How Mamata Government Just Stabbed Bengal And Its Industry In The Back

In a move that completely eludes all economic and financial understanding, the Government of West Bengal has withdrawn all incentives granted to industries in the state with retrospective effect.

The Revocation of West Bengal Incentive Schemes and Obligations in the Nature of Grants and Incentives Bill 2025, which was notified on 2 April, withdraws all incentives granted to industries since 1993, effective retrospectively from the date of implementation of each scheme. This retrospective operation is significant, as it negates benefits already accrued under schemes such as the West Bengal Incentive Schemes (1993–2021) and related support measures.

Major industrial players have now challenged the Act in the Calcutta High Court, calling it 'unconstitutional'. The government's decision is seen as an act of betrayal by the corporate fraternity furthering the mistrust that has been simmering between the state government and the industry.

Mega industrial houses, the Dalmia and Birla Groups have estimated a combined loss of Rs 430 crores due to the revocation while others are yet to state their figures. Industrial units that had structured investments, expansions, or financing on the legitimate expectation of receiving promised incentives now face both direct financial loss and disruption of business planning.

Going Down The Lanes Of History

West Bengal's story of strife with industry is not a new phenomenon. The state was ruled by the communists for a long 35 years, before the baton was passed to the Trinamool Congress.

While the former, true to their ideological roots that saw corporate houses as a part of the bourgeoisie and hence an enemy force, the latter has not been kind either. The story goes that Jyoti Basu, the former Chief Minister of West Bengal and a staunch communist had once remarked that capitalists were class enemies who should not expect any sympathy.

During the dark years of the Communist Party rule, strikes and unionism were common along with violent attacks on business owners. Industry honchos realised that becoming victims of violent activities including arson is a dreadful possibility.

In due course, many gave up on business and transferred ownership. The Singhanias relocated to Delhi while the Birlas moved to Mumbai and the state that was once the second-most industrialised state of India, collapsed.

The Communists in the state were replaced by the TMC, led by Mamata Banerjee as the Chief Minister. As misfortune would have it, Banerjee's political career was resurrected by an active agitation against the Tata Motors in Singur, one that forced the company to shift its manufacturing outside the state.

Ironically, the plant in Singur was proposed by the Communist leader, Buddhadeb Bhattacharya himself, as a means to revive industry in the state, under his new industrial policy.

The fate of the industry under the TMC rule was no different. As per the Ministry of Corporate Affairs, 6600 companies including 110 listed companies, shifted their base out of West Bengal between 2011 to 2025.

The issue has been compounded with the rising challenges of law and order coupled with illegal immigration in the state. Amidst this grim situation, thousands of workers who lost their jobs are now dependent on government aid for sustenance.

The solution to mollify the situation should have aggressive industrial promotion and incentivisation plans; however those expecting respite have instead been met with a knife to the back.

A Case For Industrial Incentivisation

Economic theory dictates the use of incentives as tools to stimulate economic growth in events of market failures. The idea becomes even more relevant when significant negative externalities have been imposed on the sector including labour woes, unfavourable social environment and law and order crisis, something that is clearly brewing in West Bengal.

Departing from the earlier theories of laissez faire, Keynes advocated for active interventions to stimulate growth by the government in times of economic downturns. Keynesian economics was critical in curing the Great Depression and increased interest developed in the same during the 2008 financial crisis.

In its present bizarre move, the West Bengal government chose to de-incentivise instead of incentivising industry even as dark clouds loom over the state economy and industry.

Several economic studies have considered the question of the efficacy of industrial incentivisation. A study from the Chinese experience, showed strong empirical evidence that subsidies have a positive effect on firms' persistent productivity, firms with subsidies were 61.3% more productive than firms without subsidies.

Economic incentives also form an essential component of a developed nation's industrial plans. For instance, in the US state and local governments spend at least $30 billion a year on business tax incentives. Incentives act as fiscal multipliers, one rupee spent by the government towards capital industrial incentives yields more than two rupees in benefits.

With the aim to attract investment, Government of India has started various incentivisation schemes. The Production Linked Incentives (PLI) scheme is the hallmark of this group with an impressive outlay of Rs 1.97 lakh crore.

PLI has shown impressive results with realised investments rising to about Rs 1.76 lakh crore and FDI in the large scale electronics segment increasing by 254%. While the central government has been making an aggressive push for increasing FDI and industrial investment, the West Bengal Government is leaving no stone unturned to put roadblocks in India's growth story.

Why Defence Of The Act Is Flawed

The state has chosen to hide behind the oft used veil of flawed socialist ideas in defence. The object of the Act states its aim as "To make State finances available for various social welfare schemes formulated which are intended for utilisation by the socio-economically disadvantaged and marginalised section of the State and not to expend such finances to provide special assistance, financial incentives, state support, benefits, concessions or special privileges at the cost of the marginalised".

The aforementioned intent reflects an extremely flawed socio-economic understanding by the state as well as projected evils of industrial antagonism and populism hiding in plain sight.

Firstly, economic redistribution without increasing the size of the pie as reflected in the Act's idea leads to what I call as 'collective poverty' instead of 'collective prosperity'. Wealth, a proxy of capital, does not appear out of thin air and must be created by the industrial sector in order for its distribution.

While human resource development may be argued through such Acts, it is firms that organise it efficiently towards economic productivity as shown by Coase, in his work, 'The Nature of the Firm'.

The framers of the act seem to have a very narrow understanding of market failures. The state fails on parameters of industrial investment and growth, compounded by law and order and a hostile history towards capital and owners.

Instead of continuing with incentives as a counter to these failures, it opts to further create new failures in the form of mistrust between the state and the industries. West Bengal got a foreign direct investment of only Rs 2,534 crore in last fiscal and did not feature in the top 10 FDI destinations of India by state.

Instead of reflecting on its poor performance and devising ways to attract foreign investment, through this act West Bengal has chosen to project itself as a pre-1991 economy which is hostile to capital and growth.

Further, the state has recently been pulled up by the High Court for non resumption of MGNREGA work. This and more, raises questions over the claims of social welfare spending by the state.

While the industry and markets utilise incentives most efficiently, most of the state exchequer spending by withdrawing benefits are likely to land in the wrong pockets and make the multipliers converge to zero.

An Injustice To The Spirit Of The Constitution

By virtue of Section 3, the Act retrospectively withdraws, rescinds, revokes, and discontinues all industrial incentive schemes introduced since 1993. Further, Section 4 provides that the State shall bear no liability or obligation arising out of any past commitments, including those recognised by court judgements, decrees, or arbitral awards.

It also mandates that all pending claims, suits, and proceedings for enforcement of incentive entitlements shall stand abated. Additionally, the Act authorises the State to recover excess disbursed incentives as arrears of land revenue.

This measure runs directly against the doctrines of promissory estoppel and legitimate expectation, long upheld by Indian courts to protect individuals and businesses who have altered their position based on a State's promise. Industries made substantial investments relying on official assurances and to withdraw those promises retrospectively is both arbitrary and unconstitutional.

It violates Article 14 by denying fair treatment and Article 19(1)(g) by imposing an unreasonable restriction on the right to carry on business.

The State's plea of fiscal reallocation to welfare schemes cannot justify a wholesale abrogation of legal commitments. Fiscal expediency cannot override constitutional guarantees and long-standing legal doctrines.

The Act hence prima facie runs against the spirit of the constitution, a claim often used by the West Bengal Government against the centre while the former tramples upon it in broad daylight.

The State In Peril

The TMC government's stance of confrontation instead of cooperative federalism is not new as has been reflected in numerous earlier episodes. Strains in the relationship have persisted since nearly a decade.

The state became the first and one of the only ones to withdraw from the national health insurance scheme, Ayushman Bharat. General consent to CBI was withdrawn by the state, a move antithetical to established norms of transparency and criminal justice.

Finally, one of the dirtiest episodes in the history of Civil Services appeared when the state sparred with the centre over its Chief Secretary which resulted in the resignation of the concerned officer.

The Law and Order scenario has seen a significant decline in the state over the past decade. Communal riots have surged with the latest ghastly incidents taking place in Murshidabad.

West Bengal has one of the lowest rates of police personnel per lakh population in the country at 97.66, creating security challenges for individuals and industry alike. Incidents like the RG Kar Rape and Murder, raise severe important questions.

While Bihar was the first economic casualty to declining law and order, Bengal is headed right on the path to become the next.

Concerns of overtly authoritarian behaviour have been raised multiple times in the state. Ishita Mukhopadhyay, in an article in EPW, argued that the state was moving towards Semi-Fascism.

To her absolute horror, she was arrested by the West Bengal police and kept in custody without cause, defended later by the authorities as a mere 'mistake'. Political violence has seen an ugly upsurge in the state of late.

Amidst this atmosphere, betrayal of industries is sure to set the state on the path of economic ruin.

It's Bengalis Who Suffer In The End

What one must realise is that eventually, flawed policies ruin the state economy and eventually harm the masses in the long run. West Bengal's economic state remains precarious with fiscal deficits rising to 38% of the GSDP.

The state has performed poorly on credit ratings, indicating challenges in attracting investments in the market and poor fiscal health. Compounding these facts, one is scared that the Act may sound a death knell for industrial investments altogether and aggravate the industrial exodus further.

The economic conditions of the residents of West Bengal remain fragile. Supply side situation in the state is among the poorest in India with per-capita expenditure in both rural and urban areas, ranking among one of the lowest in India.

The state's GDP share has declined from more than 10% in 1960 to 5% today with per capita income at only 83.7% of national average, below its neighbouring states including Odisha.

Multidimensional Poverty in the state remains high with the population lagging behind other states including Uttar Pradesh and Bihar in rates of poverty alleviation.

Between debates of socialist ideas versus capitalist values, what is clear is that the economy of West Bengal and the people of the state will emerge as a clear loser from the government policies that are sure to alienate the industry.

Instead of continuing with a policy of correcting the historic wrongs towards the industry, the Act cuts open deep wounds and rubs salt on them.

In a time when the Indian economy's wheels are turning rapidly, the Government of West Bengal, in a spectacular display of bad faith towards the engines of the economy, has pushed the state down on the path to Economic Disaster which won't bide well both for the state and its population which is already living on the socio-economic edge.

Note: The author would like to thank Nikhil K. for legal perspectives on the issue.