The West Bengal government has scrapped all industrial incentives granted over the past three decades, with retrospective effect. The controversial legislation, Revocation of West Bengal Incentive Schemes and Obligations in the Nature of Grants and Incentives Bill 2025, was notified on April 2, 2025, effectively withdrawing benefits promised since 1993.
The decision has been widely criticised for undermining investor trust, jeopardising the state’s economy, and signalling hostility to capital. Corporate heavyweights, including the Dalmia and Birla Groups, estimate combined losses of Rs 430 crore, while countless others have yet to assess their financial damage. Several major players have now challenged the Act in the Calcutta High Court, terming it unconstitutional and arbitrary.
Historical strains between industry and West Bengal
West Bengal’s fraught relationship with industry is deeply rooted in history. During 35 years of Communist Party rule, industrial houses were viewed with suspicion. Jyoti Basu, the state’s former Chief Minister, once referred to capitalists as “class enemies,” a sentiment reflected in policies that often discouraged private enterprise. Strikes, union violence, and incidents of arson forced major business families like the Singhanias and Birlas to relocate to other states, leading to a decline in industrial activity.
The Trinamool Congress (TMC), led by Mamata Banerjee, has not broken this pattern. The party’s rise was facilitated by agitations against industrial projects, most notably Tata Motors in Singur, which resulted in the company relocating outside the state. From 2011 to 2025, over 6,600 companies, including 110 listed firms, moved their operations out of West Bengal, according to the Ministry of Corporate Affairs.
The TMC government’s tenure has been further marred by law and order challenges, illegal immigration issues, and rising communal tensions, which collectively erode investor confidence.
Industrial Incentivisation: Lessons from economics
Economic theory emphasises incentives as tools to stimulate growth, particularly in sectors facing market failures. Negative externalities such as labour unrest, unfavourable social conditions, and poor law and order necessitate government support to attract investment. Keynesian economics advocates active government intervention during economic downturns, highlighting the importance of fiscal incentives in driving recovery.
Globally, industrial incentives are a key growth driver. In the United States, state and local governments spend over $30 billion annually on business incentives, which act as fiscal multipliers. Similarly, India’s Production Linked Incentive (PLI) scheme, with an outlay of Rs 1.97 lakh crore, has catalysed investments of nearly Rs 1.76 lakh crore, increasing FDI in electronics by 254 percent.
Contrary to these practices, West Bengal’s retroactive withdrawal of incentives not only disincentivises investment but also actively breeds mistrust among industries, effectively rolling back decades of progress in attracting capital.
Legal and constitutional concerns
The Act violates fundamental principles of promissory estoppel and legitimate expectation, as well as Articles 14 and 19(1)(g) of the Constitution, which guarantee equality and the right to carry on business. By abrogating past commitments and nullifying pending claims, the legislation imposes unreasonable restrictions on businesses.
Furthermore, the state’s rationale, redirecting funds to social welfare, is economically flawed, as wealth creation is a prerequisite for redistribution. Cutting incentives in an already hostile industrial environment risks creating “collective poverty” rather than collective prosperity, as firms withdraw investments, relocate, or close operations.
Economic fallout and citizens at risk
West Bengal’s economic indicators reveal a precarious fiscal situation: fiscal deficits are at 38 percent of GSDP, GDP contribution has declined from over 10 percent in 1960 to 5 percent today, and per capita income stands at 83.7 percent of the national average, lagging behind neighbouring states. Multidimensional poverty remains high, while law and order challenges continue to escalate.
The Act is likely to trigger further industrial exodus, aggravating unemployment and straining public welfare mechanisms. Ordinary citizens, who rely on industrial growth for jobs and livelihoods, are poised to bear the brunt of policy failures.
Political and administrative context
West Bengal has repeatedly demonstrated confrontational federalism, withdrawing from the Ayushman Bharat scheme, limiting CBI oversight, and clashing with central officials over administrative appointments. Law enforcement is stretched thin, with only 97.66 police personnel per lakh population, contributing to security and investment concerns. Communal violence and political unrest further erode investor confidence, creating an environment where economic growth is stifled.
An economic disaster looms
The retrospective incentive revocation is more than a policy misstep; it is a strategic blunder with long-term repercussions for West Bengal. By alienating industry, the TMC government risks reversing decades of industrial growth, driving away investments, and jeopardising the livelihoods of ordinary Bengalis.
In a rapidly evolving Indian economy, West Bengal’s approach signals regression, moving the state towards economic marginalisation and leaving citizens to grapple with the fallout of policy mismanagement, mistrust, and industrial flight.
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