INTELLIGENCE MEMORANDUM THE DETERIORATING ECONOMIC SITUATION IN WEST BENGAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030128-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: October 31, 2011
• Sequence Number: 128
• Publication Date: September 1, 1970
• Content Type: IM

Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Deteriorating: Economic Situation In West Bengal
tonfidenEieE-
ER IM 70-128
September 1970
Copy No.
48
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
WARNING
!his document contains information affecting the national
defense of tho United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
EMdud.dlron, awomadt
do ooRradinp and
dotlouiftallon
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
CENTRAL INTELLIGENCE.A.GENCY
Directorate of Intelligence
September. 1970
The Deteriorating Economic Situation
In West Bengal
Introduction
India's industrial state of West Bengal and its
capital, Calcutta, have been the scene of numerous
disorders and serious labor unrest for the pa-at
several years. The collapse of the Communist-con-
trolled state government early this year led to the
imposition of national government control over the
state, which constitutionally could remain in effect
unt1.1 March 1973. This memorandum reviews and asses-
ses West Bengal's economic development since Independ-
ence, describes its current economic situation, and
discusses some of the economic consequences of the
recent political unrest. It also evaluates the pros-
pects for improvement in the next several years.
Background
1. The Indian state of ;hest Bengal (see the map),
created when East Bengal was split off in 1947 to form
East Pakistan, lies on the Ganges River Delta in Eastern
India. Most of the area is low and gl.at and periodi-
cally subjected to droughts and floodings. it is
heavily overpopulated, even by Indian standards, with
the second highest population density among India's
17 states -- about 1,300 people per square mile in
1970.* While most of the approximately 45 million
* The state of Kerala has a population of 1,375 per
square mile, but Zess than half West Bengal's popu-
lation. Kerala is also the only other state with
strong Communist parties.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current InteZ-
Zigence.
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
AAnagalpur
BARRAOC
(YRtll tII/IIYLIIIR
Barhl'
Hazarlbagh
Bd
RanchT .
Haldi
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
West Bengalis are subsistence rice farmers, the
modern economy, with the exception of the two steel
mills, is concentrated in Calcutta, which accounts
for nearly all of the state's industry and commerce.
Jute manufactures, West Bengal's largest industry,
employs about one-fourth of the industrial labor
ious
l
d i
n var
oye
force. Almost two-fifths are emp
engineering industries. Cotton textiles, food
processing, and other consumer industries employ
most of the remainder.
2. At Independence, West Bengal was India's
wealthiest state. Although per capita income was
only about $100 per year, it was nevertheless about
60% above the national average (see Table 1) . As
the leading industrial state, West Bengal accounted
for 28% of the nation's total industrial production.
Its colonial heritage included the sub-continent's
largest engineering, chemical, and transport equip-
ment industries as well as a monopoly on producing
jute manufactures -- the nation's leading export.
Its port, Calcutta, serviced about 40% of all inter-
national traffic handled by Indian ports.
Economic Trends, 1951-69
3. West Bengal's economic progress since Inde-
pendence, however, has been much slower than the
national average, and by the late 1960s its economic;
importance had declined dramatically. National in-
come in West Bengal grew by 50% during 1951-67, com-
pared with 73% for India as a whole. At the same
time, agricultural production increased by less than
50% in West Bengal, compared to about 90% in all
India. West Bengal's industrial production grew
about 50% during the same period, compared with 300%
for all India, and its share of the nation's indus-
trial production fell by one-half to 14%. Calcutta"s
share of total port traffic fell to only 16% in 1967.
The state's per capita income, while still about 25%
above the national average, actually was about 4%
lower in 1967 than in 1950 and was surpassed by four
other states -- Gujarat, Haryana, Maharashtra, and
Punjab.
4. West Bengal's agriculture has been virtually
untouched by the so-called "green revolution" in
India.* Foodgrain production in West Bengal -- which
3 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
makes up 90% of agricultural production -- is
dominated by rice. following the nationwide droughts
of 1965 and 1966, foodgrain production in India as
a whole reached a record high in 1967 -- 7% above
the 1964 level. In West Bengal, however, production
actually was 6% lower in 1967 than in 1964. Whereas
high--yielding varieties of wheat were quite success-
ful in other parts of India in spurring foodgrain
output, such varieties of rice seeds had little
success. High-yielding rice seed imported from the
Philippines has not adapted well to local growing
conditions and is susceptible to local diseases.
Moreover, its requirements for controlled water
generally cannot be met in India's rice-growing
regions.
5. Some of West Bengal's industrial decline had
occurred by the mid-1960s and, therefore, preceded
both the nationwide recession and the state's
political and economic turmoil of the latter 1960s.
The state's share of industrial production had
already declined by one-fourth to 21% by 1964. In
part, West Bengal's relative standing was affected
adversely by the more rapid industrial buildup in
many other states promoted by New Delhi's investment
policies which encouraged the regional dispersion
of industry to promote a .more equitable distribution
of income. Since central planning started in 195_,
West Bengal's share of the nation's development
expenditures has declined steadily from 11% during
1951-55 to 5% during 1966-68. While per capita
expenditures almost tripled for all India, they
increased less than 50% for West Bengal (see Table 2).
In addition, West Bengal's jute industry was adversely
affected by Indian government policies and by increas-
ing competition in world markets from both synthetics
and Pakistan's more modern jute industry. Production
of jute goods grew only 35% during this period.
6. Since the mid-1960s the state's economic
deterioration has sharply accelerated. The 1966-67
nationwide recession, caused by India's worst
drought of the century, had a severe impact on
West Bengal's industry where production plummeted
by about 30% between 1964 and 1967. The decline
was most severe in heavy engineering industries --
for example, railcar construction, steel castings,
structural fabrication, wire and cable, and machine
tool industries were all operating at 30% to 40%
4 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
of capacity. Output of jute manufacturing declined.
17% in 1966 alone because of poor jute crops and
the cutoff of imports from Pakistan after the 1965
Indo-Pakistan hostilities. In many industries,
such as steel, the situation was exacerbated by
rival labor unions fighting for control of major
industries, thus disrupting production and lowering
efficiency. With unemployment and labor dissatis-
faction mounting, a Communist-dominated coalition
government was elected-in West Bengal in 1967 and
was reelected in 1969. Inter-party rivalry within
the coalition since then has led to political in-
stability and terrorist activities in both urban
and rural areas.
7. By 1969 the nation's industry generally had
recovered from the recession -- industrial produc-
tion was 12% greater in 1969 than in 1965, its pre-
recession peak. However, West Bengal's industry was
still depressed. Output of jute manufactures declined
another 20% from 1966 to 1969 mainly because of small
jute crops brought about by diverting one-fourth of
jute lands into rice production and because of reduced
prices paid for jute in 1967-68 while record prices
were paid for rice. The price differential recently
has been reduced somewhat but not enough to make
many rice producers switch land back to jute. Jute
output has remained so low that about 50% to 60% of
Iron and Steel Plant at Durgapur.
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
broadloom capacity was idle in mid-1970. Despite
India's critical shortage of steel, West Bengal's
two steel mills in 1969 were producing less than in
1968 (see Table 3) and were operating at an average
of only about 60% of.capacity, primarily because of
worker strikes. As a result, by mid-1970 industrial
employment had fallen by an estimated 40,000 from
its already low 1967 level of approximately 850,000.
Although official estimates place unemployment at
20% of the total labor force, the situation in urban
areas is substantially worse.
8. The political turmoil that has rocked West
Bengal since 1967 has been accompanied by numerous
work stoppages and a flight of capital funds to
other states. The number of mandays lost as a re-
sult of industrial disputes in West Bengal increased
from less than 4 million in 1967 to 10 million in
1969 -- 60% of the nation's total. Labor disputes
often take the form of illegal gheraos, in which
managers are forcibly detained in their offices
without food until a settlement is reached. Multi-
ple strikes by rival unions even within the same
plant have seriously affected all sectors of indus-
try, causing many plants to close permanently. Such
an atmosphere has destroyed investor confidence,
and new private investment in the state's industry
reportedly has been negligible for the past two
years. The main.offices of many industrialists,
including India's second largest, the Birlas, have
moved from Calcutta and relocated in New Delhi, Bom-
bay, and other Indian cities. Capital is leaking
out of West Bengal as industrialists purposely allow
local plants to run down while investing elsewhere
in India.
The Special Problem of Calcutta
9. Calcutta, West Bengal's capital and principal
industrial area, has been the locus of the state's
political disorders and economic deterioration.
The population of the city and.its environs is at
least 7 million and perhaps as much as 10 million,
constituting India's largest urban concentration.
The city is slowly choking as a result of overcrowd-
ing and neglect. Political disputes amcng the
state's many competing Communist and leftist parties
often turn to violence. Moreover, Calcutta as well
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
as rural West Bengal has been plagued by th6 disrup-
tive activities of Maoist revolutionaries -- the Naxa-
lites, who take their name from a peasant uprising
in West Bengal's Naxalbari district in 1967. The
Naxalites employ violent methods -- assassinations,
bombings, and forcible land seizures -- to disrupt
urban and rural life, discredit the government, and
bring on an armed revolution. There are probably
some 26,000 people in India connected with the Naxa-
lite movement, and estimated membership in West
Bengal ranges from 5,000 to 12,000 with 4,000 re-
portedly in the Calcutta area. Crippling strikes,
emigration of capital, and immigration of refugees
from East Pakistan -- although subject to large
annual fluctuations, more than 100,000 arrived in
the first six months of 1970 -- all have combined
to exacerbate an already critical unemployment prob-
lem. Millions of people live in the squalor of the
world's worst urban slums while more than a hundred
thousand sleep in streets. Health and sanitary
conditions are t'ie poorest in the world. At least
half the water in the city is so polluted that it
is unfit for human consumption. This and open
sewers, which often overflow, make Calcutta a major
breeding ground for such epidemic diseases as cholera,
smallpox, and tuberculosis.
Homeless and Destitute Indians Sleeping on
a Sidewalk in Calcutta
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
^ CONFIDENTIAL
10. The continuing deterioration of Calcutta's
harbor and port facilities has added to the city's
economic woes. Calcutta lies 126 miles from the
Bay of Bengal on the navigationally difficult
Hooghly River that is silt,,.ng up at a rapid rate.
Despite constant dredging, the river channel is
narrowing and the water level is dropping, so that
the larger ocean-going vessels cannot reach the
port. As a result, traffic handled by Calcutta's
port dropped from 11 million tons in 1964 to 7 mil-
lion tons in 1969, actually less than in 1950 (see
Table 4). Construction of the Farakka Barrage across
the Ganges River, currently under way, is intended
to divert water to the Hooghly River and thereby
flush out the accumulated silt.* An additional port
also is under construction at Haldia, 56 miles down-
stream from Calcutta, to accommodate large bulk
carriers of iron ore, wheat, and petroleum. When
completed, Haldia will add some 13 million tons to
West Bengal's port capacity and free Calcutta to
handle more general cargo. However, the Barrage,
scheduled for completion in 1971, is already far
behind schedule, and Haldia is not even scheduled
to be finished until 1975.
CALCUTTA WATIRURONT-MAn w/ Won thee fh pU.hl wfr, of w
HootAl, Rim, AicA p.o.i1.. f.o.fhids of IAe city's dri.li., wh. ud, la/ih cduw
ic.l f..af."t, is 's ..n .o.Ke of a we coll.,@ of ,o.froi.Mfirf iI.Niaw."
- 8 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
? CONFIDENTIAL
Outlook
11. West Bengal's economic progress has been
slow and living conditions are actually worse now
than they .were in 1950.' Until 1967, its decline
relative--tot other, states, reflected primarily New
Delhi,. Is, encouragement- of industry in poorer states
and the unsatisfactory performance,of the important
jute industry- The 'lack- of. significant, economic
progress.. over. such an extended period created an
atmosphere of discontent that most likely was a
crucial factor in the election victories of the
state's Communist parties. Since 1967, political
instability and the disruptive behavior of Communist-
dominated labor unions have accelerated West Bengal's
economic deterioration.
12. Despite efforts to correct them, most of
West Bengal's problems, and particularly those of
Calcutta, are essentially insoluble, at least in the
short run, and in the next few years will probably
get worse. The already massive unemployment will
most likely increase, aggravated by more factory
closures and rapid population growth. A continuing
inflow of refugees from East Pakistan seems certain
as pressures on the land and persecution of the
Hindu minority there continue. In addition, world
demand for Indian jute manufactures -- West Bengal's
leading industry -- will remain sluggish because of
competition from Pakistan's more modern jute mills
and increasing competition from synthetics. More-
over, recent political instability in West Bengal
and Communist-inspired labor unrest have destroyed
investor confidence in the state. Recent indications
suggest that the Communists are still gaining
strength and will most likely dominate West Bengal's
government for some years to come. Private invest-
ment, as a result, will continue to flee West Bengal
for more stable and profitable locations, such as
New Delhi and Bombay, causing a further erosion of
the state's industrial base. Finally, India's Fourth
Five-Year Plan (1969-73) provides for spending in
West Bengal only 3.2 billion rupees ($427 million) --
less in real terms than during the Third Plan (1961-
65) -- with the largest amounts allocated to irriga-
tion and flood control, agriculture, and power.
While West Bengal has more than 8% of 7.ndia's popu-
lation, it is allocated less than 5% of planned
expenditures. The average annual per capita outlay
of 16 rupees, compared to 26 rupees for all India,
9 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Releas
2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
is by far the lowest of any Indian state. About
70% is to be financed from central government grants
and 30% from state. revenues. However, the resources
necessary to finance New Delhi's share are based on
an unrealistically high economic growth rate for the
nation as a whole and will probably fall short of
plans.
13. The central government probably cannot mount
more than a token effort toward solving Calcutta's
immense problems during the 1970s0 Sufficient
developmental resources to solve or measurably re-
duce Calcutta's problems simply will not be available
in a country whose annual per capita income probably
will remain well below $100. Moreover, even larger
competing claims from all quarters on New Delhi's
available resources. will sharply limit what can be
spent in Calcutta. Most other states can argue that
West Bengal,. despite its problems, has a higher per
capita income than theirs.
14. Recognizing.. Calcutta's need for additional
help; New Delhi has approved two separate develop-
ment plans for Calcutta which, like many Indian
development plans, are high on ideals and low on
funds. A plan to arrest decay in Calcutta was
drawn up in 1966 envisioning expenditure of 1 bil-
lion rupees ($133 million) over a five-year period.
Only half of this amount is likely to be spent,
however, because of lack of resources, fragmentation
of municipal authorities, and political instability.
The latest plan,.. approved in May 1970, proposes the
.expenditure of 1 billion rupees over five years on
sanitation, transport, slum clearance, and housing
to supplement the 400 million rupees ($53 million)
provided in the Fourth. Five-Year Plan but is to be
financed exclusively by West Bengal and as yet un-
specified foreign assistance. As with the earlier
plan, it is doubtful that the beleaguered state will
even be able to raise its share of the funds, much
less successfully administer the program. Moreover,
even if the plan could be successfully implemented,
it is far too small. to make any significant improve-
ment and, at best, could only slow the deterioration.
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
Table 1
Population, Total. Income, and Per Capita Income
in West Bengal and All of India
for Selected Years
a. Popu ation data are official igures which are
generally considered to underestimate the true population.
b. At constant 1960/61 prices.
1950
1960
1964
1967
West Bengal
Population 1 (million)
State income / (billion
26.3
34.9
38.9
41.4
rupees)
12.4
1F,;!
19.4
18.6
Per capita income b/
(rupees)
India
471
462
498
450
Population 1 (million)
361
439
483
511
National income b
(billion rupees
106.9
147.5
202.9
185.0
Per capita income b/
(rupees)
296
336
420
362
- 11 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
Average-Annual Development Expenditures
in West Bengal and All of India a/
Actual
1951-55.
Actual-
1956-60
Actual
1961-65
Actual
1966-68 -
Planned
1969-73
n
z
West-Bengal
Total (million. rupees)
Per capita (rupees)
308
10
312
9
601
17
546
14
645
16
z
India
Total (million rupees)
2,914
4,284
8.330
10,173
13,213
Per capita (rupees)
7
10
a. Excluding direct expenditures-by t hp- central government through its
ministries,-such as education, health, and other services, as well as public
sector enterprises. Such data are not available on a state-by-state basis.
Also omits ad hoc central government appropriations excluded from the Plans.
The limited available information suggests that inclusion of such data would
not alter the comparison significantly. Data ars for fiscal years beginning
1 April of stated year.
b. Annual average of actual expenditures for 19:.'6 and 1967 and planned
expenditures for 1968.
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
Table 3
Steel Ingot Production in West Bengal
and All of India
Thousand Metric Tons
Year
West Bengal
Rest of India
Total 2/
1949
290
992
1,282
1960
1,082
2,230
3,312
1961
1,396
2,786
4,182
1962
1,733
3,559
5,292
1963
1,999
3,835
5,834
1964
1,956
4,066
6,022
1965
1,791
4,415
6,206
1966
1,651
4,796
6,447
1967
1,529
4,641
6,170
1968
1,600
4,720
6,320
1969
1,500
4,700
6,200
a.Fiscal years beginning 1 April of stated year.
b. Indian Iron and Steel Company at Burnpur and
Hindustan Steel, Limited, at Durgapur.
C. Five integrated steel mills which account for
over 97% 'of all steel ingot production in 1967.
- 13 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030128-7
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7
CONFIDENTIAL
Table 4
Gross Weight-.of Cargo Handled in Calcutta
and All Indian Ports
Million Tons
Year
Calcutta All of India
195
0
7.6
19.2
195
1
9.7
22.5
195
2
9.8
21.8
195
3
8.2
20.2
195
4
7.9
20.6
1955
,
8.2
24.3
1956
9.0
27.4
1957
10.3
31.5
1958
9,.4
29.2
1959
9.8
31.4
1960
9.5
33.4
1961
9.3
40.2
1962
10.2
42.4
1963
10.9
46.2
1964
11.1
48.3
1965
9.9
50.5
1966
10.1
53.6
1967
9.0
55.2
1968
7.9
55.2
1969
7.0
59.2 est.
a.
Fzeca
years beginning 1 April of state
year.
- 14 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030128-7