe arsenic concentrations in their groundwater. There is substantial reason for West Bengal to invest canal irrigation, whether or not groundwater is harnessed further.

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Singur and Nandigram have demonstrated the administrative difficulty in acquiring fertile land for industry. But low yielding agricultural land found, for instance, in the arid parts of Purulia and Bankura, should probably present no such problem (see box), and have been suggested as more acceptable alternates. The financial viability of building industrial growth centres in these areas should be studied closely by the state government. While the natural growth centres of industry are close to demand centres, close to existing industrial areas 8, or to supply centres like coal mines, sociopolitical dynamics in West Bengal might limit options.

Survey Results - 2

Should try to acquire non arable/ single crop land 87 percent of the respondents felt that industrialization needed agricultural land to be diverted for it. The CEO of one company suggested that less fertile pockets should be selected and provided with adequate infrastructure to make it attractive for potential investors. 86 percent of our respondents strongly disagreed with the assertion that acquiring less than 1 percent of agricultural land would impact food security, arguing that the shortfall can be made up for by planting high yielding varieties, and increasing the percentage of net sown area under irrigation.

Acquisition, compensation and the need for a land policy Assuming that the majority of people even the illiterate or uneducated would act in accordance with their financial interest, emotional arguments against land acquisition could stem from other, very practical concerns: for example, unrecorded sharecroppers and illegal occupants might fear that they would not be entitled to any compensation in lieu of their loss of livelihood.

8 New industrial hubs in post-reforms India have tended to cluster around existing hubs. Thus for instance, Bharuch has developed close to Baroda, Chengaianna close to Madras, and Raigarh and Thane close to the Greater Bombay industrial belt. A study of investments over the period 1992-1998 revealed that the single biggest determinant of the quantum of industrial investments in a district was investments in nearby districts. Neither proximity to demand centres nor quality of infrastructure were significant explanatory variables, though proximity to ports was a factor.

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Rational arguments against land acquisition have tended to revolve around compensation, in particular 1 2 3 How to value the land Whom to compensate How to structure the compensation.

In addressing the first question, a lot of attention has gone towards how to determine the current market value of the land. Since the value of land transactions are often understated to evade taxes and duties, circle rates available with the government may not be a correct reflection of market prices. Furthermore, in areas where the land market may be relatively illiquid, available price data could easily be stale. The market price (based on past land transactions that happened prior to the announcement of the notified area) might not reflect the inherent value of the notified land to all categories of land holders, more so since (as we know it to be) the land market is imperfect, and information asymmetries abound. Finally, there is the question of fairness: even if a fair estimate of market price or an acceptable inherent value for all landholders were found, it would not capture the subsequent appreciation on account of the project itself. Therefore, landholders outside the notified project area would benefit disproportionately, while the original land losers would get what in relative terms would be marginal amount. For instance, farmers whose land was acquired for the SEZ in Sriperumbudur in 2002 were paid INR 5 lac per acre, at (supposedly) market rates. After Motorola, Flextronics, Foxconn, Samsung and Dell came in, land rates went up to INR 80 lac an acre. This benefited the 1,500 farmers living just outside the notified area of the SEZ, but not the original landowners whose land was acquired. There is thus a problem with determining not only the current market value of land, but also a more fundamental one of whether to use the market price as a benchmark for acquisition.9 Unfortunately, none of these problems are easy to address. For instance, how does one define a fair price? One attempt could be thus: there should not be a stark difference between the economic returns to the land loser compared to those to people living in the immediate neighbourhood of the acquired land, over a long enough period of time. The problems then would be to determine an acceptable definition of neighbourhood do we mean contiguous or extending some distance beyond that? and long enough: 10 years, 20 years, one generation?

9 The Nobel Laureate Prof. Amartya Sen pointed out an additional problem in land valuation, speaking in the context of Singur: if companies were free to compete with each other to acquire the same piece of land, its market value would go up even further (While the compensation paid is greater than the value of the land seen as agricultural land, the compensation paid by the government is less than what the value would have been had it been free for competition with industries. If you are part of the market economy, then you have to take into account what the value of the land would have been had it been freely available for industry)

16

The second question, of whom to compensate, is particularly relevant for West Bengal. We do not have estimates for the total number of unregistered sharecroppers or illegal occupants in West Bengal, but Singur and Nandigram indicate that the numbers could be considerable. For all their legal status, these are by and large, poor people who survive on their farm produce. It would be difficult and morally questionable to acquire land without their buy-in. The real question then is: how does one get their buy in? We think a sustained public communication campaign, backed up by a sound land (acquisition, compensation and rehabilitation) policy, are key. This is discussed in the next section. The third question is complex again. Table 1 illustrates the pros and cons of some select modes of compensation. The trade off is between convenience (best illustrated by a one-time payment) and fairness (an extreme of which would be allowing everybody to customize their own compensation package).

Table 1: Modes of compensation Mode of compensation Pros Cons

Assumes all land losers have the same return expectation and risk appetite Exposed to inflation risk Requirement for ongoing monitoring and grievance redressal One-time cash payment Assumes land loser has sufficient financial acumen to use his money wisely Employer may not find the skills commensurate with the job Employment Provides an alternate 'way of life': no idleness requirement. Candidate may not be fit for employment even after training. Nature of job offered may not interest the land-loser. Length of employment cannot be guaranteed Shares upside reward Shares downside risk Land loser not likely to understand risks and returns inherent in Equity stocks Value of equity participation can vary greatly with the acquirers profile No resettlement issues Land / House Housing projects will require the consent of a large number of land losers: this option cannot be 'tailor made' for an individual Because of the above, the minority is likely to lose out

Steady source of income Annuity

Easy to administer

17

Survey Results - 3

Definitely not one-time cash payment / Industry has to stick to core capability Responses were mixed on the issue of favoured modes of compensation for land acquisition. While 57 percent favoured the inclusion of some form of annuity (including an upfront lump sum payment) in the compensation scheme, 26 percent thought that a one-time payment was all that could be asked of industry. One respondent said that a one-time payment was unwise as the land loser would be tempted to spend it all and then be left with nothing. Another respondent was categorical that while industry should pay a fair amount, it was another matter altogether to start customizing compensation packages, and then being saddled with unforeseen liabilities. It was preferable to pay the compensation amount at one go. Shares and employment were seen as a desirable part of the compensation package by 39 percent and 30 percent of respondents respectively; 22 percent respondents believed that the constituents of a compensation package woud have to be determined on a case to case basis the package for prime agricultural land in Hooghly could be different than that for wasteland in Purulia, for instance. Land-for-land was mentioned as desirable by only 9 percent of respondents. Our respondents clearly favoured more complex modes of compensation than a simple one-time payment (see box). Following the Jindals offer of shares to land losers in its INR 35,000 cr project in Salboni 10, spread over 4,000 acre (80 percent of the land belonged to government, which is now transferred and only 20 percent of the land purchased from private owners) and shares if the project are being offered only to private owners, equity participation has come to occupy the popular imagination as a desirable element of compensation. But intricately tied to equity participation is a host of issues. If such participation is in the holding company, then there would be less of a problem. But if it is in the project company, then the risks are higher. Technically, it is possible for promoters to siphon away the profits of the project company well before any substantial dividends can be given out.11 Equity participation therefore assumes honest intentions and good corporate governance.

10 Salboni is a backward area in West Mednipur district where Jindal Steel Works is setting up a 10

MTPA steel plant. While residential houses are not going to be affected by the project, there will be loss of low-grade agricultural land. Compensation is in the form of cash, insurance benefits, and shares. For every rupee of cash and insurance benefits, there will be a matching value in shares.
11 Mechanisms for siphoning money are many and varied. Some of these are superfluous service or uncompetitive purchase agreements, interest free loans, loans payable out of dividends, etc.

18

West Bengal needs to have a land policy that will clearly identify the areas identified for industrial use, method for valuing land, modes of compensation, parties qualifying for compensation, conditions under which equity participation is acceptable, and cases where the government will invoke its right of eminent domain; as well as establish the functions and responsibilities of an arbitrator for dispute resolution, amongst others. The policy should also lay out the minimum share of land that investors have to acquire themselves. This is set out at 70 percent in the New Policy on Resettlement and Rehabilitation (see next section), but the state could increase the bar. A majority of our respondents believed that the onus of acquiring land should not be with the government, as is the current situation (see box). Survey Results - 4

Investors should acquire, the government should facilitate A majority of our respondents felt that land acquisition cannot be entirely the governments responsibility. The prevailing point of view was that land should be acquired by investors, with the government facilitating the process by, for example, stepping in to acquire the last 10-20 percent, if landholders are unwilling to sell, and land contiguity could become an issue. Most respondents also thought laws should be framed that would make it compulsory for a landholder to sell, if in a significant minority where the rest have sold out. One respondent mentioned that once a certain area was known to be earmarked for industrial development, chances of land grabbing would be very high. In that case, offering an attractive package to the minority land grabbers could send the wrong signals.

Communication is important 'You hadn't exactly gone out of your way to call attention to the building plans had you? I mean like actually telling anyone or anything.' 'But the plans were on display.' 'On display? I eventually had to go down to the cellar to find them.' 'That's the display department.' 'With a torch.' 'Ah, well the lights had probably gone.' 'So had the stairs.' 'But look you found the notice didn't you?' 'Yes,' said Arthur, `yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying "Beware of The Leopard" - Douglas Adams, The Hitchikers Guide To The Galaxy

19

The acquisition of 36,437 hectares of land could displace anywhere between 6.19 lac and 1.28 lac persons (corresponding to the average rural population densities of Haora and Darjeeling, at two ends of the scale) . While having a well thoughtout land policy is important, it is also necessary to communicate it extensively and effectively. The new National Policy on Resettlement and Rehabilitation, 2007 (see box) stipulates that the community to be displaced be kept informed at every stage through public hearings, notices to panchayats and newspaper advertisements. But it would probably be as good an idea to communicate the features of the new land policy well in advance, and to make information on all deals available in the public domain. As a first step, the government should commission a mass communication plan. Some stipulations of New Resettlement and Rehabilitation Policy (NPRR), 2007 Wherever possible projects should be non-displacing, and the promoters of projects should come up with alternative sites when making requests for acquisition As far as possible, projects may be set up on wasteland, degraded or un-irrigated land Before taking up a project government should consider options that would minimize the displacement of people, the total area of land to be acquired and the acquisition of agricultural land for non-agricultural projects A Social Impact Assessment (SIA) of projects is required that may displace a large number of people. SIA will be necessary for projects causing involuntary displacement of at least 400 families in plains and 200 families in hills State governments will appoint a commissioner and an administrator of resettlement and rehabilitation who will oversee resettlement If the acquired land transferred to a private company remains unutilised for five years or more, it will revert to the state If the land is sold or transferred, 80 percent of any net unearned income shall be shared with the persons from whom the land was acquired Land will be acquired at market rate. The compensation package includes land for land wherever possible, preference of employment to at least one member of the affected family, training for jobs or self-employment, scholarships, preference to groups and cooperatives formed by affected families for allotment of contracts, wage employment and housing benefits There are also provisions for financial assistance ranging from INR 10,000 to INR 25,000 for construction of cattle sheds and shops; transportation costs, temporary accommodation, and infrastructural facilities and amenities in the resettlement area There are options of pension and shares in projects Landless labourers residing in the affected area for at least five years eligible for compensation States can acquire 30 percent of the land for a project provided the investor has already acquired the first 70 percent Solatium (an additional amount payable over and above the market value) has been hiked from 30 percent to 60 percent.

20

The private sector should step up its commitment to corporate social responsibility Corporates in the developed world are spending time and money on philanthropy. Consider the following cases: In 2005, Kraft Foods bought 13 million pounds of Rainforest Alliance certified coffee beans grown by sustainable sources in coffee-growing communities around the world. Coffee from Rainforest Alliance Certified farms fetches a higher price in the market, allowing farmers a better standard of living. The move was supposed to have benefited more than 100,000 farmers, families and workers, and preserved more than 50,000 acres of tropical rainforest forest in Central and South America. In June 2005, Bristol-Myers Squibb and Baylor College of Medicine announced the creation of a Pediatric AIDS Corps to send 250 doctors to Africa to treat approximately 80,000 children over five years and to train local healthcare professionals. In 2000, Carrefour, the second largest retailer in the world worked with FIDH, a group of 116 human rights organizations from around the world, to establish a monitoring agency to help Carrefour enforce a code of conduct for its suppliers. What drives corporates to philanthropy? Generating goodwill in the local community, governmental regulations, and generating goodwill amongst existing customers are typically seen as valid reasons. However, studies have noted that while a small percentage of consumers would avoid companies they see as irresponsible, they would not modify their buying behaviour to favour companies that are seen going the extra mile in social and environmental stewardship. In the developed world, an increasingly important driver of corporate social responsibility is in fact, investor pressure. According to the Social Investment Forum (2005), in 2005 more than USD 2.3 trillion or 9.4 percent of all professionally managed assets in the U.S. were managed with social screens . The California Public Employees Retirement System (CalPERS), for instance, has since 1987 targeted relatively poor performers (on social behaviour) for partial take-overs. The influence of CalPERs as a major shareholder, or a significant threat of de-listing, has been used to focus the management on change. Is such non-intuitive fund management good for its beneficiaries? Interestingly, a Wilshire Associates study of the CalPERS Effect on 95 companies targeted by CalPERS between 1987 and 1999 found that these companies stocks outperformed the Standard and Poors index by 14 percent in the 5 years following CalPERS intervention.

21

If the number of funds requiring CSR related conditions continues to grow and gather significant market power, this segment of the financial market could eventually become the single most powerful relationship driving corporations towards increased CSR. Evidence of this growth is found in platforms such as the UN Global Compact, which recently received commitments to its Principles of Responsible Investment from 50 institutional investors managing funds totaling over USD 4 trillion. Further, in the U.K., the Pensions Committee of the Environmental Agency of England and Wales (2004, p. 35-36) decided to become an active shareholder and compel managers to analyze environmental performance across the entire portfolio.

Survey Results - 5

CSR spend should be 1-2 percent of net profits A vast majority of our respondents thought that there was significant scope for the private sector to step up its commitment to corporate social responsibility. Senior managet of an MNC thought that commitment for CSR should be between 1-2 percent. While it was felt that CSR should be a voluntary effort and not be made compulsory, one respondent thought that at least a social audit should be made mandatory. In the unlikely event that land has been taken up for industrial development, the private partner should invest (especially for village land) in local community development initiatives like water supply, maintenance of primary schools, community centers etc. For urban cities, CSR could include urban beautification and host of other initiatives.

The government should act as a team The Shilpa-Bandhu, which was planned to be a single window set up to guide and assist investors in getting their clearance and approvals have ended up as little more than information bureau. The investors want more active involvement of Shilpa-Bandhu. In Gujarat, for instance, investors are actively pursued by most sections of bureaucracy, while in West Bengal their involvement was at best passive: a case in point being Shilpa-Bandhu itself. The Bandhu, an official appointed to guide investors regarding the approvals they need to take, and in what sequence, ends up as little more than an information bureau; whereas what investors want is a little more active involvement.

22

It was also felt to be a lack of a common vision with the lower bureaucracy displaying no such urgency in garnering investments as seen in the government and senior bureaucracy. It was felt that investor-friendliness was a matter of personal - as opposed to collective - attitude. Systemic support in West Bengal was low on this score (see box).

Survey Results - 6

Rating on a scale of 0-10

Pursuing of investors should be system-driven Our respondents believed that the government and senior bureaucracy were supportive of industries. But the underlying concern was that key initiatives like active pursuing of investors ran entirely on the conviction and sincerity of a few individuals, and was not system-driven. It was felt that a pro-industry attitude had not percolated to all sections of the bureaucracy, and the lower bureaucracy in particular was not industry-friendly. One respondent mentioned that the bureaucracy on the whole was friendly towards big industry, but not particularly responsive to the needs of small industry. The median rating of the oppositions attitude to industry was low, but a few respondents rated it a just notch below the governments. For an investor, West Bengals other politico-economic advantages were seen as its relative lack of corruption, generally good law and order (this was before the fresh outbreak of violence in Nandigram), and what are perceived as stable economic policies. Negative points were perceived to be long lead times for approvals and clearances, and few state-level tax benefits.

Industrial relations are not a problem area, general strikes are A popular perception is that West Bengal suffers from worker unrest. Critics have sometimes pointed to the cumulative number of strikes and lockouts in the state, the highest in the country, and used that to support their assertion of pervasive labour problems. However, the truth is that except for certain industries like tea and Jute, where industrial relations remain poor, labour problems are not seen as a particularly troublesome area anymore (see box).

23

An analysis of the disaggregated figures for strikes and lockouts is revealing. West Bengal has had far many more lockouts than strikes in the period 19912005. In fact, the number of strikes in this period has been less than that in Tamil Nadu, Gujarat, AP or Haryana. Correspondingly, the number of lockouts has been significantly greater than for any other state except Andhra Pradesh. But APs statistic has been declining every year, while West Bengals has risen from 108 in 1991 to 172 in 2005.

Does this trend point to labour problems forcing the managements hand or to an increasing number of companies facing financial distress and halting operations? It could go either way. At present, we dont see any evidence to pin the blame for West Bengals high incidence of lockouts on labour problems. On the other hand, the data on strikes is more straightforward: and it shows that West Bengal is actually in a better position than many other states. Of far greater significance are general strikes bandhs and hartals. This, more than any problem with labour unrest, was seen as the single greatest disincentive for investing in West Bengal.

24

Survey Results - 7

Better than Maharashtra, at par with TN On labour-related issues, industrial relations received a fairly high median rating of 7. The CEO of a INR 3,000 cr company, a market leader in its industry, commented that there was hardly any militancy at all in the organised sectorsnever had any problem of go slow in last 20 years. Another response, from the MD of an Indo-European joint venture company, was that industrial relations in West Bengal were better than (in) Maharashtra, at par with TN. The lowest rating of 3 was given by the CEO of a company which had seen labour unrest in the recent past, and was undergoing a massive restructuring exercise under a new management. Clearly, companies have had very different experiences with their workers in West Bengal. Labour issues today would tend to be company-specific, rather than symptomatic of any universal trend. The only exception that we find is in tea, where labour disputes are common in the Dooars region. For most other industries, and certainly for those in the southern part of the state, it would not be incorrect to say that industrial relations are not a problem in West Bengal anymore. West Bengal should have more private ITIs West Bengals approximately 4 lac workers in the organized industrial sector rank it ahead of Haryana, almost at par with Karnataka, while it stays significantly behind Gujarat, Andhra Pradesh, Maharashtra and Tamil Nadu. In the unorganized manufacturing sector, its workforce is the largest in the country. Its average wages in the organized sector are on the higher side , on account of a large percentage of its workforce finding employment in the 79 PSEs in the state. This raises the issue of whether the supply of low-cost skilled labour might be limited. Our survey respondents did seem to think that such was the case (see box). It is possible that such a supply crunch is being felt in other states as well, but at the same time West Bengal is clearly lagging behind in training. In 2004, the total number of seats in all government and private ITIs / ITCs in West Bengal was one-eighth of that in Andhra Pradesh. Maharashtra, Gujarat and Tamil Nadu, all had more than 85,000 seats as compared to West Bengals 12,824. Even Chhattisgarh, Orissa, Uttar Pradesh and Bihar had greater seating capacity, while in per capita availability only Bihar comes close.

25

What have the top four states done differently? Maharashtra and Gujarat have simply set up more government-run training institutes, while Andhra Pradesh and Tamil Nadu have encouraged greater private sector participation. While West Bengal has the lowest share of private ITIs at 7 percent, the figures for Andhra Pradesh and Tamil Nadu are 78 percent and 72 percent respectively, while Maharashtra has 31 percent. Only Gujarat at 19 percent is an anomaly, but both in terms of both percentage and absolute numbers, it is still far ahead of West Bengal there are more seats in private ITIs in Gujarat than total seats in West Bengal. West Bengal should look at PPP models for improving the number and quality of ITIs in the state. Here, supply can be created ahead of demand. Even if employment opportunities are not available in the state itself, skilled workers can always find work in other geographies. Punjab and Kerala are two examples of economies that have benefited from remittances. One also suspects that Keralas 59,000 ITI seats, 74 percent of them in private institutes, may be in response to the demand for skilled manual labour in the Gulf. As a first step, West Bengal should determine the number of institutes needed, their location and intake, operating model, course design, staffing, and financing requirements. Survey Results - 8

Rating on a scale of 0-10

Onus of training lies with employer Our respondents saw a problem with the availability of skilled labour, while unskilled and semi-skilled labour was perceived to be abundant in the state. The shortage was seen to extend across the spectrum of skilled labour manual workers, IT professionals, and managerial and financial personnel. Not all of these are specific to West Bengal, of course IT and finance are facing a supply crunch all over the country, which has resulted salaries rising sharply. The quality of instruction in ITIs was felt to be poor, with the result that even supposedly trained personnel needed re-training on the job. The onus of training lay on the employer. Lack of skills was a principal reason why labour productivity received a low median rating of 5 on a scale of 0 to 10, although two of the respondents also saw an issue with worker attitudes. West Bengal government is now asking private partners setting up large projects to invest in training facilities for absorbing local manpower so that the villagers are employable.

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Action Points
As mentioned at the beginning of this report, West Bengal has to find innovative approaches for sustainable development: it does not have comparable precedents. West Bengal has fertile farm-land, mineral resources, a rich cultural heritage, and a huge pool of intellect. What it does not have is time. The action points highlighted in the report are summarized as follows. For the government To have a draft land policy for West Bengal - identifying areas to be acquired for industry, the rationale thereof, and the mode of compensation to the land-owners. Industrialists would prefer clarity on where they can look forward to setting up industries. Information on the facilities that such land offers like connectivity and natural resources should be available to the investors easily. The process of acquiring of such land is another important matter which should be covered in the land policy. People living in the areas identified as industrial land also need to understand the various options of compensation that they would receive, if and when, such land is acquired. Although the actual amount of compensation would be determined only at the time of actual acquisition, the land-losers, particularly the less literate ones would get more time to weigh various options. An informed decision, rather than emotional outbursts, would help in achieving the right win-win situation. To enable the formation of agricultural co-operatives. The report compares the productivity of rice in various geographies. The production of rice has to improve further and adequate result oriented research and implementation process should be evolved. The existing research institutes can be utilized for this purpose in addition to any other method undertaken. Formation of agricultural cooperatives should be promoted that can effectively and quickly reap the benefits of advanced research. As pointed out by one of the respondents, rice by-products can be more gainfully used and rice itself can be marketed in other value added forms. Agricultural cooperatives, rather than individual farmers, will be in a better position to reap such benefits. To frame guidelines for contract Contract farming / partnership farming in West Bengal and to appoint a contract farming regulator till the market matures. Contract farming rules have been laid down in Haryana and several companies are actively pursuing contract farming. Contract farming helps in direct interaction between the industry and the producers which help in building value for both the parties. However the parties involved the industry and the farmers represent two very diverse sections of the society and thus setting up of an independent monitoring body is important till the market matures. To encourage the private sector to set up private vocational training institutes.

27

Trained personnel from ITIs and other vocational institutes form a very important part of manufacturing industries. The number of seats of such institutes in West Bengal is much lower than Andhra Pradesh, Maharashtra, Gujarat and Tamil Nadu. In addition, the curriculum and quality of training in such institutes has been questioned. While it might be difficult for state government agencies to quickly add capacity on its own, it is recommended that the private sector take the initiative either on their own or under a PPP model. If training is imparted on correct trades, i.e. the trades required by the industry, it is possible to run the institutes profitably. In addition the industry would have access to quality manpower with employable skills. Sustained communication In times of change, sustained communication is of utmost importance. The new initiatives like land policy, contract farming policy etc. should be explained and communicated to all particularly to the people who might be affected/ benefited. It is important to develop a two-way communication system in such a manner that the feelings and apprehensions of the affected people are diligently documented and successfully addressed at the earliest'. For the bureaucracy To inculcate an investor-friendly attitude within the lower bureaucracy Most of the respondents have given a high rating to the Government and the senior bureaucracy on this subject of investor friendliness but the same enthusiasm is not visible for lower bureaucracy. Respondents see the processes involved as being more person driven rather than being system driven. Respondents spoke about how in one of the states the government machinery, at various levels, goes out of the way to pursue investors as soon as a potential investor is spotted. It is important to develop the same level of confidence for investors in West Bengal To act as a team with the government. The primary responsibility for effecting such attitudinal changes would lie with the top bureaucracy One of the respondents remarked that West Bengal has overcome the perception problem but needs to replicate the same at implementation levels. Some respondents feel that there does exists high levels of efficiency in pockets. The top bureaucracy which acts as the link between vision and implementation needs to take a lead on institutionalizing the processes that are system driven. For Industry To step up its commitment to corporate social responsibility While benefits of CSR to the society is obvious, studies show that CSR activities have a marginal effect on the minds of consumers from purchase decision point of view. One of the respondents felt that CSR activities that are limited to weekend involvement or donations to organizations have good but limited effect. Clearly, commitment to CSR has to increase and there is merit in weaving it around the regular activities of the firm that will have more impact and generate harmony between the industry and the society.

28

For Political Parties General strikes are undesirable In respect of labour relations nearly all respondents expressed satisfaction that the industrial relations in the state have improved. However, the respondents voiced concern about imposition of strikes and bandhs in the state by various political parties. While the right to protest peacefully is our birthright, disrupting economic activity and causing inconvenience to public is not, however justified our grievance might be. A vital day is lost and the states reputation gets dented. Potential investors watching the state have many other options in India and other emerging economies. Losing them would only hurt the state in the long run. Additional Action Points There are certain action points that we have not touched upon in the previous chapters, but would like to mention them in these concluding paragraphs: West Bengal is emerging as a power surplus state but has most of its electricity generation coming from coal. Options in coal gasification and nuclear power generation should be explored, and the harnessing of renewable resources including wind14 and tidal should be actively encouraged. Some respondents have pointed out that primary education requires a renewed focus and a greater emphasis on knowledge of English. Knowledge of the language enhances the employment options of the individual. Denying him/her that as an outcome of misplaced emotions only hurts the students future options. Drop-out from schools needs to be arrested. The mid-day meal initiative of the schools run by Kolkata Municipal Corporation has yielded interesting results and needs to be replicated all over the state. Entrepreneurship has to be promoted in West Bengal and both media and educational institutions need to play an important role in this respect. Media should take a lead in communicating success stories about entrepreneurship however big or small. It was noted by many respondents that though the media is promoting this concept, it needs greater impetus so that the entrepreneurial attitude strikes a chord with the youth of the state in general. The educational institutions can also play a role in shaping young minds and enhancing requisite skills. West Bengal is at a turning point in its history. Intelligent decisions have to be made about its future course of progress, and they have to be made now. While Singur and Nandigram have been branded by some sections of the media as significant setbacks to investor confidence, we believe that immediate events always tend to cloud ones perspective, and there are reasons to be optimistic about West Bengals long term growth prospects. A shared vision and collective effort of all the stakeholders - including Government, administration, industry and the farming community - is what West Bengal needs, to reach the commanding heights it rightfully deserves.

14 West Bengal has a technically exploitable wind potential of 450 MW about 10 percent of the states

current installed capacity of which only 0.34 percent has been tapped. Other states with wind potential like Andhra Pradesh, Tamil Nadu, Gujarat, Rajasthan, Karnataka and Maharashtra have done much better.

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Annexure
List of respondents
S. No Company Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Apeejay Surrendra Group Bata India Limited Biecco Lawrie Limited C&I Department, GoWB Contemporary Brokers Pvt Ltd. Dayal Industries Deepak Group of Industries Department of Power, GoWB DIC (Jalpaiguri) DIC (Mednipore) Duncan Exide Industries Limited Haldia Petrochemicals ltd. Haldia Petrochemicals ltd. Haldia Petrochemicals ltd. HDFC Bank Indian Oil Petronas Pvt. Limited ITC Limited ITC Limited Jalpaiguri Dabgram Industries Owners Welfare Association Khadim India Limited Kolkata Municipal Corporation Kusum Industries Mjunction services Ltd. Mjunction services Ltd. Modern Malleable Munich Re Group Paharpur Cooling Towers Limited Person Interviewed Mr. Tapan Mitra Mr. Debasish Som Mr. Sourav Daspatnaik Mr. Shaibal Sinha Mr. S.K. Dutta Mr. Vikram Sen, IAS Mr. Sidharth Chatterjee Mr. Sunil Agarwal Mr. Ratan Kr. Bihani Mr. Sunil Mitra, IAS Mr. Gautam Das Mr. Dipankar Chakraborty Dr. S.K. Biswas Mr. S.B. Ganguly Mr. Swapan K. Bhowmik Mr. Ujjal De Mr. A.K. Chattopadhyay Mr. P K Mukherjee Mr. Zamrany Hasral Ismail Mr. Nazeeb Arif Mr. Arup Ghosh Mr. Mohan Debnath Mr. Suman Barman Roy Designation Ex. Managing Director Ex. Managing Director (WBIDC) Director (HR Development and Strategy) Director (Finance) and CFO Chief (Electricals) and Chairman - IEEMA (ER) Special Secretary Director Partner Proprietor Principal Secretary General Manager General Manager Vice President Chairman Emeritus Managing Director Senior Vice President Vice President and Dy. Company Secretary General Manager - Eastern Region Financial Controller Vice President - Corporate Communications Manager - Corporate Communications Director President

Mr. Alapan Bandyopadhyay, IAS Municipal Commissioner Mr. Rajesh Agarwal Mr. Viresh Oberoi Mr. Souvik Poddar Mr. Alok Nath Chaudhri Mr. Sanjib Chaudhuri Mr. Arun Singhania Partner Managing Director Head Finance Director Chief Representative Vice President - Finance & Co. Secretary

30

S. No Company Name 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 Phoenix Yule Limited

Person Interviewed Mr. T.K. Mukherjee

Designation Managing Director Principal Secretary Proprietor Chairman Cum Managing Director Managing Director Managing Director Chairman Officer-in-Charge Vice President (Projects and Operations) Asst Manager (Project and Technology) Managing Director Executive in Charge Managing Director Senior News Editor, Business Editor, Kolkata General Manager - Marketing Services Economist

Public Health Engineering, GowB Mr. K.S. Rajendrakumar, IAS R Sen Group of Industries Ramsarup Group Riverbank Holdings Pvt. Ltd. Shrachi Group of Companies Siliguri Tea Auction Committee Sub District Industry Centre Tata Metaliks Limited Tata Metaliks Limited Tata Ryerson Limited Tata Steel Limited Techno Electric & Engineering Co. Ltd. The Telegraph The Economic Times TIL Limited West Bengal Industrial Development Corporation (WBIDC) West Bengal State Electricity Distribution Centre Limited (WBSEDCL) Wipro Technologies Mr. Premal Sen Mr. Ashish Jhunjhunwala Mr. Sumit Dabriwala Mr. Ravi Todi Mr. Shiv K Saria Mr. SK Majumdar Mr. V B Singh Mr. Manas Kumar Manna Mr. Sandipan Chakravortty Mr. G S Rattan Mr. P . Gupta .P Mr. Abhijit Kumar Datta Basistha Basu Mr. Arun Grover Dr Indrani Banerjee

48

Mr. Malay Kumar De

Chairman

49

Mr. Tamal Dasgupta

Senior Vice President

Some of the respondents requested confidentiality and hence their names are not included in the above list.

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Bibliography
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