After the resounding electoral mandate for change, all eyes are now on the new West Bengal government’s 2026-27 budget, which is likely to provide key pointers to how the new administration intends to chart out the state’s development trajectory.
The task ahead is daunting. The state has slipped significantly in its economic performance. West Bengal’s per capita gross state domestic product in 2024-25 was Rs 1.8 lakh against Rs 3.7 lakh for Gujarat and Rs 3.1 lakh for Maharashtra. Bengal has been increasingly spending more on salaries and pensions, cash and other welfare transfers, and interest payments on outstanding loans, with revenues failing to keep pace. This was reflected in the revenue deficit of 2.4% of GSDP in 2024-25 (revised budget estimates) and the fiscal deficit of 4%. Compare this with Gujarat’s revenue surplus of 0.71% and fiscal deficit of 1.83%; Maharashtra’s revenue deficit was 0.66% and fiscal deficit 2.74%; Uttar Pradesh had a revenue surplus of 1.96% of GSDP and a fiscal deficit of 2.06%.
The inability to mobilise higher revenues and control revenue expenditure has curtailed the much-needed capital expenditure to upgrade and modernise Bengal’s industrial and urban infrastructure and build quality public hospitals, schools, colleges and universities. As a result, West Bengal’s capital expenditure during 2024-25 was significantly lower at 1.91% of GSDP against 2.18% for Maharashtra and 3.64% for Uttar Pradesh. Despite this, the state’s outstanding loans were over 37% of GSDP, as against 15% for Maharashtra and Gujarat and 26% for Uttar Pradesh.
With a debt overhang and a legacy of profligate expenditure, the new government needs to walk a tightrope to balance its expenditure commitments and implement policy actions that usher in a swift and sustainable economic revival.
If we consider the last three-year annual average GSDP growth rate of 11% and annual revenue growth of 10%, incremental revenues (beyond 2024-25 revised budget estimates) in 2026-27 are likely to be around 2% of 2026-27 GSDP. This revenue increase is not likely to cover the incremental spending on welfare schemes (the single largest expenditure item), salaries and pensions (post implementation of the Seventh Pay Commission) and interest payments, which, as per our estimates, will add up to over 2.3% of 2026-27 GSDP.
With the revised 2024-25 budget fiscal deficit already at 4% of GSDP, the state government needs to make some swift and targeted interventions to ensure that it does not breach the Fiscal Responsibility and Budget Management target of 3% fiscal deficit set by the 16th Finance Commission.
Here are some policy options for the finance minister and his team.
West Bengal’s own tax and non-tax revenues were 5.5% of GSDP and 0.18%, respectively, in 2024-25. These represent revenue sources, which remain under state government jurisdiction like excise duty, stamp duty and registration fees, motor vehicle taxes, royalty on mining and natural resource extraction, dividends from state-owned enterprises and so on. For each of these areas, a focused exercise for benchmarking and rationalising the tax/user charge structure, comprehensive mapping of the taxpayer/user base and the digitisation of the entire assessment and collection process are required. Case in point: West Bengal charges a fixed road tax for two-wheelers and four-wheelers based on engine and seating capacity whereas most other states charge road tax based on the price of the vehicle. As a result, the state loses out vis-à-vis other states when it comes to high-end vehicles.
As West Bengal invests in upgrading its infrastructure, it should actively leverage Government of India schemes like the Special Assistance to States for Capital Investment scheme to minimise its own expenditure. The scheme provides 50-year interest-free loans over and above the normal borrowing ceiling for states and can be used for infrastructure creation across sectors. It also has specific components of financial support linked to reforms like digitisation of land records, property tax reforms and so on which can also help further the governance agenda. States like Uttar Pradesh have been consistently able to mobilise more than Rs 10,000-Rs 15,000 crore annually under this scheme.
Asset monetisation has been a significant contributor to the Central exchequer, with the GoI having mobilised over Rs 5 lakh crore during 2022-25 as part of the National Monetisation Pipeline 1.0. The state government needs to actively consider similar PPP models to monetise its existing infrastructure assets like state highways, power transmission and distribution lines, bus terminals and sports stadiums, among others. In addition to mobilising resources through the monetisation process, the state would also benefit through equivalent untied financial support under the SASCI scheme.
For creating fresh infrastructure, the state government needs to leverage its own land assets (where possible) to adopt suitable PPP models in areas like affordable housing, workers’ hostels, health and education and so on.
The state also needs to actively explore consolidating and discontinuing existing low-impact or duplicative schemes. Also, GoI schemes like Ayushman Bharat, Pradhan Mantri Awas Yojana, Jal Jeevan Mission, and Pradhan Mantri Gram Sadak Yojana should replace the corresponding state scheme wherever applicable, thereby enabling the Central government to pick up 50%-60% share of the expenses.
As already announced by the state government, the list of target beneficiaries for all schemes needs to be validated by leveraging e-KYC initiatives as adopted by the GoI to prevent people who are not eligible from benefitting. Similarly, GoI practices for verification of assets created through schemes need to be adopted to weed out corruption and maximise development impact.
The forthcoming budget 2026-27 is but the first step in a long journey for West Bengal to regain its eminence and emerge as a key contributor to the Viksit Bharat initiative. Hence, it is important that the government leverages the key enablers to achieve the delicate balance needed for sending the right signals to citizens as well as investors.
Arindam Guha and Sabyasachi Mitra are founding partners of Datavantage Advisory LLP