The Hindu Business Line : Bengal leads in small savings, lags in industrialisation

ARE savings a major determinant of industrialisation? Conventional wisdom suggests that a country or State cannot industrialise rapidly, unless it has generated a sufficient stock of institutional savings to finance large-scale investments.

But as is the case with most economic phenomena, there are exceptions to this rule as well.

Take, for instance, West Bengal, considered an industrial laggard and struggling to overcome its entrenched manufacturing graveyard image. The State is the leader in mobilisation of small savings through post office instruments like savings deposits, certificates and public provident fund (PPF).

As on March 2003, West Bengal's cumulative small savings collections, at Rs 14,457.84 crore, accounted for 13.7 per cent of the country's total of Rs 105,659.68 crore .

Even after adjusting for progressive withdrawals, the State's net small savings deposits (Rs 7,924.69 crore) work out to 15.6 per cent of the all-India figure.

Moreover, West Bengal's impressive savings record is not confined just to postal instruments. It extends to bank deposits as well. According to the Reserve Bank of India's latest `Statistical Tables Relating to Banks in India for 2001-02', outstanding deposits with scheduled commercial banks in West Bengal (Rs 77,467 crore) was below that of only three other States — Maharashtra (Rs 1,96,210 crore), Delhi (Rs 1,19,871 crore) and Uttar Pradesh (Rs 1,10,356 crore).

Maharashtra's premier status with regard to bank deposits is not surprising, particularly when it is home to India's corporate and financial capital, Mumbai. Delhi is similarly the country's political and administrative capital, even while it is emerging as a financial hub in its own right.

UP's number three position is, in turn, attributable to its sheer size. There is no such obvious explanation when it comes to West Bengal. The State may have been a financial and industrial powerhouse in British India and the early decades after independence.

But today it houses just a handful of large corporates like ITC and the RPG Group, besides assorted jute barons and old time commodity-cum-stock traders.

Yet, its mobilisation of savings through banks and post offices exceed that of leading industrialised States such as Gujarat, Tamil Nadu, Andhra Pradesh, Karnataka, Punjab and Haryana. And the bulk of this mobilisation seems to be from retail households rather than from the trade or industry.

One could trot out several reasons for this phenomenon, including the average Bengali's supposed aversion to risk-taking. His more adventurous Gujarati counterpart, in contrast, is seen as being more inclined to invest his savings in the stock market rather than parking these in banks and post offices.

However, sweeping generalisations of this nature do not help in explaining why the same West Bengal was a resurgent industrial State till the sixties with an established entrepreneurial tradition.

A more realistic approach would be to view investment activity independent of savings behaviour.

A corporate's decision to invest in a particular State is guided by expectations of profitability, which, in turn, depends on a host of factors, including the state of infrastructure and the `overall business environment' (labour relations, administration's approach, etc).

As for savings behaviour, Prof Jayati Ghosh of the Jawaharlal Nehru University points out "people, especially the middle class, will always save if the institutional avenues exist".

In West Bengal's case, the State Government has actively promoted the small savings programme, which has been complemented by its vast network of post offices.

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