Opinion | How Bengal, Once An Economic Powerhouse, Lost Its Shine

West Bengal, once a dominant player in India's economy, has seen a consistent decline in both its share of India's GDP and its relative per capita income over the past six decades. In 1960-61, West Bengal contributed 10.5% to the national GDP, ranking third among Indian states, but this share has shrunk significantly to 5.6% in 2023-24, according to data from the Ministry of Statistics and Programme Implementation (MoSPI). The data has been collated in a working paper by the Economic Advisory Council to the Prime Minister by Sanjeev Sanyal & Aakanksha Arora. This decline is even more evident in terms of per capita income. Once boasting a per capita income 127.5% of the national average, West Bengal now sits at only 83.7%.

West Bengal's economic decline, particularly in comparison to its counterparts Maharashtra and Tamil Nadu, reflects a marked divergence in growth trajectories since the 1960s. At the time of independence, West Bengal, along with Maharashtra and Tamil Nadu, was an industrial powerhouse, with Calcutta being one of the largest industrial clusters in the country. However, while Maharashtra maintained its economic standing and Tamil Nadu surged after the 1991 liberalisation, West Bengal's decline began as early as the 1960s. The state's share in India's GDP fell from 10.5% in 1960-61 to a mere 5.6% by 2023-24, the sharpest drop among all states. This decline persisted even after economic liberalisation, which benefited other regions. As a result, West Bengal's industrial and economic prominence has significantly eroded, leaving it lagging behind its former peers.

In contrast, Odisha, a state that historically lagged behind in most economic indicators, has undergone a significant transformation. From a relative per capita income of 54.3% in 1990-91, Odisha now stands at 88.5% in 2023-24, a remarkable turnaround that highlights the divergent paths of the two states.

The key difference between West Bengal and Odisha lies in their respective responses to national economic reforms, particularly those initiated in 1991. While West Bengal failed to capitalise on liberalisation, Odisha took full advantage of these changes to spur growth. Studies such as Ahluwalia's (2000) and the OECD's report on India's regional development (2014) attribute West Bengal's decline to policy inertia, a challenging business environment, and rigid labour laws. The state, known for its historically militant trade unions and restrictive labour regulations, deterred private investment, especially in manufacturing and industry. On the other hand, Odisha pursued a series of reforms to improve its business climate. As noted in a 2019 NITI Aayog report, Odisha made strides in ease of doing business by simplifying regulations, improving infrastructure, and actively courting foreign and domestic investors.