It was to be a debate on a road map for building the economy in east India, but in the end yielded a charter of commitments from bankers, industrialists and the West Bengal government on how each could help the state turn the corner.
Brainstorming: (from left) State Bank of India chief general manager Jayanta Kumar Sinha, The Chatterjee Group president Aniruddha Lahiri, Allahabad Bank chairman and managing director K.R. Kamath, West Bengal finance minister Asim Dasgupta, Mint deputy managing editor Tamal Bandyopadhyay, RPG Enterprises vice-chairman Sanjiv Goenka, Uco Bank chairman and managing director S.K. Goel and United Bank of India chairman and managing director Satish C. Gupta at the Mint Clarity Through Debate conclave in Kolkata on Friday. Indranil Bhoumik / Mint
Moderated by Mint’s deputy managing editor Tamal Bandyopadhyay, the key speaker at Clarity Through Debate’s Kolkata edition was West Bengal’s finance minister Asim Dasgupta who, on behalf of his government, promised reforms in the way the bureaucracy worked and a greater focus on building infrastructure in the state.
The three bank chairmen—K.R. Kamath, S.K. Goel and Satish C. Gupta, who head, Allahabad Bank, Uco Bank and United Bank of India, respectively—committed themselves to boosting credit, while Jayanta Kumar Sinha, chief general manager of State Bank of India—the country’s largest lender—promised to do his bit in expanding the bank’s reach in the remote interiors of the state.
And finally the industrialists: Sanjiv Goenka, the vice-chairman of RPG Enterprises announced his group’s plans to enter the healthcare sector, while reiterating its commitment to investing Rs10,000 crore in building power plants in West Bengal. Aniruddha Lahiri, president of The Chatterjee Group (TCG), which partnered the state government in setting up Haldia Petrochemicals Ltd (HPL), secured a commitment from Dasgupta that the state would meet TCG half way in resolving the ownership dispute over HPL. Edited excerpts of the two-hour discussion which started with Massachusetts Institute of Technology, or MIT-educated Dasgupta delivering a 26-minute address on the state of West Bengal’s economy:
Moderator: Good evening Kolkata, a very warm welcome to Mint’s Clarity Through Debate series—Building East: Roadmap for Banking and Industry.
On my way to Kolkata, I met a consultant friend of mine at the Mumbai airport who asked me how can West Bengal, itself a challenged state, build the roadmap for the east.
“All they have been talking about is Haldia Petrochemicals and that is dying,” he said. And then he spoke about the Unitech SEZ here which is running on a genset because there is no electricity, and a slightly dated KPMG report which said Kolkata has the most inefficient bureaucracy. When I pointed out that the KPMG report is pretty old, he mentioned an Assocham report of 2009 on industrial investment, which says West Bengal’s position is pretty bad.
The announcement of his Delhi flight actually came to my rescue. As he was leaving I asked him whether he was in anyway associated with the state as a consultant. He said he wasn’t. Normally, if these consultants are not associated with something, they are pretty uncharitable about it. But some of the questions he raised…maybe this panel—seven great minds—would try and answer them and perhaps in the end we can reach a consensus, which we can call the Kolkata consensus. Mr Dasgupta, let’s start with your observations about the state.
Dasgupta: Even in these difficult times, in 2008, 217 new units (in West Bengal) have started production by investing Rs4,434 crore. And if we consider the entire period between 1991 and 2008, about 1,947 units investing Rs42,000 crore have materialized. And 70% of that was in the organized sector.
West Bengal’s rate of growth has historically been 8%—now 7.6%. My target for growth of SDP (state domestic product) of West Bengal is 8.5% for the current year.
If I use NSS (National Sample Survey) data, about Rs22,000 crore worth of demand is being generated from the rural areas of West Bengal for industrial products, and about Rs35,000 crore from West Bengal’s urban areas. That is quite a big demand and it is growing by 8% a year.
My last point is on banking. I will compare West Bengal with Andhra Pradesh—two states with almost similar SDP, which is about Rs3 lakh crore a year. The total population of West Bengal is 8 crore plus, and of Andhra Pradesh it is 7.5 crore plus.
But so far as the bank branches are concerned, there are 6,500 branches in all in Andhra Pradesh, and in West Bengal, 4,100 branches. Deposits in Andhra Pradesh: people keep deposits to the tune of Rs1.6 lakh crore; in West Bengal, Rs1.74 lakh crore.
I am giving you basic statistical data of the RBI (Reserve Bank of India) from 2008 to 2009. Deposits are higher in West Bengal, but in Andhra Pradesh, out of Rs1.6 lakh crore, Rs1.55 lakh crore is given as credit. The credit-deposit ratio is 98% plus in Andhra Pradesh, although the rate of growth of SDP is higher in West Bengal.
Only Rs1.13 lakh crore is given as credit in West bengal. Credit-deposit ratio is 64%. Can’t we increase this if we put our minds together? In Maharashtra, the credit-deposit ratio is 98%, and in Tamil Nadu, it is 112%. If we just, say, increase it to 80% (in West Bengal) that will bring in additional Rs60,000 crore.
Moderator: Let’s now turn to the bankers to understand what they feel are the state’s problems. Let’s start with Mr Sinha.
Sinha: So far as SBI (State Bank of India), is concerned we are very committed to West Bengal having originated here 200 years ago. To build the bank’s infrastructure, we now have in Bengal more than 850 branches, and we have plans of adding another 140 branches. Last year, we increased 47 branches, and out of the 850 branches, almost 65% are located in the rural and semi-urban areas. That apart, we have taken technology to the remote areas, and have a solid network of ATMs (automated teller machines).
In West Bengal, the propensity to save is much more than other states. People here do not invest that much in the stock market. In fact, this region leads in deposit mobilization. As far as credit is concerned, we haven’t come across many instances where the demand has not been met.
Moderator: Mr Gupta, would you like to react to this allegation that you are lazy bankers?
Gupta: The time limits that we have set in our bank are in line with guideline set by the RBI, which is applicable to all the banks squarely. Normally, depending upon the size of the loan, I would say smaller loans up to Rs2-3 crore are sanctioned in two weeks time. There could be loans which require some technical appraisal and some economic viability studies, and that could take even six to eight weeks. As far as credit is concerned, I don’t think any credible proposal has been declined ever since I came into this bank.
For next year, banks in the state have set a target of Rs20,800 crore for disbursals during 2009-10. Yet, there is always room for improvement. We will improve. We would be happy to join hands with the industrialists.
Every big corporate house has a treasury department to arrange credit (facilities), and if they tie up financing in Mumbai, the credit-deposit ratio picks up in Mumbai and not in Kolkata. The fact is even industrialists from here arrange the tie-ups elsewhere—many have set-ups in Delhi and Mumbai.
Moderator: Here’s a classical banker who says we have met all demands, and had there been more demand we could have met that too. But where is the demand? Mr Goel, what are your views?
Goel: We have been trying to understand what is wrong with us, why we are not able to grow like other states—Punjab, Haryana, Gujarat, Maharashtra, Tamil Nadu and Karnataka. There is no doubt the east is a very rich region, but a rich region inhabited by the poor.
I think infrastructure is one thing, which the honourable minister himself pointed out. Land is another thing that industrialists are worried about—the general impression is land is not easily available to start projects and single-window clearance is not operating like in some states such as Gujarat, where industrialists are going even though there is no natural resource.
Whatever the scope, we have to lend. If we keep funds idle, we are losers. Today, my bank is keeping average Rs10,000 crore surplus on which we earn hardly 3%. So, I really wish that the state gives me the opportunity to lend even at reasonable rates of 9-10%. If we get that, our bank’s profitability will go up. With all due apologies, the government has to create the opportunity. We are very willing to lend.
Moderator: Mr Kamath, your turn to respond…
Kamath: The honourable finance minister said that credit-deposit ratio in some states is 100%. We in Bengal have 64% and that we should take it to 80%. But let me tell you, as a banker, the ideal credit-deposit ratio is 70% because I cannot lend more than that—if you cross 70-72% credit-deposit ratio, you are under tremendous liquidity pressure. The ideal credit-deposit ratio is 70-72% and the national average is 70%. In West Bengal, it is 64% —we have a gap of 6%.
The allegation that we raise deposits here but don’t lend doesn’t hold, because as a banker, for me money, flows where the demand comes from. I cannot raise money and wait for demand to come, keeping funds idle. But I accept the point of the finance minister that there is scope for us to improve—we will work on that. That’s one thing.
Timely availability of credit is more important than interest rate because the cost of funds is never a big chunk of total project cost. Half a percent here and there doesn’t make much of a difference, but timely availability of credit does.
Now comes the question if there is demand (for credit). I think for any viable proposal, banks are always ready to lend. But how do you cut the delays? There is always a scope for improvement in that.
The finance minister made another point on the number of branches in the state. I fully agree that the number of branches in this state is low for its population. But there is always a debate on whether we should go to places where we don’t have any branch at all? Or, should we open more branches in states where we are already present? I open 50-60 branches in a year, and our resources are limited. At the end, I would like to say that we should manage perceptions. I was talking to some analyst about my bank’s share price, and I asked him why it was lower than other banks, and his answer was “you are (a) bank from the east”. So that’s the perception. I would request the finance minister to start a public relations activity from the east. Because we need to change the perception and we need to say “what you perceive is not correct”.
Moderator: OK, so let’s now turn to the two representatives we have from the industry. Mr Lahiri, your turn first.
Lahiri: When you are talking about rebuilding the east, there are certain ground realities which you cannot forget, which you cannot wish away. But if things are not moving… say, if the car is not moving, there is no point in fuelling the car. So, my point is if you ask whether bureaucracy is a bigger problem than bankers not willing to lend, I would say neither of these in isolation. You have to first understand what is stopping the car from moving, and if you could get the car to move, then the problems would appear, and they would have to be sorted out one by one. Now coming to where the fundamentals are wrong, or partly right, one thing is certain, and that is more of the same is not going to work. And therefore I think—Dr Dasgupta alluded to this—we need an analysis of what didn’t work and (to) create an agenda for the future based on our learning from the past.
Moderator: Mr Lahiri says the car isn’t moving. But is it the road that is bad, Mr Goenka?
Goenka: You have to excuse me if I sound emotional because I am emotional about the opportunities that Bengal offers.
To my mind neither credit nor bureaucracy is a problem. The problem is different. The problem lies in perception. Why does somebody choose a particular city, a particular location or a particular state for investment? It is because in his mind, it offers a good opportunity for wealth creation, backed by his confidence that the state administration will deliver. The ground reality is it (West Bengal) is a good investment location and my perception is the administration will deliver.
Now let’s look back 15-20 years. The perception (about West Bengal) was that it was not a great place to invest in. Simply because in the 1960s and 1970s, we had militancy in trade unionism, there was a flight of capital from Bengal. We also had (a) law and order situation…
Things got corrected, but that perception lingered until very recently—till about 6-7 years ago. And the confidence gained in the state of Bengal, the confidence gained in the delivery mechanism of Bengal resulted in a beeline of investors—Tatas, Mahindras, Jindals, Videocon... Bengal was a good place to invest in; Bengal remained a good place to invest in. What changed was the perception.
And yet it is one Rs1,500 crore project—the Nano project—which has again set the ball rolling backwards. The confidence that Bengal will deliver has suffered and to my mind, and all of us, everyone has a responsibility, has an obligation to rebuild that confidence because the merits of investing in Bengal have not changed. The opportunities of investing in Bengal have not changed—they remain as good as they were, they continue to be very good.
So to my mind, all of us should join together in building a case not by overemphasizing, but by correctly explaining, the opportunities that are there.
Moderator: Dr Dasgupta, your turn to wrap the discussion in this round, and the issues that have been raised are that land is major concern and that there are no takers for credit.
Dasgupta: In terms of our approach in this debate, let us not try to defend ourselves too much. Let us try to be (a) little self critical—all of us.
The issue that has arisen is whether there is adequate demand for credit. The issue that you should keep in mind is that in rural areas, as per National Sample Survey data, only 27% of the people have access to banks… This is where supply will create the demand. About one-third of gram panchayats (village councils) do not have any bank branches.
Then there is this big question of land. I will reiterate that if 1,947 units were set up, in the case of 1,900, there was no problem—with medium scale industries, no problem, with large industries, no problem. Land by itself, or the Nano project by itself, cannot be the obstacle to unleash the forces of growth. The basic fundamentals should be determined by the fact that this state and the region is growing systematically at a rate of 8% plus. So, demand is being generated, savings is being generated. For savings to transform into production and growth, banks are a crucial intermediary along with stock markets. So you (bankers) have to respond to that.
When I say rate of interest has to be reduced, I clearly know its consequences on deposits. It’s a package, but without reducing the rate of interest and without facing the consequences, we cannot get out of this rut. We have to. There aren’t too many countries with such high lending rates.
Moderator: Dr Dasgupta says for hundreds of units land wasn’t an issue. What’s your experience like, Mr Goenka?
Goenka: I will share my experience of land acquisition for industry and my most recent experience is one of acquiring a few hundred acres of land in Haldia for setting up a 2,000MW power plant. All I can say is that it is pretty close to one of the disputed sites, which is being talked about in the media. Land acquisition has gone on very smoothly and we have got possession of all the land except 40 acres, which should happen in the next six weeks. So, I haven’t seen an issue vis-a-vis land acquisition.
Moderator: Even for Mr Goenka, land isn’t a problem if tackled in the right manner. So Mr Lahiri, what are the problems? Why isn’t industry taking off?
Lahiri: It is not land versus industry. The way to resolve this is to find out how both of these could play complementary roles in industrialization. So, the current focus on high-end manufacturing such as on petrochemicals, automotive industry—all of these have very high yields—but unfortunately, being technology-intensive and capital-intensive, it does not really provide the benefits in the scale that would be considered attractive for an economy, which has been for years dominated by agrarian and rural populations. Therefore, the benefits have been very limited. Now there’s China for example, which is very successful in manufacturing, in building their economy. But you have to see what started the manufacturing revolution in China—it was low-end manufacturing: it was toys, labels, garments, so on and so forth. That requires massive, massive investments in infrastructure.
Moderator: OK, so in this round let us get some commitments from each of you…three-four things that you could do to help the state turn the corner. Let’s start with Mr Goel.
Goel: Rate of interest is a very genuine issue and bankers have to think how credit could be provided at a reasonable cost. But for that we have cut down the cost of deposits because ultimately it determines the cost of lending also. So, this is a very sensitive subject. But after the economic turmoil, we have already cut our rates five times and by a total of 300 basis points. Yet we feel it requires a correction of at least 100-200 basis points but that will depend on our capacity to cut down deposit rates for which we have requested the honourable Union finance minister to think of reducing the interest rate on small savings deposit schemes. If they are above (bank deposit rates) by half a percent, there’s no problem, but if they are at 8% and we cut to 5%, our deposits will all go. But certainly there’s scope for reducing lending rates by 100-200 basis points to make them internationally competitive. Otherwise people will go looking for ECB (external commercial borrowing) and other routes where they get finance at cheaper rates. (One basis point is one-hundredth of a percentage point.)
Second thing, I think entrepreneurial training is very essential. One of the reasons why there isn’t much lending in the eastern region is the high level of NPAs (non-performing assets) here. Banks are lending more aggressively in states where the NPA level is reasonable or low. And that is why entrepreneurial education is so important.
Moderator: Mr Kamath?
Kamath: Finance minister made a point that only 27% of the people have access to banks. I think all banks are working on it, and there should be a large-scale, technology-driven programme to make banks more accessible and we will all get involved with it. The SHG (self-help group) movement is an excellent thing, and especially the ladies (who run them) are very successful. You can make a big difference to the lives of the people by lending very small amounts. So this is one answer from the bankers’ side on reaching people who have not been covered by banks as yet.
The other thing I will assure on behalf of Allahabad Bank and all the banks here that all genuine credit demands will be met. We will work on cutting the delays. I appreciate that there is need for change in the mindset of bankers, and we are working on changing the mindset of all employees across the bank (Allahabad Bank). Working on the credit-deposit ratio, we appreciate the finance minister’s request that more money should flow into the state, but let me also say credit growth in West Bengal has overtaken the all India average in the last few years. So banks are lending… And as opportunities come, we will definitely work towards improving the credit-deposit ratio. And for all these things if there is a need for a grievance redress mechanism, we will set up a cell in our bank, which people can directly approach.
Moderator: Mr Goenka, you are one of the most respected industrialists across the country. What are you pledging for the state?
Goenka: One, we reiterate our commitment to invest Rs10,000 crore in building power projects and retail in the state. Two, we further commit that we would build educational institutes—the first from the RPG Group will get on stream next year. Three, we will now commit to investing in healthcare (though) in a small way to begin with. And four, I personally commit, should the need so arise, should anyone feel the necessity for someone to go and help market the state, I would by talking about my own experience of operating in the state.
Moderator: Dr Dasgupta, will you sum up the discussion by committing what the state government could offer?
Dasgupta: West Bengal now has the highest population density—980 plus (per sq. km)—which means that the land-man ratio is most adverse in West Bengal. And if you come to the Gangetic plains in south Bengal, where you have the most fertile land, the situation is even more difficult. So for anyone to get land in West Bengal, it is difficult. Yet we need industry, but less land-intensive industry.
See, why I say this is because there are 27 lakh small scale units functioning and there’s been no land problem. If you drive down the Kalyani Expressway, you would see some 400 units have cropped up in the past four years, all medium scale, and there’s been no land issue. And of the 5,000 large scale projects, in the case of 500, industrialists resolved the problem themselves.
My first request (to the industry) is narrow down the problem. Very often industrialists can handle it (land acquisition) better. In the limited number of cases, where you need land in a big chunk, try the market forces first of all. Otherwise let us sit down together. Let us think of the arid regions in the western part (of the state), pay adequate compensation and build a consensus—we will overcome the land issue.
Entrepreneurs are facing real problems with procedural delays. I am talking of the government. These are the cases: environment clearance, land conversion clearance, tax matters and related clearances. I agree with the point that if we have a one-window system, it must be a powerful one-window. If you put a middle-level official who cannot take any decision to man that window it does not help at all.
Infrastructure—I think it is the responsibility of the government, both the Centre and the state. We are a national highway deficient state though the state works as a transit corridor for the entire northeast. We need the Central government and the state government to work together to build infrastructure, which includes railways, roads, ports, airports, so on and so forth.
On banking, there is credit demand—let us not avoid the issue. One very important iron and steel company which is setting up a factory in the state has everything tied up, even land, but financial closure is not happening. When you say that you would not allow any genuine credit demand to be waiting for too long, yes we can together build.
Moderator: This is not the end. This is the beginning of a new chapter where the state, the industry and the banking community have committed to work together to change. They are all saying “we can”. Thank you all.