Will Bengal Budget Bring Back Investors and Industries?

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Shambhu Ghatak |   Economist  |   Formerly with Planning Commission and Brunei Govt thinktank |  

Following a decisive electoral mandate that brought the BJP to power under Chief Minister Suvendu Adhikari, West Bengal stands at a historic fiscal crossroads, transitioning from an era of expansive welfare spending toward a capital expenditure-led growth strategy focused on industrialization and infrastructure. The interim budget for the financial year 2026-27 presented by the outgoing All India Trinamool Congress (AITC) government was, in many ways, the final fiscal statement of an era defined by expansive welfare spending and an extensive social protection architecture. Presented just months before the two-phase Assembly election in April 2026, the budget expanded cash transfer schemes, enhanced allowances and reinforced the social security architecture that had become central to Bengal’s political economy over the last fifteen years.

But after the electoral victory of BJP, the larger economic question is no longer about continuity versus disruption in welfare policy. The real challenge lies elsewhere: whether the new administration can gradually shift West Bengal from a revenue expenditure-driven model toward a capital expenditure-led growth strategy focused on infrastructure, industrialization and private investment over the next 10 to 15 years.

To understand the necessity of this shift, one must first analyze the baseline fiscal architecture left behind by the previous Trinamool government. The interim budget presented on 5th February this year, projected total revenue receipts to grow from Rs. 2.45 lakh crore in 2025-26 Revised Estimates (R.E.) to Rs. 2.88 lakh crore in 2026-27 Budget Estimates (B.E.), marking a notable expansion of 17.5%. Conversely, total revenue expenditure was projected to rise at a more moderate pace of 8.2%, moving from Rs. 2.86 lakh crore in 2025-26 (R.E.) to Rs. 3.10 lakh crore in 2026-27 (B.E.). On paper, this mathematically narrows the revenue deficit by 47.1%, pulling it down from Rs. 41,164.04 crore to Rs. 21,759.34 crore, which translates into a projected drop in the revenue deficit as percentage of GSDP from 2.07% to 1.01% between 2025-26 (R.E.) and 2026-27 (B.E.).

However, these baseline calculations are highly vulnerable. They rely on an extraordinary, unprecedented 115.8% jump in Grants-in-Aid from the central government—leveraging a projected surge from Rs. 22,068.85 crore in 2025-26 (R.E.) to Rs. 47,615.46 crore in 2026-27 (B.E.). Under the previous regime, Centre-state coordination challenges often affected the smooth flow of fiscal transfers. The new government has a distinct, historic opportunity to realize these targets by ensuring systematic administrative alignment.

Greater clarity on the administration’s fiscal and industrial roadmap is likely to emerge when the new government presents its first full budget in June 2026.

Moving Towards Capex-led Growth

For decades, West Bengal’s development trajectory has suffered from inadequate infrastructure creation, industrial stagnation and declining investor confidence. While states such as Gujarat, Maharashtra, Karnataka and Tamil Nadu aggressively built industrial corridors, ports, logistics networks and manufacturing ecosystems, West Bengal faced fiscal pressures and slower infrastructure expansion relative to some industrialized states.

One of the structural constraints on West Bengal’s long-term competitiveness has been its limited prioritization of capital formation. Historical data reveals that capital expenditure (i.e., capex related to general services, social services, economic services, and loans and advances) as a percentage of total expenditure has consistently languished below the critical 10% threshold for most of the past decade. It registered at a modest 10.40% in 2023-24, only to slide back sharply to 7.27% in 2024-25, when total capex (on general services, social services, economic services, and loans and advances) was restricted to just Rs. 22,324.69 crore against a massive total expenditure of Rs. 3,07,216.35 crore.

When most public expenditure is directed toward operational expenses, debt servicing and recurring transfers, fiscal space for infrastructure creation inevitably narrows.

The interim budget does signal an intent to alter this trajectory, projecting an increase in baseline capital expenditure (capex related to general services, social services, economic services, loans and advances, repayment of loans to central government and others, transfer to contingency fund, and expenditure for new programme/ additional outlay) from Rs. 60,661.24 crore in 2025-26 (R.E.) to Rs. 86,533.10 crore in 2026-27 (B.E.)—a nominal jump of 42.6%. Specifically, capital expenditure for economic services, which encapsulate critical sectors like transport, energy, and industry, is slated to rise by 24.6% to Rs. 21,598.98 crore in 2026-27 (B.E.). Over time, the state may need to gradually raise the share of capital expenditure within total expenditure to sustain infrastructure-led growth.

A 10-15 Year Vision: Port, Logistics, and Global Value Chains

To sustain real economic growth, which stood at a promising 7.62% in 2025-26 according to First Advance Estimates at 2011-12 prices, West Bengal must position itself as the primary maritime and logistical gateway for Eastern India and the broader BIMSTEC region. The long-delayed, landmark Rs. 25,000-crore Tajpur deep-sea port project in East Midnapore is the absolute cornerstone of this multi-decade vision. Conceived to break the heavy shipping constraints imposed by the riverine siltation of the Kolkata and Haldia dock systems, the project must be implemented on priority. Although the previous global tender floated by the West Bengal Industrial Development Corporation (WBIDC) in December 2025 was cancelled due to inadequate bidding interest, the direct alignment between the state and central governments could reduce some of the political and administrative uncertainties that previously affected investor sentiment.

By integrating the Tajpur project directly into the Centre’s flagship Sagarmala Programme, the state can systematically transform its entire maritime footprint. This includes the simultaneous modernization of the Kulpi port and immediate infrastructure upgrades within existing urban docks. A prime example is the recently approved Rs. 117.54 crore modernization of the nearly six-decade-old double-leaf Bascule Bridge at the Syama Prasad Mookerjee Port’s Kolkata Dock System, backed by Rs. 41 crore from Sagarmala Programme’s financial assistance and executed by Rail Vikas Nigam Limited (RVNL). These interventions collectively lower the high logistics costs that have constrained manufacturing competitiveness in the state, enabling direct berthing of large capesize vessels and seamlessly inserting the state into global maritime value chains.

Rationalizing Welfare: From Revex to Capex

One of the primary challenges for the incoming administration will be balancing the continuity of established social welfare commitments with the state’s broader capital expansion goals. The outgoing administration embedded massive recurring financial liabilities into the system. The Lakshmir Bhandar scheme alone historically demanded an annual allocation of Rs. 26,700 crore to service 2.21 crore women, with cumulative outlays crossing Rs. 74,000 crore. The interim budget added to this burden by introducing an additional Rs. 500 monthly top-up from February 2026, creating an extra annual liability of Rs. 15,000 crore, alongside a newly proposed Banglar Yuba-Sathi scheme for unemployed youth requiring Rs. 5,000 crore.

The new government’s strategy signals an effort to rebalance welfare commitments with fiscal sustainability. By notifying the revamped Annapurna Yojana (Annapurna Bhandar Scheme) to launch on 1st June, 2026, the administration has honorably upheld its welfare commitments by increasing financial support to Rs. 3,000 per month. Crucially, however, it has paired this social safety net with strict, rigorous database rationalization. By initiating an immediate, mandatory database cleansing and Aadhaar-linked KYC verification drive, the government is improving beneficiary verification and reducing duplication across the system. Furthermore, by enforcing tight, statutory eligibility criteria—explicitly restricting the cash transfer to resident women aged 25 to 60 who are non-income tax payers and do not receive government salaries or pensions—the state is plugging the leakages in unconditional transfers.

Simultaneously, the newly formed state government is sharing healthcare expenditure responsibilities with the Centre. By officially adopting the central flagship health insurance scheme, Ayushman Bharat, starting July 2026, the state is systematically transitioning approximately 1.45 crore existing Swasthya Sathi beneficiaries into a nationwide network. This policy transition not only grants citizens superior, pan-India medical coverage of up to Rs. 5 lakh per family but also unlocks an immediate Rs. 3,505.59 crore healthcare funding sanction from the Centre. These resources will be deployed directly into capital-adding assets: establishing a premier AIIMS, new medical colleges, and expanding PM Jan Aushadhi Kendras across West Bengal. This model serves as a blueprint for the future: absorbing central government’s welfare architecture to preserve state fiscal headroom for infrastructure.

Enforcing Fiscal Discipline Under the FRBM Framework

Long-term corporate investors require predictability, macroeconomic stability, and strict adherence to the rule of law. West Bengal’s historical fiscal profile has frequently raised alarms; the expert Fiscal Responsibility and Budget Management (FRBM) Review Committee, chaired by Mr. N.K. Singh, originally recommended a strict 20% debt-to-GSDP ceiling for state governments. In stark contrast, West Bengal’s debt-to-GSDP ratio has remained significantly above the benchmark suggested by the FRBM Review Committee, moving from 40.65% in 2010-11 to 38.57% in 2024-25. In order to limit the debt-to-GSDP ratio to 20%, the state must aggressively expand its own tax base, moving beyond its volatile reliance on central tax devolutions (projected at Rs. 1,17,668.57 crore for 2026-27 (B.E.)). The state’s own tax revenue is projected to rise by a modest 6.2% to reach Rs. 1,18,668.78 crore in 2026-27 (B.E.). To accelerate this revenue generation, the administration will need to focus on streamlining tax compliance, improving ease of doing business, and establishing a highly transparent, institutionalized governance framework. A clean, predictable, and rule-based business environment will optimize collections across State GST, stamps and registration fees, and corporate land allotments.

The road ahead for West Bengal is clear. The policy focus may increasingly shift toward balancing social protection with infrastructure-led growth. By adhering to the FRBM Act, aggressively addressing structural bottlenecks for major maritime projects such as the Tajpur Deep-Sea Port, and streamlining social safety schemes to target only the genuinely needy, the newly elected government can successfully transition West Bengal from a debt-laden economy to a more investment-oriented and infrastructure-driven one.

(opinions expressed personal.)

References

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