The Communist Party of India (Marxist), once the standard bearer of a movement that governed 90 million people in the state of West Bengal for 34 unbroken years, now scarcely registers on the national radar. For those of us who spent the 1970s and 1980s watching the ‘red corridor’ from Calcutta to Tripura, the decline is both startling and instructive. It is a lesson in how fiscal reality and market forces eventually outpace ideology, no matter how passionate the adherents.
Let us start with the numbers. In the 2004 general election, the CPI(M) won 43 parliamentary seats. By 2019, that number had collapsed to three. In West Bengal, it polled 2.3% of the vote, a catastrophic decline from its 1999 high of 35%. The CPI(M)'s once mighty ‘mass base’ has been hollowed out by the dual forces of authoritarian populism and Hindu nationalism, personified by the Trinamool Congress's Mamata Banerjee and the BJP's Narendra Modi. But beneath the political rivalry lies a more fundamental economic story.
For decades, the CPI(M) controlled West Bengal with a mixture of land reform and trade union militancy. They redistributed land to the poor, built rural infrastructure, and kept industrial peace. But the model had a fatal flaw: it treated capital as an adversary, not a partner. In 2008, when the party blocked a Tata Motors factory in Singur over land acquisition disputes, it sent a signal to every corporate boardroom in India: invest at your peril. The ensuing capital flight was as predictable as it was devastating. West Bengal’s share of foreign direct investment fell to below 2% of India’s total. The state’s growth rate languished below the national average. The CPI(M) had created a welfare state without the wealth to sustain it.
The party’s economic illiteracy extended to fiscal policy. It ran persistent budget deficits, financed by borrowing from the central government and the market. Bondholders began to demand higher yields to compensate for the risk of default. The state’s debt-to-GDP ratio climbed above 35%, a level that would make any City analyst wince. Inflation, fuelled by populist subsidies and wage demands, eroded the purchasing power of the very poor the party claimed to champion.
Meanwhile, the central bank, the Reserve Bank of India, gradually tightened monetary policy to contain inflation. Higher interest rates squeezed state finances, forcing the CPI(M) to cut capital spending. The irony was exquisite: a party founded to liberate the proletariat was strangling its own economy with profligacy and hostility to market forces.
The political fall was swift. The 2011 state election saw the CPI(M) swept out by Mamata Banerjee, a firebrand who understood that voters wanted not just bread, but also butter, electricity, and jobs. The party’s national influence evaporated. Its last bastion, Kerala, remains under CPI(M) rule, but even there the party has had to moderate its stance to attract investment. The state now courts IT firms and tourism, a far cry from the class war rhetoric of the 1970s.
What does this mean for India? The decline of the CPI(M) removes a significant check on the Modi government’s centralising tendencies. The BJP now faces a weak opposition, which in a vibrant democracy is unhealthy. But from a financial perspective, the death of doctrinaire socialism in India is a net positive. The market has rewarded states that embrace liberalisation. Gujarat, which abandoned the Congress party’s statist model in the 1990s, attracts three times the FDI of West Bengal. Its per capita income is 40% higher. The arithmetic is brutal but clear: capital flees from economic illiteracy.
For the London banks and investment houses that still monitor Indian state bonds, the CPI(M)’s decline reduces political risk. No longer will a regional party be able to hold the central government hostage over land acquisition or trade union demands. The centre’s fiscal discipline, enforced by the 2003 Fiscal Responsibility and Budget Management Act, is now more likely to cascade down to the states. Gilt yields in India have been on a downward trend, and the CPI(M)’s irrelevance is part of that story.
Yet one must be cautious. The void left by the communists is being filled by hyper-nationalist populism, which carries its own fiscal dangers. The BJP’s penchant for corporate bailouts and agricultural loan waivers could, over time, undermine the country’s sovereign credit rating. The party’s attacks on independent institutions, including the central bank, are worrying. But for now, the market verdict is clear: better a pragmatic nationalist than a doctrinaire socialist.
In the end, the CPI(M)’s decline is a cautionary tale for anyone who believes that ideology can trump economics. The laws of supply and demand, of fiscal arithmetic, are as immutable as gravity. You can ignore them for a time, but eventually they will bring you down. The red flag that once flew over Calcutta’s Writers’ Building flies now only in memory. And in the City, we say: never fight the tape.
