Speeches & Articles

Remarks of Consul General Henry V. Jardine to The Confederation of Indian Industries (CII) “WEST BENGAL: AN EMERGING INVESTMENT DESTINATION”

Kolkata
October 21, 2005

Introduction:

Members of the CII, distinguished guests, ladies and gentlemen, members of the press, thank you very much for inviting me here today to speak on “West Bengal an Emerging Investment Destination.”  However, I want to start by expressing my condolences and those of the U.S. Consulate for the victims of the recent earthquake in Jammu and Kashmir.  The earthquake was a devastating natural disaster that destroyed the lives of thousands, but the subsequent examples of human courage demonstrated by the people of India and Pakistan have been a great inspiration to see and hopefully a sign of future closer cooperation.  

Turning to our subject today, I would note that I arrived in Calcutta to begin my assignment here just two months ago.  My time has been a veritable whirlwind of activity and most recently included the wonderful Durga Puja celebrations. The process of arrival brings to mind one of my more formative experiences when, in a previous career with the U.S. Army, I received airborne training.  Like landing here in Calcutta, the process of jumping out of an airplane starts with an immediate rush of activity, quite a bit of emotion and a lot of sensations.  Once on the ground, with the adrenaline still flowing, it was time to take stock of the surroundings.  Impressions always seemed to be strongest those first few moments, when I was finding my bearings.  So while my adrenaline is still rushing and my initial impressions of West Bengal are at their most distinct, I would like to offer a few observations of the investment climate in this State.

First Impressions

First and foremost, is the amazing change that has taken place since I first visited Calcutta on a personal trip just eight years ago.  At that time, Calcutta was a symbol of past and faded glory: a second city of a long gone Empire, with an economy that was moribund.  Now though, the economic dynamism is palpable.   Real estate is booming, investment is coming and jobs are growing.  West Bengal is open for business.

However, we are early on in this new, more optimistic era.  West Bengal is still at a crossroads in its development.  Almost as if by a law of nature, the great effort of the West Bengal government to create economic opportunity for its State is still faced by an equal but opposite force of resistance to economic liberalization.  Progress is not a static process, it requires continual change or it falters and fails.  More still needs to be done to enhance West Bengal as a destination for future investment.  More reform needs to be initiated in a range of areas, such as investment in retail, agriculture, insurance, banking and infrastructure.

Soon after arriving in Calcutta, I realized things had changed, when walking to the end of Ho Chi Minh Sarani, I found a “Pizza Hut” restaurant in the Camac Street Westside shopping center.  I cannot imagine a better juxtaposition of the symbols of the past and present.  But the changes in West Bengal are more substantive than just symbolic.  In its recent study, the Associated Chambers of Commerce and Industry (Assocham) reported that from 2001 to 2004, a period coinciding with the present Chief Minister’s tenure, West Bengal saw an impressive 15 percent growth in the State’s Gross Domestic Product (GDP).  West Bengal is the third fastest growing economy in the country.  Its GDP in the service sector since 2001 has grown at a blistering 25 percent.  Banking and insurance led that sector with 56 percent growth from 2001 to 2004.  Finance, real estate and other business services grew by 43 percent during the same period. Many U.S. firms such as Skytech, NetGuru, IBM, GE Capital, etc. have invested in IT ventures, and recently PepsiCo announced plans to expand its operations in the State. 

The resurgence of West Bengal, and Calcutta in particular, is impressive but also in a way is almost geographically predetermined.  When I look at the distribution of development in India it seems to congregate along the cardinal directions of the country: to the West is Mumbai; the North is the New Delhi and its outlying areas; the South is Chennai and the cluster of IT around Bangalore and Hyderbad; but until recently, there was a yawning gap in the East -- a veritable “terra incognita” for economic development.  

The West Bengal government has been doing an admirable job of making the East a known quantity by offering a strong vision of economic opportunity in the State and successfully attracting foreign investment and business interests.  The vision that they offer is of Calcutta as the key entrepôt for the Eastern region – with the natural and human resources flowing into the State and the services and products flowing out.  As an example of the State’s strategic location, the neighboring states of Jharkhand and Orissa have both recently signed billion dollar deals to begin very large mining and steel production operations.  Also, economic links have been established with Southeast Asia, in Singapore and Indonesia, potentially making West Bengal and Calcutta the gateway for the ASEAN countries into India.  As a reflection of this, it is interesting to note that it is significantly cheaper to fly to the capitals of Thailand and Malaysia from Calcutta than it is to fly to India’s capital.  If West Bengal is able to fulfill this vision, it could become the Guangzhou or Shanghai of East India.

Opposition to Economic Reform

However, there are clearly those who do not have the same vision, are mired in the past, and are very afraid of change.  As opposed to offering an inspirational message of opportunity, the message offered is one of fear.  The use of Bandhs is one clear example of this fear.   Bandhs are disturbing not just because people are denied basic public services.  What was even more disturbing is the very negation of future prosperity: a resounding  “No” to investment and “No” to future jobs.  In response, the West Bengal government has shown great courage in confronting the nay sayers and in assuaging the concerns of those whose livelihoods and jobs depend on investment.

The message of those who oppose economic liberalization is really one of subtle denigration to the people of West Bengal.  When we look at what they say more closely, in saying they do not want competition in the market because it will hurt the people of the State – what they are really saying is, they do not think the people of West Bengal can compete; that they do not have the ability nor capacity to go head to head with the international business community.   The implicit message is incredibly condescending to all the people of this great State.  Given the opportunity of greater economic liberalization, the people of West Bengal would thrive.  Just look at the example of the Indian community in the United States.  In a few short years, the average income of the Indian community has become the highest of any community in the U.S.  Many of the top companies in Silicon Valley are run by Indian nationals, and a candidate on the short list for the new Dean of Harvard’s Business School is an IIT graduate.  To paraphrase the classic Sinatra song, “If you can make it there, you can make it here.  (It’s up to you.).”

Areas of Reform

However, more reforms are necessary to really unleash the State’s potential.  If so much has been accomplished with limited reform, it would only seem to make sense that more reform would further fuel the engine of growth.  Restriction on FDI in the retail sector is the most obvious example, but other limits to investment, such as in insurance and banking, also discourage investment.

“The Economic Times” published an encouraging article last week that indicated the Indian Government is considering allowing investment in retail initially in six metros including Calcutta.  If Calcutta becomes a center for investment in retail it would have a significant positive impact on the State as a whole.  Quality of goods, supply and service would improve.  Consumers would have more choice and for suppliers it would provide greater efficiencies and economies of scale.  Inclusion of agricultural products would provide investment to improve cultivation, storage and distribution.  Produce that now rots in fields because of poor distribution networks would reach the consumers and farmers would benefit.

Years ago, the retail industry was closed in such markets as Mexico and China. But after U.S. retailers entered, they passed along cost savings to the consumer of up to 30 percent on many goods. For those with modest incomes, lower retail prices effectively means an increase in their disposable income.

In the insurance sector, initial reforms sparked rapid growth and investment.  Since 1999 the sector has attracted $235 million in investment.  Though, as Ambassador Mulford noted in his October 6 remarks at the conference in New Delhi on “Building a Vibrant Insurance Market in India,” the market share of private insurance companies remains very low – at just the 10-15 percent range.

The same is true in the banking sector.  Earlier this year, the Government of India issued a roadmap for investment in banking which featured a five-year delay before the door is completely open to FDI, with no guarantee that this would happen. The five years is intended to give domestic banks time to become more efficient so that they can meet the challenges of global banking, yet it is unclear under what circumstances any domestic bank would be allowed to merge with a foreign partner.

Indian banks are small and undercapitalized. They need foreign capital to grow. The delay in preventing foreign capital from entering India will be costly in terms of slower growth, fewer jobs, and less innovation in banking services. It will hinder India's emergence as a global economic power.

India's banking industry -- indeed, its entire financial sector -- has matured to the point where it can accommodate a faster pace of reform. This would facilitate the delivery of credit and other types of financial services to small-scale enterprises and to households with modest incomes.

These are large segments of the economy. They are untapped markets. When they need credit, they typically rely on family and the informal financial sector for loans. Only the private sector can pull these segments of society into the formal banking system. Liberalized foreign investment in banking would accelerate that process. Liberalizing FDI in banking would have another positive effect: it would help India and West Bengal in particular to finance its infrastructure needs.

West Bengal cannot become a world-class business destination without world-class infrastructure. It's as simple as that.  There are many factors that have led to the inadequacy of infrastructure in India. One of them is the lack of a long-term debt market. In the United States, we have credit markets where borrowers can find financing for 30 years or longer for development projects. India does not yet have such a market.

To stimulate the creation of that market, the Government of India should allow the private sector to increase the number and the different types of financial players. The creation of a long-term bond market depends on banks, insurance companies, pension funds, mutual funds, Foreign Institutional Investors, venture capital funds, even retail investors. They all have different incentives and different time horizons for their investments.

Policies that restrict the numbers and the types of financial players tend to result in shallow credit markets that are unable to provide long-term financing. Liberalizing FDI in banking - as well as in insurance and pension fund management - will bring in more capital, stimulate the creation of the long-term credit market, and provide financing for long-term infrastructure needs.

West Bengal does need investment in infrastructure: large multi-lane highways, overpasses, bridges, additional ports, and airports – the whole range of networks that a modern State needs.  The West Bengal Government recognizes this and has been seeking foreign investment in these areas.   However, the projects need to be large and visionary in scope to create the potential for investment and development.  The addition of a few two-lane roads is not sufficient to create real economic growth – the State needs to “Think Big” for big growth.

Conclusion

To conclude my remarks, I would like to end on this message of thinking big and moving ahead with economic reforms.  West Bengal does have a vision of creating a dynamic region of economic growth here in the East.  Those who oppose this vision, really offer only an alternative of fear and stagnation.  However, real leadership cannot be inspired through fear but only through inspiration.  Instead of being held back, the people of West Bengal should be encouraged to remove the shackles of regulation and demonstrate how successful economic reforms can be in this State.  West Bengal is at the cusp of a great future and I encourage you all to do your part to help push this great State forward into its rightful place as East India’s economic powerhouse.

Thank you.