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Kolkata Esplanade, the city’s now booming business district
Aug. 19 – Following the recent agreements made by both India and China with ASEAN, strategists are paying close attention to how this will potentially affect regional trade. While we have already touched on the impact of trade between Kunming, Nanning and Hanoi, the other regional trade corridor that is likely to develop rapidly are the links between West Bengal and Guangdong Province.
Specifically, the cities of Kolkata, Guangzhou and Shenzhen. Kolkata’s historic position over the last 150 years has not been kind to the city, and has held the state of West Bengal back considerably. Previously the capital of India under the British, it lost this position in 1911 when the capital was was moved to New Delhi.
The city had developed as a major regional port, exporting products from Tibet and China, and being the center of the jute processing industry on supplies of the plant from the eastern part of Bengal (now Bangladesh). Consequently, before the 1947 partition of India, Bengal state enjoyed close economic and trade ties with China, with just the Himalayas to the north and Burma to the east separating the two.
Kolkata, then known as Calcutta, was home to the largest Chinatown in India, a position the city still holds today. However, the Chinese position on Tibet, the 1962 Sino-India border war, and the collapse of the jute industry following the partition spelled the end for the city as a major international trading port.
The city’s nadir came just recently when Tata pulled their planned Nano factory away from the state and moved it to Pune. The state had become so politically unfriendly towards investment that the government were ultimately driving business away.
Nonetheless, the city’s intellect and sheer exurberence has remained intact despite the many problems it has had to face. As trade ties between India and China developed, Kolkata is beginning to resume its importance in Sino-Indian trade. The Chinese government established a consulate in Kolkata in 2008 and the India government set up a consulate in Guangzhou at the same time. Direct flights now link Kolkata with Guangzhou, China and Dhaka, Bangladesh as the previously destroyed trade routes start to reenergize.
Indeed, the Chinese Consul-General to Kolkata, Mao Siwei, has recognized this. In a speech made to the Bengal National Chamber of Commerce & Industry in April, Mao stated: “This is really a new phenomenon in the history of China-India economic relations and is a win-win situation. For China, after 20 years’ hard efforts, its capacity of producing power equipment and building power plants is now much larger than the domestic demand.”
He also said: “So to maintain and develop the capabilities of power equipment manufacturing and power plants construction, Chinese power industry has to go abroad. They have found many large markets in the world, but the Indian market is one of the largest.”
While Mao concentrated on a national industry for China, the impact of his words will not have been lost on New Delhi. The government desperately needs to make a success of West Bengal, not just for political votes but also precisely because the state borders China and Bangladesh.
Both are potentially awkward from a security perspective, yet both could just as easily become potentially vibrant trade partners and even political allies. Kolkata’s population currently stands at about 15 million, making it the worlds eighth largest city, and rather like the Shenzhen bourse, boasts of the nation’s second largest trading house, the Calcutta Stock Exchange.
In fact the two exchanges are similarly sized in terms of numbers of companies quoted – about 3,500 for each. The trade links between West Bengal and Guangdong are likely to initially increase in terms of electrical goods from China, and textiles from India. Although have similar industrial hubs, and do compete with each other in many products, it makes sense for a realignment to take place.
Guangdong has already stated its intention to develop more as a high-tech hub, and move its manufacturing up stream. Much of the cheap manufacturing, electrical products and textiles business is to be expected to move to West Bengal. Wages and rents are far lower. Guangdong remains China’s wealthiest province. With both Shenzhen and Guangzhou ahead of Shanghai in average salaries and GDP income, Guangdong simply cannot afford to hold onto its low end industrial manufacturing base any more.
West Bengal will pick up the lion’s share of this movement of industry and labor-intensive work. Meanwhile, as Mao Shiwei pointed out, India has a gigantic need for power, and much of that needs to be generated in West Bengal.
While India looks to solve security concerns over power plant operations, when it does, it is China’s massive energy industry that is set to have a bonanza in the region. Component manufacturers involved in energy and power plant development would do well to examine the Sino-India bilateral trade issues, the impact of the ASEAN agreements and establish what is needed in West Bengal.
Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates and lived in China for 21 years. He is now based in Mumbai.
Dezan Shira & Associates maintains offices in Kolkata, Guangzhou and Shenzhen. For more information about investing in these cities, email info@dezshira.com.
Further Reading
India – ASEAN Trade Pact Benefits Bengal
August 20th, 2009 at 12:30 am
This is a positive development for the East and North-East India. In the last 2 decades South and West India have made good progress. North India is lagging (because of Illiteracy, over-population, politics). East and North-East have a great potential in manufacturing (east) and service (north-east) industries. Increase in trade with its eastern neighbors will allow India to diversify its industrial base and also reduce poverty in a geographically different region.
Security concerns…although very important…should not hold the country from opening up trade. Innovation is the key. Innovate the policies so that the trade can be increased without compromising the security. Saying No to trade (becuase of security) does not make any sense. I am happy that the govt is moving forward (albeit slowly).
Chris: I discovered your blog yesterday..and I am loving it. Keep up the good work.
August 20th, 2009 at 10:14 am
Thanks Sandeep! Please feel free to suggest issues you feel we should cover, not just India (we have http://www.india-briefing.com for that) but especially the impact emerging Asia is having on regional and global trade policies. Best wishes – Chris
August 21st, 2009 at 1:21 pm
nice to hear that india and china is doing so well … it’s high time for West Bengal to pick up and be the leader in the global market !
August 21st, 2009 at 3:33 pm
I found this from comments by Dr. Manmohan Singh (India’s Prime Minister) about the “North-Eastern Region Vision 2020″ plan the government is putting in place. His comments are pertinent to the region’s development and quite correct, while advising caution in hype and making sure the plans really do get implemented. We’ll research more into the actual plan and provide updates on the region in future articles on this site. Dr. Singh’s comments are below.- Chris
“An important point to note is that although trade performance has improved with India’s eastern neighbours, many of these exchanges had been done through seaports, leaving the northeast states in the lurch. If the northeast is to benefit from any improved trade relations or any present or future FTAs, the numerous plans and proposals that has been put forth and are in paper only must be implemented and brought to fruition first. The very few roles that the northeast states are playing right now should also be promoted to a more central role so that the north east states could reap the fruits of its own fields.
In a nutshell, Northeast India, a storehouse of great natural resources but very backward economically, needs to be built up and readied if it is really going to be the ‘gateway’ or ‘centre’ of trade between India and East Asia. Unless the region is developed to catch up with the rest of the country in its growth rate and development, it will be hard to achieve what the people aspired for – peace, security, prosperity and all round development. To make this possible, substantial investment in infrastructure, construction of roads, bridges, communication networks, harnessing of the region’s vast natural resources and other physical infrastructures that will facilitate trade and economic progress needs to be developed.
With the impending AIFTA, India’s Northeast region has suddenly become the centre of focus once again. But this region has been lacking behind other Indian states in most respects in spite of its vast natural resources and strategic position as a link between India and Southeast and East Asian countries. The main reasons why this region remains backward are the lack of any infrastructure that could facilitate any development in the region, poor market access and, to some degree, security issues.
The Indian government also concedes that the Northeast has a long way to go to achieve the national growth rate of nearly 9 per cent. The growth rate of Northeast is only 4 per cent. To increase the growth rate and economy of this region will be an important step because herein lies many solutions to some pressing political and security problems.
Therefore, in the context of the present FTA, the author is of the opinion that unless the Northeast region is developed wholeheartedly, neither India nor ASEAN will really benefit from it.”