Across four very different states — Assam, Kerala, Tamil Nadu, and West Bengal — voters gave resounding mandates in the 2026 Assembly elections. The landslide victories underscored how decidedly voters wanted to either punish the incumbent and summarily change the way their states were being governed or, as was the case in Assam, to reward the incumbent without hesitation.

Here’s a look at some of the key macroeconomic data and the state government’s fiscal health. This is not just to understand why voters might have chosen the way they did, but also to recognise the main challenges the incoming Chief Ministers face.

State of economic growth and people’s incomes

Chart 1 captures a broader trend of how each of the four states grew and what happened to average incomes in each of the states over a decade between 2015 to 2024.

Over this decade, Assam’s gross state domestic product (GSDP) — a measure of the overall size of the economy — not only grew at the fastest rate among the four states in question but also has been one of the fastest across India. Among the larger states, only Telangana registered a faster growth rate during this period.

As a result, Assam registered the fastest growth rate in per capita incomes, beating not just Telangana but also other prosperous states such as Gujarat and Karnataka. Even though Assam’s per capita GSDP is still the lowest in this comparison, it has almost trebled to catch up with West Bengal. The two states that were bastions of Left parties, West Bengal and Kerala, continued to post modest gains for their people with per capita GSDP growing at a rate below 5%.

Tamil Nadu has fared better over the past decade, and an average resident of the state is now richer than their next-door neighbour in Kerala, thanks to substantially faster growth rates both of the overall economy and per capita incomes. Kerala had registered the slowest growth rate in overall economic size — a pace that has seen some other states (such as Telangana and Gujarat) jump ahead in per capita incomes.

State of (un)employment

India is undergoing a demographic transition with millions joining the working age population, and this has created a growing challenge for governments in the form of unemployment.

Chart 2 maps two key metrics in this regard. The Labour Force Participation Rate (LFPR) essentially tells the demand for jobs in a state. Higher the LFPR, more the percentage of people in the working age group who are actively looking for a job.

Compared with the national average of 55.1%, all the states that went to polls had a higher demand for jobs. None more so than West Bengal, which also had the highest unemployment rate among the four states. The unemployment rate is the percentage of people who were looking for a job but did not get it.

West Bengal’s unemployment rate was substantially higher than the national average, while Kerala’s was the lowest and substantially lower than the country’s average. Tamil Nadu’s unemployment rate might be lower than West Bengal’s, but one has to take into account the lower demand for jobs as well. For instance, even with lower LFPR than Assam, Tamil Nadu has been witnessing a higher unemployment rate, suggesting there was elevated stress among voters when it came to jobs.

However, before any Chief Minister can address these macroeconomic parameters, they will have to first set in order the health of government finances. A government that has already borrowed more than its capacity, one that is saddled with the burden of paying back past loans, or one that is spending too much on freebies instead of creating new productive assets, cannot reignite a state’s growth story. 

Charts 3 and 4 lay down some of the key metrics that the incoming Chief Ministers will have to contend with.

The first metric is fiscal deficit as a percentage of the state’s economy. Fiscal deficit essentially refers to the amount of money a state government can borrow from the market to meet the gap between its revenues and expenses. Prudential norms peg it to be 3% or lower. As things stand, West Bengal was the one state that exceeded this prudential norm.

But another key metric — revenue deficit or gap between a state’s revenue expenditure and revenue receipts — shows that while the overall borrowing levels may not be as high, the borrowed money is being used by many just to meet day-to-day gaps in expenditure and revenues.

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Ideally, the 3% fiscal deficit should be used to invest in capital expenditure — the kind that creates productive capacity in the economy like making roads, railways and ports, etc. But if a state has a revenue deficit, it implies that the government is borrowing to meet its everyday expenses such as salaries and pensions. Barring Assam, the other three slip up on this metric.

A growing worry in this regard is the growth of unconditional cash transfers by state governments in aid to alleviate economic distress among voters and to purchase allegiance. West Bengal, for example, has been spending 10% of all its revenue receipts on such doles. Read in the context of a revenue deficit, this essentially means the state government is borrowing to dole out cash.

Lastly, when governments borrow recklessly for years, the interest on past loans starts to pile up. Chart 3 shows how all the states have racked up high interest payment bills. West Bengal’s number does not show as much growth but it was high to begin with, whereas Kerala and Tamil Nadu’s liability in this regard has shot up.