As the dust settles over West Bengal’s electoral mandate, one re ality stands reinforce d – welfare-driven governance continues to enjoy public legitimacy. Schemes involving direct financial support have provided relief to households navigating inflation and uncertain employment .
In a state with longstanding social and economic disparities, welfare is not simply political messaging; it is often an instrument of stability. Yet the larger question concerns its long-term economic design. This is not abstract. Bengal’s 2025-26 Budget projected a gross state domestic product (GSDP) of approximately Rs. 20.31 lakh crore alongside a fiscal deficit of 3.5 per cent of GSDP. At the same time, recurring welfare commitments continued expanding steadily, with the Lakshmir Bhandar scheme alone estimated to account for over Rs. 26,000 crore in expenditure.
While the constitutionality of “freebies” as electoral promises, is presently under consideration before the Supreme Court of India, much of the discourse pertains to electoral ethics and fiscal discipline at most. But the deeper economic effect of persistent welfare-heavy governance often escapes the attention it deserves – the gradual increase in the hidden costs of economic participation itself. British economist Ronald Coase explained this idea remarkably. Coase argued that economies thrive when the friction surrounding transactions remains low. Businesses invest more confidently when approvals and licenses are predictable, contracts are enforceable and reliable. Growth, in other words, depends not only on incentives, but on ease.
This is where Bengal’s challenge becomes more subtle. The concern arises when recurring expenditure begins outpacing institutional capacity and investment. Over time, this imbalance begins revealing itself indirectly. The state budget reflects this rigidity. Committed expenditure is projected at nearly 56 per cent of the state’s revenue receipts, naturally reducing flexibility for infrastructure, administration, and capital-intensive growth measures. Bengal’s share in national industrial and private investment conversations today stands markedly diminished. While several social indicators have improved, the state’s ability to attract large-scale manufacturing and long-term private capital has remained comparatively restrained.
The contrast becomes particularly visible when compared with states that spent the last decade prioritising industrial infrastructure, logistics integration and administrative responsiveness alongside welfare. A manufacturer attempting expansion, say, near Howrah may not complain about welfare schemes at all. Instead, he encounters fragmented land holdings, prolonged clearances, logistical inefficiencies and uncertain timelines. A start-up may struggle less with taxation and more with procedural opacity. An infrastructure project may stall not because capital is unavailable, but because coordination across agencies becomes painfully slow. These are not dramatic crises. They are cumulative frictions. And cumulative frictions quietly alter investor behaviour.
States such as Karnataka and Telangana did not emerge as investment destinations merely through subsidies or headline announcements. Their larger success lay in gradually building perception – fair or otherwise – that decisions would move faster, infrastructure would improve steadily and governments would remain relatively responsive to industrial needs. Investors more often than not value predictability as much, if not more, as incentives. This is where welfare-heavy models require calibration. When a growing share of public expenditure becomes locked into recurring commitments, governments naturally find themselves with less room for long-term productive investment.
The irony is that this ultimately places pressure on the very social compact welfare intends to preserve. Sustainable redistribution depends upon a continuously expanding e c onomic base. Employment generation, industrial growth and private investment are not separate from welfare; they are what make welfare durable. This is perhaps the lesson Bengal ought to confront with candour. Economic stagnation did not arrive there dramatically. There was no single collapse. It emerged gradually – through normalised delay, hesitant infrastructure growth, informal gatekeeping around enterprise, suspicion towards technological advancement, and eventually, a broader perception that business in Bengal must first negotiate exhaustion b efore p ursuing opportunity.
Over time, what began as administrative friction hardened into economic reputation – and reputations, once formed, travel far faster than official assurances. Recalibration does not require abandoning welfare altogether. Nor does it require adopting a harsh market fundamentalism. The real deal lies in ensuring that social support does not crowd out institutional efficiency, investment and economic self-sufficiency.
Better targeting of subsidies, providing adequate state-support for quicker dispute resolution, digitised governance and policy stability are not anti-welfare measures; they are what allow welfare systems to remain sustainable. The state’s economic prosperity therefore depends on a simple balance: enterprise and trust ought to grow faster than friction. The easier it becomes to invest, build and conduct business with confidence, the stronger and more durable economic growth becomes. It can be reduced to a simple formula: Prosperity = Enterprise + Trust – Friction.
[The writer is an advocate before the Delhi High Court.]