THE ECONOMIC CHALLENGE FACING BANGLA DESH

BY JOY SAVARKAR Far Eastern Economic Review Reference: Vol. 74, No. 51, 18 Dec 1971, 12 Calcutta: Few countries have faced such gigantic economic problems as Bangla Desh does today. Ravaged by one of history's worst cyclones then savaged by a mindless army, the nation lies in ruin at birth. A World Bank-IMF mission estimated in June that the cost of restoring transport and communication links alone would be US$70 million. The bill is much higher today, and will climb even higher before the shooting stops. Bangla Desh leaders, do not expect assistance through the usual international channels since there is little possibility of their country gaining immediate admission to the UN. But they expect the Soviet Bloc to come to their aid. The main source of hope, of course, is India. Arrangements already are being made for massive Indian aid running into several thousand million rupees. In the past, Japan showed special interest in East Pakistan, stipulating that part of its aid to Pakistan should be committed to specific projects in the eastern wing. It is possible that Japan will continue this interest and get into the new country as early as possible. About 90% of the population of Bangla Desh is rural; more than 80% is engaged in agriculture. Over 90% of its exports and 60% of its GNP are generated by agriculture. The riverine country is subject to periodic floods. The high and rapidly increasing population density makes for high man-land ratios. Little scope exists for expanding the area under cultivation significantly beyond the 22.4 million acres currently exploited. According to projections last year, the density of population was expected to increase to 2,300 per square mile of cultivated area and cultivable land per capita to decrease to 0.2 acres by 1985. One of the problems that will have to be tackled is that of jute production and export. This year's crop has been badly affected by the war. Traditional markets which have been denied their usual supplies may have found other sources to which they may adhere in the future. Besides, the threat from synthetics and organic substitutes such as kenaf from Thailand has been increasing steadily. Above all, Bangla Desh may find it necessary to resort to large-scale switching from jute acreage to rice and other food crops. One relieving feature is that it is now possible to expect coordination of efforts by the two major producer-exporters of jute and jute goods -- Bangla Desh and India. For one thing, the two countries can now avoid the suicidal price-cutting which in the past had seriously undermined the industry. For another, they can now adopt a more purposeful approach toward resisting the threat from substitutes.

With minimum allocations necessary for defence in the initial phase -- and jute assuring foreign exchange -- the new country can look forward to a fairly easy external payments situation. With more resource mobilisation, it can also expect a viable budgetary position. Keeping its tax revenues to itself will mean a significant increase in the country's revenue from the present level of about Rs 1,700 million. But for a few years the overriding need to find resources for rehabilitation will leave Bangla Desh in a deficit situation. Food is another problem the country will have to come to grips with immediately. Foodgrain imports have averaged 1 million tons a year for the last five years. This represents a deterioration in the situation: imports were less than half a million tons in the early 1960s. Although the land is fairly fertile, food production has not improved. One reason is that modern farm technology was confined mainly to West Pakistan; the Islamabad government argued that the usual hybrid seeds had not proved suitable for the rain-fed lands of the eastern wing. The validity of this argument will have to be tested anew by the new government in Dacca. It will also have to make up for the lack of price incentives and good management. Agricultural recovery will be only one of the problems facing the new government. Equally pressing will be the need to find capital. East Pakistan never boasted much of a capital base or a developed infrastructure. The lengendary 22 families controlling Pakistan were all from the east. If anything, the situation worsened immediately before this year's crisis when a large-scale flight of capital was reported. Dacca's "Pakistan Observer" estimated that as much as Rs 1,000 million was transferred to West Pakistan. Whatever modest infrastructure remained has been destroyed during the war. Prospects for industrialisation will have to be studied seriously by the new Bangla Desh government. There are possibilities for jute mills and sugar plants. The forest resources in Chittagong and the Sundarbans can support a good paper industry as well as lumber. A flourishing fishing industry could also be built up with considerable export potential; India's West Bengal has always been starved for the freshwater fish which abound in Bangla Desh. Other possibilities are fertiliser, refinery products and steel. Industrialisation is one obvious way in which Bangla Desh can cope with its serious unemployment problem. After two decades of planning by Pakistan, almost one-third of the Bengali population remained unemployed with under-employment affecting even more. Until the Third Plan ended in 1969-70, West Pakistan had received the bulk of the allocations. Only the Fourth Plan (1970-75) sought to correct the imbalance to some extent; it allocated Rs 39,400 million to the eastern wing out of a total development budget of Rs 75,000 million. But the Bengalis complained that, as in the past, the allocations would not materialise in project form because of the traditional interference by West Pakistani civil servants. Conditions such as these spurred Sheikh Mujibur Rahman and his Awami League to demand autonomy with complete control over taxation and foreign trade. In the wake of

Indian recognition and the certainty of its establishment in Dacca, the Bangla Desh government has expanded on the theme and said that it will nationalise all means of production in due course. This declaration of principle may be just that; perhaps the new government will not rash into nationalisation in a hurry. Sheikh Mujib earlier had realised the need to go in for freer trade and industrial contacts with neighbouring countries. Other leaders have echoed, the sentiment since. But full free trade may not be possible. For example, Indian interests will be hampered if free trade renders the India-Bangla Desh border a smugglers' bridge. Similarly, India will have to keep a watch on private traders trying to exploit a situation of near-monopoly purchase of Bangla Desh products. Already a section of the Bangla Desh leadership is said to be unhappy because efforts to ship some of their products through Calcutta port were quashed by powerful Indian business lobbies. In the immediate future the most important task will be to keep up a flow of essential items such as food and clothing, salt, matches, coal and kerosene. Eventually, wide vistas of trade will open up for the two countries. East Bengal has been exporting to West Pakistan goods worth Rs 900 million annually, including tea (Rs 220 million), jute (Rs 150 million), paper and paper board (Rs 92 million) and sundry items including fish, spices, wood and timber. On the other hand, it has importing goods worth Rs 1,400 million -- mainly cotton fabrics (Rs 217 million), raw cotton (Rs 160 million), foodgrains (Rs 150 million), oilseeds (Rs 120 million), tobacco (Rs 105 million), cement (Rs 70 million) and drugs, medicines, metal manufactures and cotton yarn. The economies of Bangla Desh and its neighbouring Indian states of West Bengal and Assam are, in fact, complementary. For example, Pakistan stipulated that the eastern wing import its coal from China. This meant Bengal got inferior coal at high prices when cheaper and better supplies could be obtained from West Bengal. The recent discovery of coal reserves and a large volume of natural gas in Bangla Desh itself has brightened the prospects of the new country achieving self-sufficiency in mineral fuels. Clearly, economic ties between the new country and India will have to be quite close. But progress in Bangla Desh will depend on the determination and imagination shown by the nation's own leadership. The policy priorities are clear enough -- population control, agricultural improvement, jute exports, industrialisation and transport. Given the right leadership and a moratorium on divisive internal politics, sound foundations can be laid in a few years.