West Bengal: economy
This is a collection of articles archived for the excellence of their content. |
History
Growth: 1960-2020
Atul Thakur, April 6, 2021: The Times of India
From: Atul Thakur, April 6, 2021: The Times of India
From:
From: Atul Thakur, April 6, 2021: The Times of India
From: Atul Thakur, April 6, 2021: The Times of India
From: Atul Thakur, April 6, 2021: The Times of India
It was one of British India’s most industrialised regions, but during the 1960s West Bengal fell behind economically. Its per capita income declined. Partition and the resultant refugee influx, dependence on industries like jute, mining and tea, and lack of diversification caused the setback, but the mid-70s arrested the state’s slide. Although West Bengal has not regained its past glory, its per capita GDP has largely kept pace with the national average since then.
Why state’s per capita income fell after Partition
West Bengal’s per capita income started falling after 1947 for several reasons explained below. But even at the start of the 1960s, it was equal to the national average. As successive governments failed to stop the decline over the next 15 years, it touched 85% of the national per capita income in the mid-1970s and has fluctuated around that mark ever since
Raw material shortage
The Partition of India separated Kolkata’s mills from the jute growing areas in Bangladesh. It also increased the distance between Kolkata – a tea export hub – and the tea gardens in Assam, Tripura, etc. The time and cost of transporting raw materials increased.
Lakhs of refugees
The flow of refugees into West Bengal started in 1946 and continued for decades. It increased immensely during 1971 when 60 lakh people were officially estimated to have crossed over from the Bangladesh side. This heavily burdened the state’s already stressed economy.
Nylon replaces jute
After the Second World War, nylon replaced jute as the primary packaging material, and other countries – Kenya, Sri Lanka, Vietnam and Indonesia – emerged as major exporters of cheaper varieties of tea.
Subsidy for transporting minerals
Experts say a government policy to boost industrialisation all over India hurt the economic prospects of West Bengal and other mineral-rich states. Under the ‘Freight Equalisation Scheme’, the Centre subsidised long-distance transport of raw materials for manufacturing iron, steel, cement, etc. So, mineral-rich states lost their locational advantage. By some estimates, the incentive was just enough to move production to richer states in the west from poor eastern states.
1980s: Land reforms boost rural economy, raise income
Soon after being elected, the Left Front government started ‘Operation Barga’ – West Bengal’s land reforms. Together with better irrigation, this gave a push to the rural economy, leading to a steady rise in income. The Left government, however, failed to reverse the state’s de-industrialisation.
2000s: Per capita income remains below national average
Although land reforms helped raise West Bengal’s per capita income, liberalisation in the 1990s created more opportunities in other states. Bengal’s per capita income fell further behind the national average in the late 1980s and early 1990s. In the late-1990s, it rose to roughly 80% of the national average and has since remained in the 80-90% range.
Lack of industry and Centre-state differences are holding back growth
Lack of diversification of industrial produce in West Bengal, and differences between the state’s Left Front government and the market-liberal government at the Centre may have enabled other states to gain more from Liberalisation.
Bengal remains ahead of Bihar, MP and UP, but behind Rajasthan
Economic data clearly shows that claims about West Bengal’s economy being in free fall since Independence are not true. Compared with the Bimaru states (poorest among major states) the state has done well.
Note: All data for NNI per capita, at current prices, in INR; 2019-20 data not available for all states
Source: Mospi
1961-2024: vis-à-vis India as a whole
April 16, 2026: The Times of India
From: April 16, 2026: The Times of India
A commonly held belief about West Bengal’s economy is that it has steadily declined in size and importance relative to the national economy since Independence. A closer look at the data over the past six decades suggests that what appears to be a linear story of steady economic decline may be partly driven by movements in prices rather than by real income. This does not let the state off the hook for its less-than-stellar economic performance, but it does allow us to probe deeper than the familiar story of lost past glory. Once we adjust for differences in inflation across states, West Bengal’s trajectory looks far less dramatic, and the story that emerges is much more nuanced.
While there are many metrics by which relative economic performance can be measured, per capita NSDP (net state domestic product) is an obvious one. We put together a series of NSDP data from 1961 to 2024 and used a method of deflation that gives us a comparable long time series of statelevel data on per capita NSDP, allowing us to compare West Bengal’s economic trajectory with that of the rest of India as well as with those of the leading and lagging states.
To create a consistent long-run real income series, we stitch together multiple official NSDP datasets published with different base years and use overlapping years in these series to create deflators that convert earlier data into a common price base (2004-05). We chose 2005 because it is the latest available base year before the national income accounting method changed, but our conclusions are not sensitive to the choice of base year.
Much of the pessimism about West Bengal’s economy stems from trends in nominal per capita income. By this measure, the state has indeed steadily fallen behind the rest of India since the 1960s, as we can see in Figure 1; its ranking among major states has slipped significantly. But nominal income tells only part of the story. It reflects both the quantity of goods and services produced and the prices at which they are valued. If prices evolve differently across states, nominal comparisons can be misleading. When we adjust for inflation using state-specific price indices, the picture changes dramatically, and the relative trajectory of West Bengal is much flatter, as the figure shows. Indeed, real (inflation-adjusted) per capita income in West Bengal has grown at roughly the same pace as the national average between 1961 and 2024. In other words, while West Bengal appears to have fallen behind in nominal terms, its real income has broadly kept pace with that of the rest of the country.
The key to understanding this divergence lies in inflation. West Bengal experienced lower inflation than most other states over more than 60 years. In the 1960s, West Bengal was a relatively expensive state. High prices eroded much of its apparent income advantage, so its strong nominal ranking overstated its real prosperity. Today, the situation is reversed. West Bengal appears poorer in nominal terms, but its lower cost of living boosts real purchasing power. It has effectively become a cheaper state.
Why did West Bengal’s prices evolve so differently? The answer lies in its pattern of structural transformation — the way its economy shifted across agriculture, manufacturing, and services — relative to the rest of India. Owing to data limitations, we examine sectoral data for the period from 1969 to 2014. We plot the ratio of West Bengal’s sectoral share for each of the three sectors to the corresponding ratio for the rest of India in Figure 2. We can see that from the 1980s through the 2000s, the agricultural sector in West Bengal grew faster than the national average. Agrarian reforms, the diffusion of high-yielding varieties, and related changes boosted agricultural output. At its peak in the early 2000s, this agricultural strength even pushed the state’s real income temporarily above the national average. At the same time, the state underperformed in manufacturing in every sub-period over the past five decades. The underperformance of the manufacturing sector set in early and persisted throughout the period, indicating a deeper structural problem rather than shifts in political regimes. While the service sector expanded, especially after the 1990s, it was not fast enough to compensate for manufacturing weakness. The result was a skewed economic structure: strong agriculture and weak industry.
This structural pattern had important implications for prices. Agriculture, by its nature, tends to put downward pressure on prices when productivity rises. In West Bengal, rapid agricultural growth increased supply and lowered food prices relative to the rest of India. At the same time, industrial prices did not fall significantly. Costs in manufacturing remained broadly in line with national trends, perhaps because of wage rigidities and institutional factors. In the absence of data on implicit deflators in the NSDP series, we use CPI data for agriculture and industry as a proxy.
Finally, if agriculture was doing so well, why did it not translate into broader economic success? The answer lies in timing. West Bengal’s agricultural boom came relatively late, mainly from the 1980s onward. By then, India’s growth engine had already begun shifting away from agriculture toward industry and services, a transition that accelerated after the 1991 economic reforms. In earlier decades, agricultural success could drive overall growth, as it did in Punjab and Haryana during the Green Revolution. But by the 1990s and 2000s, the economy had changed. The most dynamic states were those that combined industrial expansion with rapid growth in services. States like Gujarat, Maharashtra, Tamil Nadu, and Karnataka rode this wave of structural transformation. West Bengal, by contrast, remained anchored in agriculture. As a result, it missed the sectors in which the highest prices were concentrated.
Two factors amplified the price effect underlying the steep fall in nominal NSDP. First, West Bengal’s economy had a larger agricultural share than the rest of India’s, and agricultural prices were falling relative to those in the rest of India. Together, this meant that a larger portion of the state’s output was being valued at lower prices. This mechanically depressed nominal income, even when real output was growing. West Bengal was producing more of the kinds of goods whose prices were rising slowly — or even falling. This is why nominal income figures understate the evolution of living standards in the state.
What the evidence shows is not a simple story of decline, but one of divergence. The state remained broadly in step with the nation in real terms, even as it fell behind in the sectors that matter most for modern growth. West Bengal’s problem is not that it stopped growing. It is that it grew in the wrong sectors at the wrong time.
The broader lesson from our analysis is that economic narratives are often shaped by the choice of measurement. In West Bengal’s case, relying on nominal income alone has led to an exaggerated perception of decline. Once we adjust for prices, a more balanced picture emerges. This does not make West Bengal’s challenges any less real, but it does change how we understand them.
