Declining The Share Of West Bengal’s Contribution To National GDP

What says the report

In 2024, the economic performance of all the Indian states was released by the Economic Advisory Council to the Prime Minister (EAC-PM), titled “Relative Economic Performance of Indian States: 1960-62 to 2023-24’. This report is written by Sanjeev Sanyal and Aakansha Arora. It has shown that while some states have emerged as massive contributors to India’s Gross Domestic Products (GDP), states like Karnataka, Telangana, Tamil Nadu and Andhra Pradesh (Southern Sates). The tension occurs in states like West Bengal and Punjab. West Bengal, as a state in India, has been a major contributor to the national GDP, but a significant decline has also been identified over decades.

The long trajectory covered in the report has stated that, at the time of independence, the three precedency towns, including Bombay, Calcutta, and Madras, had been the home to the biggest industrial clusters in India. Between 1960 and 1961, Uttar Pradesh was at the top of the list, holding a GDP share of 14.4 per cent. This followed states like Maharashtra (12.5 per cent), West Bengal (10.5 per cent), Tamil Nadu (8.7 per cent) and Bihar (7.8 per cent).

West Bengal’s gradual decline in economic performance

With time, these shares have also seen ongoing shifts. Although Maharashtra’s shares, as per the report, have declined from 15 per cent to 13.3, the state remains the largest GDP contributions in India. Unlike Maharashtra and Tamil Nadu, West Bengal’s growth over the years has been perceived to be swaying, as it directly declined from 10.5 per cent in 1960 to 5.6 per cent in 2024. There are underlying tensions for this drastic downfall in West Bengal’s decreased contributions to the national GDP.

West Bengal has been known for its historical prominence in the Indian economy during the colonial period, where it has long been a significant contractor to the national economy. But, the recent data and facts suggest that the contribution of the state to the national GDP is shrinking, and this indicates a deeper systemic issue that needs to be addressed.

Here is the table on the shares of states in national economy 2/3 pic.twitter.com/sYM7wULQfo

— Sanjeev Sanyal (@sanjeevsanyal) September 17, 2024

Per capita of West Bengal, which is lower than Odisha

Sanjeev Sanyal and Aakansha Arora’s report also tells a different story about the relative per capita income of the different states. While putting the specific focus on West Bengal, the state’s per capita income has declined over time. From 1960 to 61, the overall per capita income was 127. 5, which was higher than states like Gujarat, Tamil Nadu, Karnataka and Kerala. The per capita income had dropped below the national average and came down to 83.7 by 2023. The decline is pressurising when compared to other states like Odisha, standing at 88.5 in 2023.

All coastal states are doing very well in terms of GDP contribution except West Bengal

The coastal states like Gujarat, Maharashtra, Goa, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, and Odisha are doing great to add value to the country’s economic growth except West Bengal. According to the paper, Gujarat’s share of the national GDP has increased from 5.8 per cent to 8.1 per cent and Maharashtra’s from 12.5 per cent to 13.3 per cent. On the other hand, shares by Goa have boosted from 0 per cent to 0.3 per cent and Karnataka from 5.4 per cent to 8.2 per cent.

Similarly, Kerala’s trajectory in GDP share also highlights continuous growth, boosting from 3.4 per cent to 3.8 per cent and Tamil Nadu from 8.7 to 9.5 per cent. Additionally, to look at Andhra Pradesh’s GDP shares, the state gradually increased its shares over time from 7.7 per cent to 9.7 per cent.

The comparison between West Bengal and Odisha tightens the situation, as West Bengal, being the major exporters meeting this fate, is not digestible. In the present scenario, Odisha is more prosperous than West Bengal with respect to per capita income and GST collection. Historically, West Bengal had the third highest per capita income, which stood at 127.3, but it has been declining relative to the national average with Odisha overtaking it with 88.5 (West Bengal at 83.7).

Historical context: West Bengal’s economic influence

Historically, West Bengal was one of the economic powerhouses of India. The report indicated that during the British colonial era, it was the most industrially developed region, with thriving industries in textiles, tea, coal mining and jute. The city of Kolkata, as the capital of British India until 1911, was the centre of trade, commerce and intellectual discourse. The economic dominance of the state extended well into the early years of post-independence India. The credit goes to the state’s location, natural resources and skilled workforce.

As per the report, the economic scenario of West Bengal began to shift in the latter half of the 20^th century. This is specifically underpinned during the 1970s and 80s. Massive political interventions, labour unrest, along with the introduction of land reforms, in a sense, created an environment that was perceived as hostile to industrial growth. Britannia Industries, Tata Motors, and manufacturing industries are either shut down or relocated to other states from West Bengal. This, as a result, caused a gradual erosion of the state’s industrial base, marking a steady decline in its contribution to the national GDP.

Current economic contribution

It is from the latest estimates that West Bengal’s contribution to India’s GDP has dropped to approximately 5.8 per cent from nearly 8 per cent in the 2000s. This downfall is significant when it’s compared to other states – Maharashtra, Tamil Nadu and Gujarat. These states have maintained or even increased their share in the domestic growth of the country.

While West Bengal’s economy has grown in absolute terms, its growth rates have lagged behind the national average. This can particularly be seen when compared to the fast-growing states of Karnataka and Telangana. This relative slowdown has resulted in a shrinking share of the national economic pie for the state.

West Bengal’s economic power during the British Rule

Kolkata was the center of trade for East Asia when the British left.

Ahead of Singapore, Hong Kong. No South Korea. Barely any Shanghai then.

We lost it all due to Socialism which spawned its own hydra of corruption – in one generation

Indians don't know their history pic.twitter.com/JWn4bvRvdt

— sphinx (@protosphinx) February 26, 2023

The Formation of Financial Centers: A Study in Comparative Economic History, penned by Charles Kindleberger, stated that Calcutta, now Kolkata, West Bengal, was not just the political but also the commercial capital of the British. The volume of trade in Bengal was higher than in Bombay. When the East India Company established their joint stock banking in their Indian colony (in 1806), Kolkata was their first location for this decision. At this time, Bengal became the major exporter of cotton cloth to the Americas along with the Indian Ocean.

West Bengal became the major exporter because of its catering to a much larger population than the Bay of Bombay. The Bank of Bengal used to capture larger deposits, given the larger population, in terms of operating businesses. The state saw a larger number of companies compared to other states. It was more than 45 per cent to 50 per cent of Indian corporations were floated in the state, whereas in Bombay, the share was relatively lower, stating 13 to 15 per cent.

What went wrong for West Bengal that led to the decline of GDP contribution from 1960 to the present?

As discussed, West Bengal has once been a thriving hub of commerce and industry. But, the condition has changed now, and the state witnessed a significant decline in its contribution to India’s national GDP in the last six decades. The journey of the state from being one of the industrialised regions in the country in the 1960s to its current diminished role in the economy of India is marked by major factors, be it political, economic or social.

The golden era: pre-1960

West Bengal was one of the leading states in India in terms of Industrial output and also economic growth during the pre-1960 period. Kolkata was decided to be the capital of British India until 1911. The state became the centre for trade, commerce and industry. It is a core hub for major agricultural aspects, including jute production, mining, and tea plantations. There were other heavy industries, including iron and steel, that existed. The proximity of the state to the port of Kolkata was the third largest city in India, and it was considered an important node in the industrial network of India.

In the early years, West Bengal, as a node of trade exportation, contributed to India’s GDP. The contribution to the national GDP was nearly 10.5 per cent in 1960, which was a figure that showed its dominant position in industries and businesses.

1960s to 1970s: the beginning of decline

In West Bengal, the prominent signs of decline were perceived in the mid-1960s, with a series of political events and economic mismanagement.

Political instability: the 1960s were marked by political turmoil in West Bengal as the state saw a rise in left-wing politics. This is particularly notable in the Naxalite movement, beginning in the late 1960s. Because of frequent strikes, agitations as well as law-and-order issues, these were potentially disrupting industrial activities. The industries having their dominant specific to the state witnessed the pressure of operating in such an environment and discouraged new investments.

Communal rule: The turning point came in 1977 when the Communist Party of India (Marxist) came to power. The party significantly began a 34-year-long rule under the leadership of Jyoti Basu. While the Left Front government was attentive to land reforms and, at the same time, the welfare of the working class, the industrial growth saw negligence by this party. The pro-labour policies by the government, including trade unionism, contributed to labours for occasional strikes and shutdowns. This negatively created tensions between other industries to invest in the state.

Industrial exodus: 1980s to 1990s

Flight of industries: there were major industries specific from the jute and manufacturing sectors that began relocating from West Bengal to more industrial friendly states. The jute and manufacturing sectors started spreading their business in states including Maharashtra, Gujarat and Tamil Nadu. Hence, this exodus was driven by labour unrest, high taxation, along improper infrastructure development within the state.

Economic stagnation: At this time, the other Indian states were observed to embrace economic liberalisation and also attract foreign direct investment, but it is saddening that West Bengal remained stagnant from the economic perspective. The state’s anti-capitalist stance during the 1980s and 90s, along with bureaucratic red tape, discouraged investors from domestic and foreign investing.

Decline of agricultural productivity: The Left Front’s land reforms in the late 1970s were found to improve and boost agricultural productivity. However, by the 1990s, this sector, too, began to stagnate. The overreliance on agriculture without diversifying into modern industries in the state during this time led to a sharp decline in its GDP contribution. West Bengal’s GDP by 1995 had fallen to a straight 6 per cent from 10.5 per cent, which signifies a huge difference.

Economic reforms and missed opportunities in the 2000s

The entire nation’s transition to a more liberalised economy in the 2000s thrived, and West Bengal remained in a struggling position on this growth. The other states, including Gujarat and Karnataka, became major hubs for Information Technology and industrial development. This state lagged behind in attracting investments despite efforts by the Left Front government to woo industrialists. Its reputation for labour strikes and lack of infrastructural abilities hamper this effort.

The events in the late 2000s that took place in the form of protests at Singur and Nandigram also hurt the industrial respects of West Bengal. As per insights, the state government had tried to acquire land in Singur for a Tata Motors plant, which would have offered a major boost to the state’s economy. But this had met with negative fate with protests over land acquisition. Due to this, it led to the withdrawal of Tata Motors from this landmark.

Even today, this has been considered a blow to West Bengal’s industrial hopes. Furthermore, the protests in Nandigram over the setting up of a Special Economic Zone (SEZ) resulted in violence and political unrest. This began when the state government decided that a chemical hub would be established in a Nandigram SEZ by the Salim Group of Indonesia.

By the year 2010, West Bengal’s contribution to national DGP had slipped to around nearly 3 per cent. It was found that the state had failed to capitalize on the growth of the services sector as well as the IT industry.

Political change from 2011 to the present

The elections in 2011 marked a shift in the political environment in West Bengal under the leadership of Trinamool Congress led by Mamata Banerjee. Her crowning to the throne ended the Left Front’s reign. The amendments under her leadership improved the state’s infrastructure. The improvement projects include new highways, metro expansions and improvements in the power supply. These initiatives are considered potential to attract industries.

The state government also focuses on promoting Micro, Small and medium enterprises in a form to boost employment and growth in the state. But, the speculations remain persistent if the MSME sector would alone compensate for the lack of large-scale industrial development in West Bengal. Despite these commitments, the growth of the state remained slower compared to other Indian states.  

West Bengal’s economic performance in 2023 to 24 is very low. The state faces issues in terms of infrastructure, industrial investment as well as offering jobs. Education and healthcare sectors have seen progress to an extent, but the economic outlook of the state is still subdued.

What are the factors contributing to decreased GDP share within West Bengal?

Lack of FDI in West Bengal

Even though West Bengal once was the hub for major im/export, over the decades, the state has been facing issues to attract global investors. According to the reports, West Bengal attracted only 1 per cent of the total FDI equity inflows into India from October 2019 to June 2024. While looking back in history, the state experienced political turbulence and policy shifts that have discouraged long-term investors. The famous Singur case is the evidence to this matter. Tata Motors was forced to withdraw its project and it demonstrated how political opposition drove away investments, which could enable the state to offer substantial shares to the national GDP.

The infrastructure development in West Bengal, notably in industrial zones, is highlighted to lag behind other regions. This particular state has not built specialized industrial zones and investment-friendly infrastructure on the same scale as its competitive states do. Gujarat and Tamil Nadu are examples of developed adequate networks of roads, ports and logistics so that these states can support automobile manufacturing and electronics.

Large-scale manufacturing companies are not available in West Bengal

Once given the tag to be industrially prosperous, now the state was reduced to a BPL status by the left front politics during the overall tenure. Despite having large-scale manufacturing companies, West Bengal and its industrial economy has faced challenges. The Left Front government’s 1978 industrial policy made small and cottage industries a big priority over large-scale manufacturing, due to which it became a sense of barrier for manufacturers to penetrate services into the state.

No clear semiconductor policy in West Bengal

In the latest reports, the state of West Bengal is now working on a semiconductor policy so that the government can encourage semiconductor manufacturing. The essentiality was also reliable in product designing as well as talent development. The Ministry of Electronics and Information Technology (MeitY), S Krishna, said, “With the IT market growing in Bengal, it was time for entrepreneurs to consider investing in setting up electronic gadgets and semiconductor manufacturing units”.

According to the Minister-in-Charge of IT and Electronics, Government of West Bengal, Babul Supriyo, “Government of West Bengal is working aggressively towards having a semiconductor policy for the state, which will help the semiconductor industry to set its footprint here. The government is working towards creating a conducive environment for the semiconductor industry in the state.”

While the initiatives are going on to integrate semiconductor policies in West Bengal, the other states, including Gujarat, Uttar Pradesh and Odisha, already celebrate these measures. Gujarat was the first to launch a dedicated semiconductor policy, which is part of its efforts to promote electronics and hardware manufacturing industries. On the contrary, Uttar Pradesh offers double power grid networks for semiconductor fabrication units. The state also provides subsidies for establishing research and development centers along centers of excellence.

Further, Odisha’s semiconductor policy comprises approximately 20 per cent incentives for fabless product/IP companies. The state supports R&D as well as capacity building as a form of strong semiconductor polies. The emphasis of West Bengal to embark on this journey to facilitate semiconductor policies can now be challenging to thrive efficiently.

Not a single automobile or mobile phone assembly industry is available in West Bengal

The economic growth in West Bengal is primarily driven by textiles, jute, tea and steel rather than automobile manufacturing or mobile phone assembly. The industrial decline since the 1970s in the state because of political instability and labour unrest led to stagnation in large-scale manufacturing industries. The manufacturing sector is no exception to this point. The state struggled to attract investments from automobile and mobile phone assembly, which needed proper infrastructure and conducive industrial policies. The lack of investment and backdrops in history point out questions towards why the state still lacks these measures.

In other words, West Bengal has a well-established port in Kolkata and is connected by rail and road, but the infrastructure is not as modern as that in other states like Gujarat, Maharashtra and Tamil Nadu. These regions, over time have emerged as hubs for automobile and electronics manufacturing. However, West Bengal’s inability to focus on these areas hinders the state’s effort to contribute efficiently, as the other states do.

Excessive political interference and land acquisition problems

The lack of an appropriate share of the national GDP by West Bengal stems from another issue related to too much intervention in politics as well as land-related problems. The state experienced slower growth compared to the national average, and this is specifically seen in the manufacturing and services sectors. From 2012 to 2020, the state experienced a growth rate in manufacturing by 6.6 per cent and 6.5 per cent in services.

The contrast lies in India as a whole, which generated 17.4 per cent of India’s GDP in manufacturing. The services sector accounts for about 38 per cent of the total export in India. This lag is attributed to populist policies along with an unstable investment climate, deterring the growth of private sectors and industrial investments in West Bengal.

The political decisions for land acquisition laws and delayed infrastructure projects also discouraged major industries from expanding in the state of West Bengal. This led to the missed opportunities, including the Tata Motors plan to expand to the state. The lack of business expansion here decreased opportunities for job creation and economic growth.

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