Can India’s original economic powerhouse get its act together again?A NATIVE-BORN writer, Amit Chaudhuri, says that Calcutta should be compared to world cities like New York and Paris for its rich past and mix of influences. Yet ever since the Suez Canal was built in 1869, boosting trade in Bombay (now Mumbai), people have said the city (now Kolkata) has been going to the dogs. They have been right. Calcutta lost its title as India’s capital a century ago, and its status as the country’s industrial engine in the 1950s. By the early 1970s visitors were making apocalyptic predictions of plagues and starving, rampaging mobs, and by the end of that decade Marxists were in charge. Today Kolkata evokes Havana, beautiful but shabby, the last city to remain largely untouched by India’s 20-year boom. “I love the city, but am ashamed of its condition,” says Sandipan Chakravortty, boss of one of the few units of the giant Tata Group to be based there.
Now West Bengal, the state which Kolkata dominates, has a new government, led by the redoubtable Mamata Banerjee. Her victory in an election last year ended over three decades of Marxist misrule. She insists that she will turn things around in the state. But she is also a figure of national importance, because her Trinamool Congress is a key ally of the Congress Party, which heads the ruling national coalition. Her rise will be a test of two things: whether the bits of India left behind can catch up, and whether a populist who depends largely on a rural base for support can still prove to be a reformer.
The incoming West Bengal government has inherited a mess. The finance minister, Amit Mitra, an economist and former boss of India’s main business lobby, stands in an office in Writers’ Building, once used by the East India Company. His desk is laden with the thick, string-bound paper dossiers beloved of Indian civil servants and cordially loathed by everyone else. “No one knows where all the files are,” he says, accusing the last lot of administrative chaos and unpaid bills. The state’s finances are rotten. Mr Mitra is trying to raise tax revenues, while seeking debt forgiveness from the central government. Reforming the bureaucracy is vital, too, amid claims that it is politicised. “They created a fascist structure while wearing the mask of democracy,” he says of the Communist Party of India (Marxist) that used to rule.
How much economic damage the communists really did is contested. State-level GDP figures suggest a performance in line with India’s average in recent decades. Supporters of the communists point to progress in agriculture and services. But foes mutter that the state-level GDP statistics are assembled locally and of doubtful accuracy. And no one disputes that West Bengal has suffered deindustrialisation on a par with the likes of Detroit. According to the central bank, the state accounted for a quarter of India’s industrial capital stock in 1950. By 1960 it contributed 13% of manufacturing output and by 2000 just 7%.
Other measures are just as dire. Bank lending is below the national average. Calcutta’s population fell slightly over the past decade, no mean achievement in a rapidly urbanising country. Only one big non-state firm is based there, after an exodus that began in the 1960s. Most pitifully of all, West Bengal has received less than 2% of the foreign direct investment that poured into India over the past decade.
One explanation for all this is that Bengalis, whose large diaspora in India and elsewhere is conspicuously successful, make lousy entrepreneurs at home. “A Bengali thinks like a communist; he has it in his blood,” says one boss, while buzzing for a minion to come and light his cigarette. Like many of the region’s remaining businessmen, his family roots are in Rajasthan. But the prime culprits for industrial decline are the politicisation of land tenure, which makes it hard for firms to get space, and dreadful industrial relations. West Bengal has a lexicon of strife, with goons who flex political muscles on the streets and widespread gheraos (taking bosses hostage) and bandhs (general strikes).
Keeping a lid on strikes has been one of the new government’s first achievements. Now it is trying to love-bomb Indian businesses into investing again, in the hope of creating a virtuous circle of more jobs and tax revenues. Mr Mitra, the finance minister, says the signs are encouraging. Both TCS and Cognizant, two big technology firms, say they plan to expand operations in Kolkata, attracted by still-good universities. Tourism in Kolkata has potential, given the glorious colonial-era architecture, plenty of culture and an alluring nightlife. But first the city needs an airport that is not in the stone age.
Complicating things, however, is the ambiguous attitude towards business of Ms Banerjee herself. In 2008 she led the opposition to Tata building a big car factory in rural West Bengal, arguing that farmers were being exploited. Tata moved the factory to Gujarat, a booming western state, leaving, as an entrepreneur puts it, “a very heavy hangover”. In late 2011 Ms Banerjee failed to support both the central government’s plans to let foreign supermarkets into India and its latest attempt to pass an anti-corruption bill. Some worry that her relations with Congress have become so dire that her own Trinamool party may leave the coalition.
Local business folk also fret about too charismatic a style of leadership. In a typical recent week Ms Banerjee kept to a hyperactive schedule that included personally dealing with a hospital fire and an alcohol-poisoning scandal. They say a framework for long-term decision-making has not been put in place. The head of a business group says “a lot of people are paying lip service” to the idea that things are changing, but they continue to invest outside the state. An entrepreneur who runs a chain of schools is even more pessimistic.
The new government is dangerously populist, with “no ideology, no vision.”
That is unfair, but if the government cannot convince local businesspeople, it has little hope of wooing capital from elsewhere, especially when other states, led by Gujarat, have well-oiled machines for attracting money and talent. The hope is that the new government will soon find its feet and turn its attention to reintegrating Kolkata into a global economy that it was once, long ago, at the heart of. Ms Banerjee may be in power for some time, so she has the potential to develop the kind of long-term strategy that is needed for success. The fear is that inaction combined with her popularity in the countryside will condemn the city to yet another decade as India’s capital of stagnation.