The day hope died: The Revocation of West Bengal’s Industrial Policy Schemes

West Bengal notified ‘Revocation of West Bengal Incentive Schemes and Obligations in the Nature of Grants and Incentives Act, 2025’ on 2^nd April, the same day President Trump would later announce his ‘Liberation Day’ tariffs, putting the global economy in a tizzy. This Act retrospectively annuls all grants sanctioned under various state incentive schemes listed in its schedule. In other words, all of the schemes and incentives to support industrial development and expansion in the state of West Bengal that has existed since 1993 now stand null and void.

For this author, the passage of this Act is not just a policy decision or another piece of legislation, it is the death of hope. Please allow me to explain dear readers. The West Bengal I was born into in 1978 (one year after the Left Front led by Jyoti Basu came to power) was already in terminal decline by the time I was in my early teens. Like many middle-class families in Bengal, this decline was not an economic statistic but a lived experience. As one big factory after another shut down and industries started to move away to better administered states where businesses were respected and welcomed, unemployment and genteel poverty became the norm for members of my extended family spread across greater Kolkata suburbs. Those who could also left the state, seeking employment wherever they could find them.

But hope lived on. Post liberalization India coincided with my own teenage years full of dreams, and the Leftist Government seemed to be reforming itself, trying to be more industry friendly. The ‘revoked’ industrial policies emerged during this period in the 1990s. But it seemed hopes were raised only to be crushed repeatedly. Chief Minister Buddhadeb Bhattacharya’s feeble attempts to put Bengal back on the industrial map of India were dashed with the twin failures of the Tata plant in Singur and the Chemicals Special Economic Zone (SEZ) at Nandigram

I do not have to remind readers of the sordid saga of how current CM Ms. Mamata Banerjee politicized the genuine problems of illegal land capture and profiteering by Left front backed goons at the expense of farmers that ensured the premature end of both projects. A leader with genuine concern for Bengal would have created the grounds for settlement that solved the problem, Ms. Banerjee milked it for her personal political ambitions.

Hopes were raised again with the election of Ms. Mamata Banerjee as CM, only to be dashed again repeatedly as rising crime, corruption and protection rackets proliferated under her watch. We watched with amusement the massive ‘commitments’ to investment made in every Bengal Global Business Summit and see none of that materialize. But hope is a strange thing. It lives on despite all odds, even in a cesspool of economic despair that is Bengal. So, what is that is so drastic about this Revocation Act that it counts as the death of hope that has survived all odds?

The logic for withdrawal in the Revocation Act goes against the economic concepts of effective Industrial Policy

The statement of objects and reasons provided for in the Revocation Act are a study in poor understanding of economics in general and industrial policy specifically. Let us examine the reasoning provided for by West Bengal government in detail.

The first reason provided is that ‘it has been observed that the positive impact of these incentives has largely been confined to a limited number of beneficiaries and has had a minimal effect on the broader process of industrialization’. It further states that ‘the current incentive schemes disproportionately favour specific industries, geographic regions, or corporate entities, leading to economic disparities’. On the face of it these seem like reasonable observations.

But the economic literature on industrial policy supports the idea of providing focused support targeting a limited number of sectors and specific firms within it. Aghion et al. (2015) and Harrison (2024) among others underline that successful industrial policy is always focused and targeted at a limited number of actors, and Juhasz et al. (2023) provide empirical support that most countries/governments tend to follow this pattern.

There are some very common-sensical reasons for having focused industrial policy schemes that limits itself to a few sectors and actors, especially in developing countries. First, developing country governments budgets are limited and expansive industrial policy spread across several firms and sectors would either be unsustainable in fiscal terms, or it would limit the quantum of support to industry to such small sums so as to be completely useless in actual terms in making any difference.

Now the West Bengal government also states that such support has had ‘minimal effect on broader process of industrialization’. Two pertinent questions arise. First, where these policies designed to have an impact on broader process of industrialization? If so, what where these objectives and the empirical criteria established to ensure that support for any firm continued only to the extent these firms met with that objective criterion.

After all, the difference between crony capitalism and real industrial policy lies in the design of such policies and their effective governance. This is again backed by both the literature on industrial policy that stresses on the quality of policy design with a clear objective and the quality of governance and policy implementation (Rodrik, 2022 and Harrison, 2024). These observations in the literature are backed by the empirical evidence on successful industrial policy (Juhasz et al., 2023).

If the West Bengal government is today claiming that its own policies-which it has been implementing now for over three decades and have in fact periodically expanded in terms of coverage and budgetary outlay, have failed to meet their objectives, then it is a clear admission of guilt on two counts. The first admission is of the ineffectiveness of policy design and lack of course correction. These policies have been designed over the years. Surely some thought would have gone into how they were structured and the pathways through which these policies would help economic growth, support industrialization and employment generation. If these policies are now found to be ineffective, then the blame must be squarely put on the policymakers. Since the CM herself is said to be effectively in charge of industrial policy and investment promotion, she must herself be held accountable for such abject failure. If every success in the state is ‘inspired by her’, the honourable CM must also take responsibility for the failures.

Second, these policies have abjectly failed the test of governance. If these schemes were ‘not meeting’ their objectives over such long period, why did the government not find out and react sooner. What data was being collected on the outcomes and what actions were being take on the empirical findings of failure?  If one goes by the annual reports and other publications of the West Bengal Industrial Development Corporation (WBIDC), up to even the most recent periods, West Bengal’s industrial policies were not only working, in many cases they were a ‘stellar’ success. So, when the statement of reasons in the bill says that ‘evidence suggests that financial incentives have not proven to be an effective mechanism for fostering sustainable industrial expansion’ one can only surmise that the quality of governance was so pathetic that WBIDC and the state machinery woke up to years of failure only a few months back.

Since this interpretation is so absurd and unbelievable, the only other explanation is that WBIDC and the state machinery knew that these policies were a failure but continued with them to ‘help’ friendly industrial houses, i.e., indulged in crony capitalism and corruption. Knowing the orientation of the Trinamool government in the state it is almost certain that this must have been true in some cases. In fact, the statement of reasons in the Revocation Act unwittingly admits to the high possibility of such crony corruption. It states that ‘substantial number of industrial enterprises that benefitted from state incentives have ceased operations or have undergone liquidation’. Examples of ‘take the money and run’ to corner subsidies through largely spurious and poorly conceived projects with the help of state machinery are a common example of corruption across the world.

But not all projects were dishonest and therefore serious questions needs to be asked about the culture of governance and quality of policymaking and implementation in the state. But impact of this Revocation is even more serious due to another reason. The kind of signalling it sends out to the investor community-in India and rest of the world, and its implications for the future of industry in the state.

Signalling

The West Bengal government has just told the business world, we will not keep our word, do not trust us. It is a mockery of the slogan ‘Bengal means business’, the theme of the Bengal Global Business Summits. We live in a highly competitive world. Every country, and every region or state in every large country is competing to attract investment in manufacturing and services. Businesses need policy stability and continuity to have the confidence to put their investments into any location. This is especially true for manufacturing which involves significant location specific sunk costs in many cases.

This stress on importance on policy stability and continuity is not anecdotal. The economic literature on investment and industrial policy underlines the centrality of policy stability and trust in the decision making by businesses. Well known academics and experts have deliberated on this issue and provided sound evidence. This includes Rodrik (1991), Bloom et al. (2007), Gulen and Ion (2016) and Liu et al. (2024) among many others.

As best described by Liu et al. (2024), persistent policies allow industries to learn, adapt, and build capabilities gradually, fostering competitiveness over time. Abrupt changes may expose industries to competition before they are adequately prepared, potentially incurring losses at the enterprise level. In the West Bengal example, the sudden shock to the system will lead to many plants getting negatively impacted, leading to reduction of operation or shutdowns, and over time operations migrating to other states. All of the above will lead to further loss of jobs in the state.

Having established a reputation for being abrupt and unpredictable, West Bengal will become even less attractive as a destination for industry. With genuine opportunity and efficiency seeking investment shunning Bengal, all that would be left would be capital of the crony and corrupt variety. Such capital’s focus would not be on longer-term risk-taking entrepreneurship but on extracting the state’s resources in partnership with politicians and bureaucrats associated with the ruling party.

West Bengal’s decision sends a bad signal overall about India to the global investor community. Board rooms across the world will discuss how a state in India can turn its back on its commitments without warning and proper discussion with stakeholders. How that state left businesses with no recourse to natural justice or consultation and forced them to seek redress through litigation that might take years. This could negatively impact investor sentiments about India. None of this seems to matter to CM Mamata Banerjee and her government.

Thankfully we have a dynamic leader in Prime Minister Narendra Modi who also happens to be a master communicator. We also have some very savvy CMs in states like Maharashtra, UP, Andhra and others who will hopefully be able to counter all such negativity effectively.

But Bengal has now finally shut the door on an investment led industrial revival that would have brought back jobs to the state. It is unlikely that any major investment would come to Bengal. With an already poor reputation on governance and law and order, and infamous for politically backed protection rackets, this decision has finally shut the door on investments. In fact, it has told businesses it could not care less. Any fragile hope of revival that was left for Bengal died on April 2^nd. The last rites will take place in courts of law where aggrieved and affected businesses will seek recovery of their dues from the West Bengal government and exposing the ineptitude of the government in the process.

 Numbers do not lie: Bengal as an under achiever in manufacturing and investment

This callous decision belies the stark reality of Bengal. Once the leading industrial powerhouse of the country, it stands eighth in terms of total manufacturing output today, far behind powerhouses like Gujarat, Tamil Nadu, and Maharashtra (Table 1 below).

Source: Author calculations basis Annual Survey of Industries, Government of India

But the total output does not tell the whole story. If we compare per capita manufacturing output among Indian states, West Bengal ranks a poor 16^th (Table 2 below) indicating that it underperforms in terms of overall industrial activity penetration in its economy in relative terms. While it is ahead of states like UP, it needs to be understood that UP is growing and increasing that penetration, while Bengal has declined from being among the top rank holders and moved way below in the ranks.

Source: Author calculations basis Annual Survey of Industries, Government of India

This story of decline and relative under-performance is further highlighted by West Bengal’s rank among states in terms of total employment in manufacturing. As shown in Table 3, West Bengal ranks a poor 9^th among states, again a shadow if its former glory days. More importantly, West Bengal’s share of total national employment in manufacturing is 4% while its share of total Indian population is close to 8%, clearly indicating that the state severely underperforms in creating industrial jobs for its population.

Source: Author calculations basis Annual Survey of Industries, Government of India

It should therefore come as no surprise that West Bengal has not earned the confidence of foreign investors who tend to be very discerning about risks posed by the policy and political environment. Table 4 shows that West Bengal ranks a poor 11^th among states (not even in the top 10) attracting FDI. Before commenting on the fact that some large BJP ruled states like Madhya Pradesh rank even lower, consider this; West Bengal is the 4^th largest state in India in terms of population, while ranks 11^th for FDI. Andhra ranks lower because in undivided Andhra Pradesh investors tended to concentrate around the growing economic hub of Hyderabad which has now part of Telangana (therefore its very high rank).

Also consider that West Bengal started with the advantage of having Kolkata, one of the top four metropolitan centres of India which was a hub for finance, education, industry and trade, and blessed with one of India’s major ports, and still has this relatively miserable performance. The other two historical ‘Presidency’ metropoles, i.e., Mumbai and Chennai and their respective states sit way up on the list. Kolkata had existing industrial infrastructure and logistical facilities that many of the states now ranked much higher did not possess, and yet frittered away that advantage.

Source: Author calculations basis Indiastats

Bengal was already losing this race. Falling further and further behind more dynamic and increasingly better governed states in India’s south and west, and now increasingly in India’s north. Odisha is already pulling ahead, and Assam will follow suit. This Revocation Act therefore is that final act of suicide stemming from hopelessness.

The real reason for this Revocation is known to everyone. Elections are coming up in 2026. The state’s profligate spending on useless populist schemes even while its economy spluttered and did not generate the revenue needed to support this spending has made the fiscal situation of the state precarious. Its decision to not utilize centrally funded welfare schemes that are working so-well across the country and has been commended by the World Bank for its efficacy in bringing down overall incidence of poverty in India has also hurt the state terribly. Not leveraging central funds effectively means additional expenditures. The state’s coffers are paying the price of political grandstanding and arrogance of Trinamool, the interests of the people of Bengal be damned.

In fact, the truth of the matter is again hidden in plain sight in the reasons offered for the need for this Revocation Act. It states that ‘rather than expending the State finances on industrial incentives, in the public interest the focus should be on initiatives that provide broader social and economic benefits….’. This is a euphemism for doles and hand-outs that CM Mamata Banerjee hopes will win her the 2026 elections. No one is asking why a well-governed state should have to even make this choice; the choice between longer-term industrial development policies that will create jobs and reduce the need for doles and short-term urgent welfare measures to meet the socio-economic needs of the people. In fact, this choice is in itself an admission.

Admission that Bengal has given up on industrialization. Admission that we will now depend on remittances from our migrants and hand-outs by the state. Admission that we have given up on our aspirations and self-respect and are content to live on meagre doles by the state. Admission that we will become a consumption economy, not a productive one. Admission that our fathers, mothers, grandparents must accept a life of loneliness in their twilight years as the younger generation is forced to leave the state to meet their aspirations. Admission that Bengal has lost! Yes, dear readers that is why hope died on April 2^nd, 2025.

But we Sanatanis believe that death is part of a cycle; that what dies can and shall be re-born. Perhaps in this death lies the kernel of a new birth. We all have an opportunity in 2026, to end this cycle and start a new one-to see hope being reborn. From the depths of my proud Indian and Bengali heart, I pray for that outcome.

References:

Aghion, et al (2015) “Industrial Policy and Competition”, American Economic Journal: Macroeconomics, October

Harrison, A (2024) “What Makes Industrial Policy Work”, in Rethinking Economic Policy: Steering Structural Change, edited by Pierre-Olivier Gourinchas, Maurice Obstfeld, and Petia Topalova, MIT Press (Forthcoming)

Juhasz et al. (2023) “The Who, What, When, and How of Industrial Policy: A Text-Based Approach”, Structural Transformation and Economic Growth (STEG) Working Paper No. 50, Centre for Economic Policy and Research (CEPR)

Rodrik, D (1991) “Policy uncertainty and private investment in developing countries”, Journal of Development Economics, Vol. 36, No. 2

Rodrik, D., (2022) “An industrial policy for good jobs.” Hamilton Project—Policy Proposal. Brookings Institution

Bloom et al. (2007) “Uncertainty and investment dynamics”, Review of Economic Studies, Vol. 74. No. 2

Gulen, H., and Ion, M., (2016) “Policy uncertainty and corporate investment” Review of Financial Studies. Vol. 29, No. (3)

Lin et al. (2024) “Industrial policy persistence and local economic performance: The role of subsidy allocation in China”, Economic Modelling, Vol. 141 (C)

(The views expressed are the author's own and do not necessarily reflect the position of the organisation)