West Bengal, once a dominant player in the Indian 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, placing it 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 Program Implementation (MoSPI). The data has been compiled in a working paper of the Economic Advisory Council to the Prime Minister by Sanjeev Sanyal & Aakanksha Arora. This decline is even more pronounced in terms of per capita income. West Bengal once had a per capita income of 127.5% of the national average, but now stands at just 83.7%.
West Bengal's economic decline, especially compared to its counterparts Maharashtra and Tamil Nadu, reflects a marked difference 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. While Maharashtra retained its economic status and Tamil Nadu boomed after the 1991 liberalization, West Bengal's decline began as early as the 1960s. The state's share of India's GDP fell from 10.5% in 1960-61 to just 5.6% in 2023-24, the sharpest decline among all states. This decline continued even after economic liberalization, which benefited other regions. As a result, West Bengal's industrial and economic prominence has eroded significantly, leaving the country lagging behind its former peers.
Share of Maharashtra, Tamil Nadu and West Bengal in India's GDP (Source: EAC-PM Working Paper)
In contrast, Odisha, a state that has historically lagged behind on most economic indicators, has undergone 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 trajectories of the two states.
Relative per capita income of West Bengal, Odisha and Assam. (Source: EAC-PM working paper)
The main difference between West Bengal and Odisha lies in their respective responses to national economic reforms, especially those initiated in 1991. While West Bengal failed to benefit from liberalization, Odisha took full advantage of these changes to boost growth. Studies such as that of Ahluwalia (2000) and the OECD Report on India's Regional Development (2014) attribute West Bengal's decline to policy inertia, a challenging business environment and rigid labor laws. The state, known for its historically militant unions and restrictive labor rules, deterred private investment, especially in manufacturing and manufacturing. On the other hand, Odisha introduced a series of reforms to improve the business environment. As noted in a 2019 NITI Aayog report, Odisha has made strides in ease of doing business by simplifying regulations, improving infrastructure and actively wooing foreign and domestic investors.
How Odisha changed its destiny
Odisha's success can be traced to its focus on industrial development, infrastructure investment and governance reforms, especially after the early 2000s. The state implemented several proactive policies to attract investments in sectors such as mining, steel and manufacturing. According to a World Bank report on Indian states (2017), the Odisha government focused on creating investor-friendly policies, cutting red tape and modernizing its industrial policies, which in turn attracted major players like Tata Steel and Vedanta .
These reforms, combined with improvements in connectivity and infrastructure, helped Odisha's economy grow faster than its peers, including West Bengal. Odisha's share of India's GDP, while still modest, has increased and per capita income has grown steadily. West Bengal, on the other hand, has seen its industrial base erode, with key industries such as jute and textiles failing to modernize, leading to stagnation in both production and employment.
West Bengal and Odisha: two different paths
The difference in economic trajectories between West Bengal and Odisha is also reflected in social and human development indicators. According to the Multidimensional Poverty Index, Odisha has made significant improvements in literacy, life expectancy and poverty reduction, thanks to economic growth and targeted welfare programmes. West Bengal, while performing relatively well in literacy and health, has not been able to translate these into sustainable economic gains. Odisha's focus on inclusive growth, and especially its emphasis on poverty reduction programs, has resulted in a significant decline in poverty rates, from 57% in 2004-2005 to 32% in 2011-2012, according to Planning Commission data. In contrast, poverty reduction has been slower in West Bengal, with entrenched rural poverty remaining a problem despite various government schemes.
The Union government may come up with the headcount once the HCES data is fully released. However, in the absence of this data, the Multidimensional Poverty Index provides insight into poverty levels. A closer look at the percentage change in headcount between 2015-16 and 2019-21 reveals a stark contrast: Odisha saw a significant decline of 13.68%, while the decline in West Bengal was only 9.41%. This disparity underlines how West Bengal's progress in reducing poverty lags even when compared to Odisha.
Bengal's dependence on agriculture
One of the critical factors for Odisha's success is its ability to transition from an agricultural economy to an industrial economy, while West Bengal has remained too dependent on agriculture. According to the Reserve Bank of India's 'Handbook of Statistics on Indian States' (2022), agriculture's share in Odisha's gross domestic product (GSDP) has fallen from 37% in 1990-91 to around 16% in 2020-21, while the share of the industrial sector increased accordingly. This shift towards a more diversified economy has been crucial in driving sustainable economic growth in Odisha. West Bengal, on the other hand, remains heavily dependent on agriculture, which remains vulnerable to climate changes and price fluctuations. Despite being an early leader in the industry, West Bengal's industrial growth has stagnated, with the state failing to attract significant new investment or develop new sectors beyond traditional industries such as jute and textiles .
The role of governance and political stability cannot be ignored in explaining the contrasting economic trajectories. Odisha has experienced consistent political stability, which has enabled long-term planning and implementation of reforms. The state government is credited with reducing corruption, improving governance and implementing policies that promote industrial growth and infrastructure development. In contrast, West Bengal's political landscape has been more turbulent, with frequent changes in leadership and governance styles.
Odisha's approach to PPP
Furthermore, Odisha's approach to public-private partnerships (PPP) in infrastructure development has been significantly more successful than that of West Bengal. According to the Economic Survey of India (2021-2022), Odisha has successfully deployed PPP models to build roads, ports and industrial parks, which have further fueled industrial growth. For example, the Paradip port in Odisha has become a major hub for both domestic and international trade, providing a crucial benefit to industrial activities in the state. West Bengal, despite the strategic port of Kolkata, has not been able to repeat this success due to inefficiencies, political bottlenecks and a lack of coordinated infrastructure investment. The state's inability to modernize its port and transport infrastructure has further contributed to its declining economic relevance.
Without meaningful reforms, state governments risk failing their citizens by perpetuating stagnation and economic decline. West Bengal's steady fall from an industrial leader to a state with a declining share of GDP and declining per capita income illustrates the consequences of policy inertia and poor governance. In contrast, Odisha's proactive reforms, improved business environment and strategic focus on infrastructure and industrial growth have driven the country's remarkable economic transformation. If states like West Bengal do not prioritize structural reforms, strengthen governance and diversify their economies, they will be left behind and fail to realize the aspirations of their people.
(Bibek Debroy is Chairman, Prime Minister's Economic Advisory Council, and Aditya Sinha is OSD, Research, Prime Minister's Economic Advisory Council)
Disclaimer: These are the personal opinions of the author
