Sectors of Importance for West Bengal under WTO Regime
(A Preliminary Investigation)
Prelude:
The process of economic liberalization, privatization and globalization of Indian economy in 1991 and subsequent emergence of World Trade Organization in synergizing global trade policies have totally changed the ways and practices of businesses all over the globe. It has major implications for all sectors of the Indian economy in general and West Bengal in particular in Agriculture, Industry and Services sectors.
The WTO mandated mechanism has completely changed the ways the business and trade is taking place nationally, regionally and globally. In a world characterized by rising pace of globalization (fast growing foreign trade in commodities and services for countries like India and greater flow of cross border capital), the role of WTO has become extremely important. As WTO decision making is based on negotiations and consensus, the signatories to WTO agreements are bound to abide by these agreements. However, WTO compliance often entails major changes in an economy, and adjustment costs could be very high if proper policies and strategies are not adopted in a proactive manner. Consequently, the desired role of the Central Government and the State Governments in India has also taken strategic shifts. In the federal set up in India, an active role of the State Government is an absolute necessity.
For example, while Agriculture is a State Subject, WTO is a Central subject. Similarly, much of the services sector (e.g., financial services) comes under the purview of the Central Government, and industry is subject to regulation of both the Central Government and the State Government. In agriculture related issues, while the Central Government takes a pan-India view, proper representation of State specific issues is required in deciding the Indian stand and strategies for WTO negotiations (or negotiations related to FTAs). The same is applicable to some extent with respect to services and industry as well. Here the other dimension of the issue is to identify specific areas of interest for the State and preparing the ground for intervention in these areas, so that the concerns of these sectors get adequately reflected in the Central Government’s stand and strategies in WTO negotiations.
With respect to our economy (both agriculture and industry), the major issues of concern are not the lowering of import duties or our exports facing high or increasing tariffs. The more important concerns include non-tariff barriers (NTBs), like the Sanitary and Phyto-Sanitary restrictions (SPS) affecting our agricultural export, the technical barriers to trade (TBTs) affecting our manufacturing export. Whenever NTBs are changed in our export markets, the domestic production sector catering to export undergoes some sort of adjustment. The adjustment cost could be quite high as is demonstrated by experiences of different countries (shrimp export by Thailand, chicken export by China, export of textiles to US & EU by various developing countries, and so on). There is a significant role that a State Government needs to play in this respect. The same become all the more important in view of the particular structure of federalism in our country.
In this context, this document brings out some of the major commodities of interest to the state of West Bengal in the wake of changes in the international environment and the comparative advantages the state possesses.
Methodology
There are virtually no data or research reports on the WTO issues specific to the state of West Bengal. The situation is further complicated by the fact that the number of WTO related issues relevant to any sector or a commodity within it is very large. So much so that any attempt to take a short term look at the exhaustive set of issues pertaining to all the sectors of interest to West Bengal is almost impossible. The only feasible option then is to take sectors and commodities in turn. A reasonable first step in that direction is to identify sectors or commodities that are of immediate interest to West Bengal. There are clearly two sets of such sectors and/or commodities. The first set consists of the sectors/commodities that are already important, in the sense that West Bengal has a sizable production/export and production/import of these goods. The second set of sectors/commodities consists of those that not yet important but has the potential to be so in the near future especially with respect to export. Biotechnology and food processing are good examples of such sectors.
To initiate a preliminary discussion on the WTO issues pertinent to West Bengal, a two step procedure is used. In the first step figures out the sectors or commodities that are important to West Bengal and have a high degree of outward orientation either in terms of export or in terms of import. In the second step, small subsets of the huge set of issues that have been debated in the WTO with respect to these sectors are considered.
Identification of Sectors
Based on the production figures provided by Annual Survey of Industries (ASI) and Economic Review of Government of West Bengal the adjoining table mentions the major products and crops (in terms of value of production) in the state in 2003-04.
Table 1
Products That Have a High Value of Production in West Bengal (3-Digit ASI/NIC)
Manufacturing / AgricultureManufacture of Basic Iron & Steel / Paddy
Manufacture of Refined petroleum products / Vegetables
Manufacture of Basic Chemicals / Potato
Spinning, weaving and finishing of textiles / Agricultural by-products
Manufacture of other food products / Fruits
Manufacture of grain mill products / Wheat
Casting of Metals / Tea
Manufacture of other fabricated metal products / Jute
Manufacture of tobacco products / Condiments & Spices
Source: Annual Survey of Industries, Government of India & Economic Review, Government of West Bengal
All these products are generally termed as traditional products of the State. Steel production has been high in the state due to availability of raw materials and presence of some of the earliest steel plants of the country. Same is true for the chemical industry as well. The main reason for the growth of petroleum and petrochemicals industry in West Bengal is the upstream and downstream linkages developed by the oil refining and petrochemical units located in the state. West Bengal’s heritage of textiles is legendry. The exquisite texture of Baluchari Sarees, Silk and Tusar Textile from Murshidabad, Birbhum, Bankura, Hoogly and Nadia districts have become the Choice of the Century. The fascinating handloom textiles of the same regions as mentioned above are now attracting worldwide attention. Availability of skilled manpower has led to the development of the textile industry in the state. As far as agriculture and allied production is concerned the soil condition, availability of water etc. have helped the state to become top producer in many of the crops in India. Jute and Tea are traditional cash crops grown in this part due to conducive weather conditions.
In order to identify the products which would increasingly be coming under the purview of WTO rules, the growth rate of exports from India between 2000-01 and 2004-05 is first calculated and the result is matched with production of major commodities in West Bengal. The commodities that are produced in large quantities in value terms in West Bengal and also have a high growth rate in terms of exports from India are thus identified. Table 2 lists these commodities along with their export growth rates.
Table 2
Products with High Production Levels in West Bengal and High Export Growth Rates from India (3 Digit ASI/NIC)
Products / Growth (%)Mineral fuels & lubricants (incl. coal) including petro products / 270
Machinery, transport & metal manufactures incl. iron & steel* / 148
Rice / 134
Chemicals and allied products / 103
Fruits, vegetables & pulses (excl. processed fruits & juices) / 70
Jute manufactures incl.twist & yarn / 35
Readymade garments of all textile materials / 18
Source: Same as Table 1 and Economic Survey, Government of India
The list in Table 2 forms the preliminary set of commodities for which WTO rules are relevant for West Bengal. Though this list gives an indication of India’s upcoming export items that are of relevance to West Bengal, it does not account for the exports of other States which are routed through West Bengal. To overcome this limitation, the study has listed the set of commodities, a large (> 10%) proportion of which passes through Kolkata Port. As data regarding export from West Bengal is not available this is considered as the best approximation to account for the exports from the other states passing through the Ports of West Bengal. Secondly, there is no port data at ASI/NIC classification levels for cross verification. Hence, the result is indicative but not analytically sound and this is a limitation too.
Table 3
Products For Which Ports in West Bengal Have a High (>10%) Export Share
Products / Export Share (%)Jute / 90
Shellac / 86
Wheat / 82
Mica / 82
Leather Goods / 55
Tea / 47
Other Cereals / 42
Ferro Alloys / 34
Fresh Vegetables / 31
Pulses / 28
Natural Silk Yarn, Fabrics / 22
Floriculture Products / 21
Coal / 21
Computer Software in Physical Form / 18
Aluminum Other Than Products / 16
Primary and Semi finished Iron and Steel / 16
Rice (Other than Basmati) / 16
Fruits or Vegetable Seeds / 13
Fresh Fruits / 12
Plastic and Linoleum Products / 11
Woolen Yarn Fabrics / 11
Spirit and Beverages / 11
Manufactures of Metals / 10
Source: DGCI&S, Kolkata.
Matching Tables 1 to 3 it is clear that the commodities for which export growth for India is high and are of interest to West Bengal are Coal, Rice, Fruits, Vegetables, Jute Manufacturing and Textiles.
In the next step, in order to smoothen the absolute production figure of the state which is considered in the above list, India’s production of all 3 Digit categories and the proportion accounted for by West Bengal is calculated after normalizing the aggregate production figures of both India and West Bengal.. In other words, the proportion of a particular commodity in West Bengal’s total production is calculated and divided by the proportion of that commodity in India’s production. Obviously, if the resulting figure is greater than one then West Bengal has an advantage in producing it in the sense that its share in West Bengal’s production is higher than its share in India’s production. To economists, this is simply the Balassa index of Revealed Comparative Advantage with the trade figures being replaced by the production figures:
,
Where,
Yiw is the value of production of commodity i in West Bengal, and
YiI is the value of production of commodity i in India.
If the value of Production Advantage (PA) for a commodity i is more than one it implies that West Bengal has a production advantage in that commodity compared to rest of India. This reveals the importance of the commodity for West Bengal with respect to the rest of India.
Table 4
Products for which West Bengal has Production Advantage
Manufacturing / AgricultureManufacture of railway and tramway locomotives and rolling stock / Jute
Saw milling and planning of wood / Other Drug
Manufacture of bodies (coach work) for m.v; manufacture of trailers and semis / Potato
Manufacture of accumulators, primary cells and primary batteries / Tea
Tanning&dressing of leather, manufacture of luggage bags, saddlery & harness. / Paddy
Casting of metals / Sesamum
Manufacture of coke oven products / Agri. By-products
Manufacture of products of wood, cork, straw and plaiting materials / Vegetables&Fruits
Manufacture of tobacco products
Manufacture of electric lamps and lighting equipment
Publishing
Manufacture of Basic Iron & Steel
Manufacture of basic chemicals
Manufacture of other fabricated metal products; metal working service activities
Manufacture of structural metal products, tanks, reservoirs and steam generators
Spinning, weaving and finishing of textiles
Manufacture of footwear
Manufacture of furniture
Printing and service activities related to printing
Manufacture of glass and glass products
Manufacture of optical instruments and photographic equipment
Manufacture of other food products
Source: Calculated on the basis of the Balassa index from Annual Survey of Industry, Government of India & Economic Review, Government of West Bengal
Continuing with the above methodology, commodities that are common to tables 1 to 4 are:
· Rice
· Fruits
· Vegetables
· Jute Manufacturing.
Interestingly all the items (except jute) are agricultural items. Thus, these products are produced in bulk in West Bengal, have high rate of export from India. Further West Bengal has a considerable share in India’s export as well as production.
Disregarding the Indian scenario and matching only the production advantage data in table 4 and the West Bengal’s export share data in table 3, gives the set of products which appear important keeping only the scenario in West Bengal (table 5). These commodities are:
· Jute Manufacturing
· Leather Goods
· Tea
· Fresh Vegetables
· Iron and Steel
· Fresh Fruits
· Manufactures of Metal
Table 5
Important Export Items Passing through Ports in West Bengal in Which West Bengal has a Production Advantage
Commodities / Share of India’s Exports (%)Jute / 96
Leather Goods / 55
Tea / 47
Fresh Vegetables / 31
Iron & Steel / 16
Fresh Fruits / 12
Manufacture of Metals / 10
Source: Based on Tables 3 & 4
It is thus far identified two sets of commodities (those in bullets) based on two different criteria. Combination of these two sets of commodities is export items of special interest to West Bengal. International trade laws including those propounded by the WTO, Regional Trading Agreements and Bilateral Trade Agreements pertaining to these commodities are therefore important for the export economy of West Bengal.
· Agricultural Goods
o Rice
o Fresh Vegetables
o Fresh Fruits
· Industrial Goods
o Jute Manufactures
o Leather Goods
o Tea
o Iron and Steel
o Manufactures of Metal
As has been already noted these goods do not contain goods which have the potential of being important in future. The methodology for Imports is similar to that of exports. However, the analysis of import items passing through ports of West Bengal is omitted as they do not indicate threat of foreign competition faced by domestic producers.