Macroeconomics

West Bengal’s economic performance relative to India over the last three decades

  • Blog Post Date 01 May, 2021
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Maitreesh Ghatak

London School of Economics

m.ghatak@lse.ac.uk

Against the backdrop of the ongoing elections in West Bengal, Maitreesh Ghatak examines how the state’s economic performance compares with that of the country as a whole, over the past three decades. He highlights that despite West Bengal’s lack of economic dynamism, its agricultural growth rate as well as the growth rate of consumption expenditure in its rural areas, that house 72% of the population, has been higher than the national average.

 

‘Change’ was the buzzword 10 years ago when the Trinamool Congress (TMC) defeated the Left Front in West Bengal. This time around, one of the popular campaign slogans, used by the Prime Minister Narendra Modi, is ‘real change’. The demand for change clearly has not changed over the last decade in the state. The question is – did anything actually change, especially on the economic front?

Change is a tricky concept – it can be for better or worse. Also, to measure change, we need some benchmarks. Suppose we find that West Bengal’s growth is higher or lower in the last decade compared to the previous one. It is possible that this reflects national trends. So, whether anything different is happening in the state has to be inferred after adjusting for the change in the all-India average growth rates over two decades. By a similar logic, if we just compare the West Bengal and all-India averages over the last decade and find that West Bengal has done better or worse, we need to check if the situation was similar or not in the previous decade to determine change.

We will look at a couple of key economic indicators – the growth rate of per capita income at the state level, the sectoral growth rates, the growth rate of per capita consumption expenditure based on household surveys, and the percentage of people below the poverty line.

Per capita income

Until the early 1960s, West Bengal’s per capita income was higher than the national average. In fact, it was among the three richest states – the other two being Maharashtra and Gujarat. By the early 1980s its per capita income was just about equal to the national average. In the early 1990s, when the country was poised to move to a higher growth trajectory, the rank of West Bengal had fallen to seven. In 2000, it had fallen further to 10, and in 2011, when a new government came to power promising change, its rank had fallen marginally to 11. After a decade under the new regime, the slide has continued – its rank now stands at 14.

As Table 1 shows, if we look at annual per capita income growth in real terms, then between 1993-94 and 1999-2000, West Bengal’s growth rate was 5.5% while the all-India average was 4.6%. During the next decade, West Bengal’s growth rate fell to 4.9% while the all-India average went up to 5.5%. Between 2011-12 and 2019-20, West Bengal’s growth rate fell further to 4.2%, and although the all-India average growth rate fell to 5.2%, the gap has marginally increased.

Table 1. Growth of per capita net state domestic product (constant prices)

Year

West Bengal

India

Growth (1994-2000)

5.5%

4.6%

Growth (2000-2005)

4.1%

4%

Growth (2005-2010)

5.7%

7%

Growth (2000-2010)

4.9%

5.5%

Growth (2012-2020)

4.2%

5.2%

Source: RBI Handbook of Statistics on Indian Economy.

Note: Growth data for 1994-2000 use 1993-94 as the base year, Similarly, the data for 2000-2005 use 1999-2000 as the base year, 2005-2010 use 2004-05, and 2012-2020 use 2011-12. All growth rates presented are average of year-on-year annual growth rates.

Notably, the state’s growth rate was higher than the all-India average during the 1990s. It fell below the all-India average both during the last decade of Left Front rule and during the previous decade (2011-2012 to 2019-2020). Clearly, West Bengal’s growth has marginally decelerated in the last decade relative to the previous decade. But the same is true of the all-India growth rate, which reflects the general economic slowdown that already started from 2016, before the impact of the Covid-19 crisis kicked in.

However, if we look at the sectoral composition of growth, it turns out that West Bengal has performed better in terms of agricultural growth over the last decade compared to the rest of the country, and in this respect its performance is better than in the decade before. Even though its share of agriculture and related activities is comparable to and slightly higher than the national average, the growth rate of agriculture in West Bengal has been 3.3% over the last decade (2011-12 to 2019-20), while that of India has been 1.6%. This seems to be largely driven by the fall in the growth rate of agriculture in the country over the last five years, because if we just look at the first five years of the last decade (2010-11 to 2014-15), the all-India agricultural growth rate was higher than that of West Bengal. Also, during the decade prior to the last (1999-2000 to 2009-10) when the state was still under the rule of the Left Front, the growth rate in agriculture in the state was very similar (though marginally higher) to that of the country, while the overall growth rate was lower. Of course, a higher growth rate in agriculture in the state, in the last decade, implies that the growth rates in manufacturing as well as services in the state were lower than the national average given that the overall growth rate was lower in the state relative to the rest of the country, as we saw in Table 1.

Table 2. Growth of gross state domestic product (constant prices), by sector

Growth rate

West Bengal

India

Year

Agriculture

Manufacturing

Services

Agriculture

Manufacturing

Services

1994-2000

4.2%

7.3%

9.4%

2.6%

7%

7.9%

2000-2010

2.4%

7.1%

10.1%

2.1%

7.4%

8.5%

2012-2020

3.3%

6.6%

6.5%

1.6%

8.6%

7.9%

Source: RBI Handbook of Statistics on Indian States

Notes: (i) For all-India growth, gross state domestic product was summed across all states for all available data points. (ii) All growth rates presented are average of year-on-year annual growth rates.

Per capita consumption expenditure

Let us turn to the growth rate of monthly per capita consumption expenditure in real terms, based on National Sample Survey (NSS) reports on household expenditure in urban and rural areas.

Unfortunately, the last period for which data are readily available is 2011-12. The 2017-18 NSS report was circulated briefly and then withdrawn. However, based on the draft report that was released, we can compare the annual growth rate of monthly per capita consumption expenditure (after adjusting for inflation) between 2011-12 and 2017-18 for West Bengal, and the all-India average. We can compare these, in turn, with figures from earlier rounds that roughly correspond to the previous two decades, namely 1993-94 to 1999-2000 and 2001-02 to 2009-10. I present these findings in Tables 3a and 3b for urban and rural areas.

Table 3a. Monthly per capita consumption expenditure growth (urban)

West Bengal

All-India

Year

Growth (nominal)

Growth (deflated)

Growth (nominal)

Growth (deflated)

Growth (1994-2000)

12.9%

4.2%

12.7%

4%

Growth (2002-2010)

9.7%

3.8%

9.7%

3.7%

Growth (2011-2018)

6.9%

3.8%

7.8%

4.7%

Sources: RBI Handbook of Statistics on Indian Economy, NSS Surveys. The growth rates are annualised.

Table 3b. Monthly per capita consumption expenditure growth (Rural)

West Bengal

All-India

Year

Growth (nominal)

Growth (deflated)

Growth (nominal)

Growth (deflated)

Growth (1994-2000)

8.6%

0.3%

10.5%

2.3%

Growth (2002-2010)

8.5%

2.4%

9.3%

3.2%

Growth (2011-2018)

7.2%

5%

5.2%

3%

Sources: RBI Handbook of Statistics on Indian Economy, NSS Surveys. The growth rates are annualised.

For urban areas, the pattern is similar to that of income growth – the state did better (4.2%) than the national average (4%) between 1993-94 and 1999-2000. Its growth rate fell to 3.8% during the next decade and stayed the same in the last decade, while the national average was 3.7% and 4.7%, respectively, in these two decades. To the extent that urban growth reflects general growth in economic opportunities, this picture is consistent with the change in the growth rate of incomes. Clearly, West Bengal has fallen behind more, relative to the national average, over the last decade.The picture changes, however, if we look at per capita consumption expenditure in rural areas. Between 1993-94 and 1999-2000, West Bengal’s growth was 0.3%, which was well below the national average of 2.3%. During the next decade, there was some improvement both at the state level (2.4%) and the national level (3.2%) but West Bengal was still trailing behind the national average. However, in the last decade, West Bengal’s growth rate shot up to 5%, well above the national average of 3%.

Poverty

In 1999-2000, 27% of the population in West Bengal were below the poverty line while the national average was 26.7%. During the next decade, poverty fell by 7 percentage points to 20% in the state, while the national average fell to 22%. However, in the last decade poverty fell to 14% in the state (similar to the drop in the previous decade) while nationally, poverty went up marginally to 23%.

Table 4. Percentage of population below the poverty line

1999-2000

2011-12

2017-18

2000-2012 change

2012-2018 change

West Bengal

27

20

14

-7

-6

All India

26.1

21.9

22.8

-4.2

0.9

Sources: Various NSS reports, Bhattacharya and Devulapalli (2019) for the 2017-18 figures.

Concluding remarks

These figures suggest that, despite the state’s lack of economic dynamism, the rate of growth of purchasing power in rural areas of West Bengal has been higher than the national average. There could be several factors behind this. As we saw, the rate of agricultural growth was higher in the state over the last decade. The state government’s various transfer programmes, such as the Kanyashree or Krishak Bandhu or Yuvashree could also have played a role. This has to be balanced against the perceptions of corruption, mismanagement, and political repression that seem to be driving an anti-incumbency headwind against the TMC.

How the election results turn out will depend on how these factors stack up against the promise of change offered by the Bharatiya Janata Party (BJP) emphasising growth as opposed to doles, given its less than stellar economic record at the national level, and how big a role identity politics based on religion and caste – which has certainly been much more salient than in any other campaign in recent memory – plays out. The chaos and misery unleashed by Covid-19, as well as the cyclone Amphan – all in the last 12 months – have introduced a degree of unpredictability. However, given that 72% of people in the state live in rural areas, the fact that the rural economy in the state over the last decade has outperformed the national average – a fact that has almost gone unnoticed – might end up playing an important role.

This post draws on two shorter articles published in the Hindustan Times and NDTV.com. The author gratefully acknowledges excellent research assistance by Ramya Raghavan.

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1 Comment:

By: Shyamadas Banerji

The lower growth rate of per capita state net national product says it all. WB has fallen from being among the top three to number 14. The lower growth rate of per capita monthly consumption expenditures in urban areas compared to the rest of the country is noteworthy. This shows that economic activity in urban areas primarily manufacturing and services is performing poorly. WB urban centers are becoming poorer relative to other states which is visible to everyone. The trend worldwide is towards greater urbanization but in WB it is the opposite. The agriculture sector is performing marginally better than the all India average -rural income is doing better but the analysis fails to provide any insight into the factors. There has been a tremendous amount of outmigration from the rural areas of the state. The landless poor work on construction projects in wealthier states. These people are remitting large savings to WB which ends up in home building and other rural activities which may account for the higher rural income growth. The infrastructure of the state is in shambles. If one travels on NH-34 from Kolkata north , it takes on average 6 hours by car to travel 160 km. Fifty years ago , the same journey could have been done on average in 3.5 hours. In developed parts of India , it can be done in 3 hours maximum
There has been little investment in manufacturing or building services capabilities . The education and health systems barely function.

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