GMSI574: BUSINESS ENVIRONMENT

RESEARCH REPORT

BUSINESS OPPORTUNITY SCENARIO IN WEST BENGAL:

AN ANALYTICAL FRAMEWORK

SUBMITTED BY:

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 RAJKUMAR ARYA

CONTENTS

1. Preface....................................................................................................................... 3

2. West Bengal: Commercial parameters synopsis.................................................... 3

3. WBIDC: Industrial cornerstone in WB.................................................................. 4

4. Business in West Bengal: PESTLE Analysis.......................................................... 4

i. Political environment.................................................................................... 4

ii. Economic environment................................................................................. 5

iii. Socio-cultural environment.......................................................................... 5

iv. Technological environment.......................................................................... 6

v. Legal Environment....................................................................................... 6

vi. Environmental factor................................................................................... 8

1. Current scenario & business prospects.................................................................. 8

2. Denouement.............................................................................................................. 9

3. Bibliography............................................................................................................. 10

4. Appendix................................................................................................................... 11

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 Preface

West Bengal is one of the fastest growing states of India & third largest economy of India. A
proactive investor friendly government with emerging top class facilities, a population of
around 80 million & a cosmopolitan demography has triggered an economic & industrial
resurgence. The report would be focussing on the business scenario in West Bengal, starting
with the business parameter appraisal, followed by a glimpse on WBIDC, its functioning.
Aligned ahead would be the analysis of PESTLE aspects as to start a business. This would be
followed by the current business scenario & last to conclude with the final outcome of the
analysis.

West Bengal: Commercial parameters synopsis

Given below is the summarised list of business factors & their worth in West Bengal.

Commercial Statistics
parameters/indicators
Petrochemicals, Iron & Steel, Food processing, Tea,
Engineering, Metals, Ceramics, Textiles, Paper, Glass, Leather,
Potential business zone IT & ITES

1. Land: US $40-US $133(per square feet)

2. Office space: US $ 16 (per square feet per annum )
Costs 3. Power: 7 cents/kWh(Commercial/industrial)

Large & MSME units 1391 ($718 million)

(worth)

Outstanding investments $50 billion

(total)

New industrial units 122 (Jan ‘07)

1. Organised industries: 180,000
2. SME: 210,000
Labour force (2006 3. Sericulture: 300,000
estimates)

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 Labour force growth rate
(CAGR) 1. Rural: 2.28
2. Urban: 1.78
(1999-2003)

Kolkata, Haldia
Ports

7,616 MW/29,255 MU
Installed power
capacity/generation
(http://www.ibef.org)

WBIDC: Industrial cornerstone in WB

WBIDC, formed in 1967, is the premier agency of the State's Commerce and Industries
Department to support economic development across the state. The agency is responsible for
the development, growth, facilitation and trouble shooting of industry, investment and
infrastructure in West Bengal, apart from its role as a financial institution for large and
medium scale sectors.

The core competencies of the WBIDC are: Financing medium & large scale industries
through various loan schemes;
• Providing escort services and facilitation of investment proposals through single-
window agency 'Shilpa Bandhu' or State Investment Facilitation Centre (SIFC);

• Developments of business, trade and industrial links with domestic as well as

foreign institutions and companies;
• Conceptualization of new projects as well as assistance to entrepreneurs towards
implementation and follow-up;
• Management and operation of the State Incentive Schemes as a nodal agency of the
State Government;
• Promoting/Facilitating the Development and Management of Industrial
Infrastructure such as industry specific parks.

(http://www.wbidc.com )

Business in West Bengal: PESTLE Analysis

Political environment

West Bengal has been one of the most politically stable states in India, characterized by
higher political activity and stronger bureaucratic accountability to the political leadership
than in most other states characterized by communism. The state is beginning to move
towards devolution of financial resources to local bodies on a substantial scale, which is a

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major challenge in terms of capacity building in areas such as participatory planning, service
delivery, accountability, convergence and monitoring and valuation. Urban municipalities
remain financially stretched, with limited capacity.

The Left Front Government in West Bengal is a role model for others and its success in land
reforms, transparency in administration and diversion-free public distribution system has
been replicated in other parts of the country.

Since it assumed power in 1977, the CPM, more than its coalition partners, has skilfully built
a ground-up network, a broader bond of cadre and leaders that thrives on a mix of
intimidation, corruption and administration. They gradually came to control the politics,
political economy and business, and dealt harshly with the opposition.
(http://www.livemint.com ) This has lead to kind of competitive militancy and now trade
unions affiliated to all political parties make in demands by intimidating. This has made all
trade unions more comfortable with state ownership with the obvious attendant benefits of
assured salaries and pay increases without any relation to productivity and corporate health.
(http://www.thehindubusinessline.com )

Economic Environment

Cost of starting a business in West Bengal is 48.5% of GNI (Gross National Income), a
relatively moderate value (average: 49.65%) in comparison to major states in India. This
indicates the amount of capital needed initially which has risen due to introduction of VAT
taxes in the recent years. Tax rates (% of total profit) in West Bengal are 80.8% which is
comparatively lower than other states (average 81.94%). The lower value is attributed to
difference in comparison with other states in VAT & other implemented taxes regime &
methods involved in calculations. Charges for obtaining licenses for a new warehouse are the
highest (1999% of income per capita) in West Bengal amongst major states.
(http://sitesources.worldbank.org )

With the assistance of WBIDC, financial disbursements are provided for new business
venture in the state. The schemes & incentives floated are summarised as follows:

Terms Normal loan Special short Bridge loan EFS(Equipment

term loan Finance Scheme)
Extent of No limit, subject No upper limit, Up to 60% of No limit, subject to
loan to prudential based on the admitted prudential norms
norms valuation claim
Type of rate Floating rate Fixed rate Fixed rate Floating rate
BPLR 11.75% 11.75% 11.75% 11.75%
Applicable BPLR+ up to 1% BPLR + 1.75% BPLR + 1.75% BPLR+ up to 1% per
rate per annum per annum per annum annum
Moratorium Up to 18 months - - Up to 9 months

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Repayment Up to 7 years 12 months 15 months Up to 5 years
period
Interest Payable quarterly - Payable Payable quarterly
period quarterly

Apart from these, short loans are categorised & disbursed on condition that their assets are
mortgaged to the corporation. (http://www.wbidc.com)

Socio-cultural environment

Competition for scarce land is a major source of conflict, as well as rivalry between
landowners for power and influence in local, regional, and even state and national affairs.
Wealthy landowning families will often exercise control over their tenants and the landless
people who work on their land, relying on the support of the latter in conflict situations. The
outcomes of elections for both local and upper-level councils are influenced by factional
conflict, as are the polls in each constituency for state and national legislative bodies.
(http://www.everyculture.com)

Naxalism: If recent patterns of Naxal violence and activism in West Bengal are any
indication, the Maoists' new strategy seems to be moving into new territories and taking up
emotive issues like forcible displacement due to industrial and infrastructure development
projects. Reports of alleged involvement of the Naxals in the Nandigram disturbances and the
recent ‘ration riots' across West Bengal indicates their changing tactic. This could be a
deterrent to the upcoming of new industrial development.

Naxalites have successfully strengthened the People's Liberation Army (PLA), the military
wing of the CPI-Maoists, and recruited more cadres through militant, mass movements
against the neo-liberal policies of globalization, liberalization, and privatization. Their
strategies are designed to expand the armed struggle from 'guerrilla war' to 'urban and mobile
warfare', focusing on industrial areas.
(http://www.ipcs.org)

Technological environment: On the technology front, robust steps have been taken to
promote IT related infrastructure development of IT hub & parks. The IT sector in West
Bengal is growing at a rate of almost 70% annually with 180 firms owing software export of
over $370 million. The government lays emphasis on certain factors to promote investment in
the technology sector.

A. Supportive regulatory framework set up for investors

• Procedures under existing labor laws are simplified to ensure smooth operations.
• Self-certification allowed for IT companies on various acts.

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 • IT companies are awarded special status under various acts to improve infrastructure
availability.
• Structural policy changes to boost the growth of IT.

B. Fiscal Incentive for IT investors

1. One time fiscal incentives
• Exemption from consumption tax
• Quality linked incentives

2. Recurring incentives
• Converting interest subsidy into training subsidy.
• Preference to West Bengal units in award of e-governance projects.
• Special incentives for mega projects.(www.wbidc.com)

Legal Environment

Legal factors to open up a business reveal factors like delay in a court judgement is 942 days
which is higher than the average(891.75 days).This high value manifests the impartial
decisions given, the cumbersome process to get it solved during which things are solved
informally. Registration time of a new property is the highest (155 days) as compared to the
other counterparts. This high value is due to the time taken to mutate a property title and to
register the transfer at the sub-registrar. (http://siteresources.worldbank.org)

Industrial policies

The Industrial Policy Resolution of 1956 and the Statement on Industrial Policy of 1991
provide the basic framework for the overall industrial policy of the Government of India.

• Industrial licensing policy: Industries reserved for the public sector (at present these
are Atomic Energy; certain other substance specified by the Department of Atomic
Energy and Railway Transport)
• Manufacture of items reserved for the small-scale sector by non small-scale industrial
units or units in which foreign equity is more than 24%.
• Units located within 25 kms. of standard urban area limits of cities having a
population of 1 million unless it relates to electronics, printing, computer software or
any other notified non-polluting industry.

Industrial license is however compulsory for investing in the following five industries of
strategic, social or environmental importance:
• Distillation and brewing of alcoholic drinks.
• Cigars and cigarettes of tobacco and manufactured tobacco substitutes.
• Electronic Aerospace and defense equipment: all types.
• Industrial explosives including detonating fuses, safety fuses, gunpowder,
nitrocellulose and matches.

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 • Hazardous chemicals.

1. Foreign Direct Investment (FDI) policy: There are two distinct routes for making
FDI in the State:
Automatic: Not requiring any prior clearance from the Foreign Investment
Promotion Board (FIPB) or the Reserve Bank of India.
FIPB: Investments not on automatic route require prior permission Foreign
Investment Promotion Board.

2. Forex Institutional Investment policy: Foreign investors are allowed to invest both
in primary and secondary markets subject to defined limits and are also required to be
registered with the Securities and Exchange Board of India (SEBI) and comply with
the exchange control regulations of the Reserve Bank of India.

3. Small & Medium Scale enterprises policy: West Bengal has framed marketing
policies for SMEs which include price preference in purchases;
• Exemption from payments of Earnest money
• Distribution of products through the public distribution system
• Construction and development of industrial estates, plots, commercial and trade
offices
• Extension of credit support through the West Bengal Financial Corporation, State
Cooperative Banks and Commercial Banks
• Eligibility to incentives as provided under the West Bengal Incentive Scheme.

Environmental factors

West Bengal, being an agrarian State, offers tremendous potential for agri-business, with
fertile soil, excellent agro-climatic zones and aggressive land reform programs. Also the rich
mineral resources offer tremendous opportunity in the field of steel & iron ore related
projects. Kolkata, the second largest city is the capital & the commercial hub of West Bengal.
It is positioned with three international frontiers, i.e. Bangladesh, Nepal, and Bhutan making
it a favourable destination in terms of trade prospects. (http://business.gov.in).

Current scenario & business prospects

With the onset of the global economic meltdown, business scenario is yet to resuscitate all
over India including West Bengal. It was high time as industries had started coming in the
state but with the Nano being pulled out created a miserable scene. Events like tussle between
the government & Tata motors, shutting down of Dunlop India tire production unit at

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Sahaganj augment to the dent created by the former. Green shoots of the economy are far
from real.

But some analysts are optimistic that the current market scenario in West Bengal is just due
to the meltdown & would revive within a given period of time.

Haldia is set to be the next petrochemical hub. The steel city of Durgapur and the belts of
Asansol are gaining popularity as a ferro alloy hub. Asansol Nandigram region is rich in
mineral resources like coal, iron ore, copper & bauxite & has industrial units producing iron
& steel, engineering goods, electrical equipments, etc. The State Government has been
undertaking several policy measures and incentives for the overall socio-economic
development of the economy by appending the natural resources available.
(http://www.wbidc.com)

West Bengal's government is following the SEZ and industrial parks strategy to
industrialization, which means that units in these regions can avail themselves of some key
tax benefits and labor-friendly policies.

West Bengal is likely to see a 1,30,000 shortfall in skilled resources by 2015, claims a CII -
PWC Skill Gap Study released in Kolkata on Wednesday. The study takes into account
sectors like iron and steel, petroleum and petrochemicals, leather, gems and jewellery, IT &
ITeS, tourism, real estate and construction, healthcare (http://m.economictimes.com)

Denouement

On analyzing the six different factors, I have deduced the following on the current business
scenario in West Bengal. Ease of doing business in West Bengal is relatively low as
compared to other developed states. Overall it ranks 11 (amongst 12) on starting a business
which is a lag in terms of industrial development. It takes 51 days to start a business here
(lowest 35 days) which is a decent time in comparison to other states.

Calcutta has the lowest export costs (505$) amongst the developed states making it a
favorable destination for exports of goods. Registration of a property is highest here which is
a deterrent factor in terms of business startup attributed to the high mutation time. With the
communism government, Naxals being intruding into the commercial regime pose a threat to
a new venture started. Thus to invest in a new venture depends on the nature of the project &
the factors which effect it to a major extent which should be scrutinized prior to the start of
the project.

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 Bibliography

http://www.everyculture.com/South-Asia/Bengali-Sociopolitical-Organization.html

http://www.ibef.org

http://www.ipcs.org/article_details.php?articleNo=2413

http://www.livemint.com/2009/09/09223905/It-is-time-lessons-were-learnt.html

http://www.pppinindia.com/states_wb_bo.asp

http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/Publications/448813-
1171300070514/india.pdf

http://www.thaibicindia.org.in/study/west_bengal/Political_scenario.pdf

http://www.thehindubusinessline.com/bline/2005/04/01/stories/2005040100090900.htm

http://www.wbidc.com/about_wb/policies_approvals/htm

http://www.wbidc/sify/finance.htm

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 APPENDIX

Ease of Time to Time to Tax Time Time to Length Cost

States doing start a register a rates (% to import delays (% of
business business property of total export (days) in GNI)
rankings (days) (days) profit) (days) courts
(days)
Maharashtra 11 35 62 81.1 27 41 1420 73
Tamil Nadu 4 41 63 81.1 17 22 683 44
Bihar 9 41 119 83.3 21 25 792 44.2
Rajasthan 3 42 56 83.4 21 28 754 50.1
Uttar Pradesh 6 42 43 81.7 27 29 950 43.5
Andhra 1 43 35 82 20 24 770 44
Pradesh
Karnataka 2 45 35 81 22 23 800 55.6
Punjab 7 45 132 79.6 27 27 915 48.8
Jharkhand 10 46 86 87.7 26 28 1165 59.3
West Bengal 12 51 155 80.8 18 22 942 48.5
Orissa 5 52 123 79.6 20 28 610 41.3
Delhi 8 52 138 82 22 24 900 43.6

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 MEAN 44.583 87.25 81.94 22.34 26.75 891.75 49.65

Chart showing business ease parameters in different states

( http://sitesources.worldbank.org )