Remarks by“AN ASSESSMENT OF WEST BENGAL’S ECONOMIC AND BUSINESS CONDITIONS”
HENRY V. JARDINE
U.S. Consul General in Kolkata
For the Indo-U.S. Business Council
March 7, 2007
March 7, 2007
Kolkata -- As the world witnesses the Indian economic boom, and as U.S. businesses of all sizes explore India’s economic potential, I am often asked by local contacts and business people: Does West Bengal represent an attractive destination for U.S. business and investment? As a U.S. government official, I can’t speak for the private sector investor or business person who has to make the hard calculus of whether a commercial venture in this state would be profitable and worth the potential risk, for a business person has to consider a full range of factors prior to committing the effort and money. But I can say that West Bengal does offer many strong indicators for business development. It has a strong state economy, officials appear increasingly responsive to business needs, and American businesses already present generally have had positive experiences.
U.S. investment so far has been focused in petrochemicals, information technology, and financial services, as well as some engineering and infrastructure. But with the recent agreements signed between India and the United States, other areas offer opportunities, such as agro-business, science and technology, and if the Government of India allows foreign investment, the retail sector. Still, additional measures should be taken to foster investment, such as protecting intellectual property rights (IPR), reducing restrictions on investment, and implementing adequate legal reforms. If the present pattern continues, I would anticipate greater U.S. investment and commerce contributing to a rapidly growing economy in West Bengal.
The U.S. is India’s largest single trading and investment partner. The U.S. Congressional Research Service notes that trade between the two countries in 2005 was almost $27 billion, double the trade in 2001. U.S. exports to India last year were approximately $8 billion, an increase of over 30 percent from 2004. India’s exports to the U.S. totaled approximately $18.8 billion, 21 percent greater than 2004. U.S. and Indian leaders have expressed their clear intention to expand the commercial relationship. In June 2006, at the meeting of the U.S.-Trade Policy Forum (TPF), U.S. Trade Representative Ambassador Susan Schwab and Commerce and Industry Minister Kamal Nath agreed to the goal of doubling the trade between the two countries in three years. As the commercial relationship develops, the U.S. business community has become more aware of the investment opportunities in India. Already companies such as Oracle, Dell, Microsoft, IBM and others have announced plans to invest billions of dollars. IBM in particular has indicated that it intends to invest up to US $6 billion to expand its operations in India. IBM CEO and Chairman Sam Palmisano commented at announcement of the firm’s plans that "India and other emerging economies are an increasingly important part of IBM's global success…. IBM is not going to miss this opportunity." Their new office space on the road out to Kolkata’s airport is an indication of IBM’s commitment here in West Bengal.
As India continues to grow, competition among India’s states to attract investment and business is growing as well, with each state vying for the bigger piece of the growing commercial pie. Senior state officials are regularly traveling to extol the virtues of their hometowns. In these efforts, nothing breeds success like success. Businesses will likely look for locations where the economic signs are strong. West Bengal, based on a range of economic indicators, demonstrates a good state economy. The Central Statistical Organization indicated that West Bengal’s rate of economic growth over the last five years has been 7.38 percent as compared to a national average of 6.71 percent increase in Gross Domestic Product (GDP). In addition, India's fifth economic census report, published in May 2006, ranks West Bengal in the top five states in India in terms of industrial units.
However, the strong economy has not readily translated into a large foreign business presence until just recently. According to India’s Ministry of Commerce and Industry, West Bengal’s Foreign Direct Investment (FDI)s from January 2000 to March 2006 was approximately $281 million, which accounts for just 1.36 percent of total FDI to India during this period. U.S. investment is 15.25 percent of the total FDI inflows to India. Making the broad assumption that West Bengal’s percentage of countrywide FDI is applicable, U.S. FDI between January 2000 and March 2006 was around $48 million. That is not a lot of money in investment terms. This may be attributable to the slow change in perceptions. Officials in West Bengal have only in recent years gone from castigating the private sector to embracing it – or at least accepting it in the spirit of Deng Xaioping’s often repeated line, “It doesn't matter if a cat is black or white, so long as it catches mice.” The economic fundamentals are good and leading Indian companies like Tata and Videocon are showing that domestic businesses are taking the plunge. As Ratan Tata noted about Tata’s upcoming car factory here, “The country has been scanned and the choice of West Bengal reflects the group’s faith in the state’s investment climate.”
The decision by Tata, Videocon, the Indian Tobacco Corporation (ITC) and others, to make large investments in West Bengal reflects their assessment that conditions are positive for business growth and that local officials will be responsive to their needs. These companies anticipate that they will obtain the necessary land, clearances and support. While there have been problems, particularly regarding land acquisition, projects are going forward. Other important signals have been recent public statements that the West Bengal government wants private investment in critical infrastructure projects, such as a light rail in Kolkata, a new “greenfield” airport, and a mega-petrochemical facility near Haldia, and a nuclear power plant at Haripur. Projects such as these serve two purposes: showing that officials are aware of the need to develop the state’s infrastructure to respond to increasing demands and their acceptance that the private sector clearly has a role to play in the state.
U.S. businesses are becoming aware of opportunities here as evidenced by new entrants to the market, expansion of some of the existing companies and the establishment of a new American Chamber of Commerce Kolkata Chapter last year. We’re seeing investment mostly in petrochemicals, financial services, IT, food processing, biotechnology and infrastructure. Recent bilateral agreements such as the Science Technology Cooperation Agreement, signed October 2005 and the Indo-U.S. Agricultural Knowledge Initiative (AKI) signed in July 2005 provide an excellent framework for future investment. The Science Agreement is facilitating greater scientific cooperation and already the United States Government has partnered with U.S. companies here in Kolkata through multi-million dollar grants from our National Institute of Health (NIH) to conduct research in immunology. Similarly, the AKI is helping to foster new developments in agro-business, which can help states like West Bengal, with its large agriculture sector. Frito-Lay, which has a processing plant just outside of Kolkata, is expanding its operations and officials there are making significant increases in production of their food products due to increasing demand.
While the economic conditions in West Bengal are good as clearly reflected in a number of cited statistics, there is always room for improvement. Ironically, efforts to attract investment, whether at the state or even national level are stymied by rules that specifically block FDI. Finance Minister Chidambaram has noted that insurance constituted a sector with great potential growth as only 10 percent of India’s population has insurance. However, U.S. corporations still run-up against the 26 percent cap FDI in insurance. In the retail sector as well, large U.S. retail companies are have been blocked from investing, forcing companies such as Wal-Mart to look for other avenues into the market. Ostensibly, such investment has been blocked out of concerns that small retail operators may lose their businesses or jobs, although domestic companies have gone ahead with plans to create large retail operations throughout India and have faced no such objections about potential job losses.
From its very founding over 300 years ago, Kolkata and surrounding Bengal was an important trade center. This region’s rise to commercial importance was almost geographically ordained, given its trade links to Southeast Asia and to the West. When seen against the backdrop of centuries of economic dominance, West Bengal’s difficult post-Independence decades appear to be more of a brief period of economic downturn rather than a consignment to perpetual decline. Globalization, by reducing trade and investment barriers, is helping this region to regenerate important commercial links that had been sundered by historical events and bad economic policies. U.S. businesses will have to decide for themselves what opportunities are available in West Bengal but as the key commercial hub for India’s Eastern region, it does warrant consideration by the informed business person. That interest, combined with the government of West Bengal’s increasing promotion of an investor-friendly environment through consistent economic policies, developed infrastructure and responsiveness to investors’ needs, can re-make Eastern India into a successful commercial center once more.