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Last Updated : Feb 14, 2020 09:00 AM IST | Source: Moneycontrol.com

West Bengal will borrow to pay for freebies but keep creditors at bay

On the negative side, West Bengal has a high debt-GSDP ratio and low own tax revenue to GSDP ratio, huge debt liabilities; the positives are the numerous social sector schemes, infant mortality and maternal mortality rates are far better than the national average, its total fertility rate at 1.6 is the lowest in the country, it is the first in terms of school enrolment

Moneycontrol Contributor @moneycontrolcom

Subir Roy

West Bengal’s Trinamool Congress government has just presented its last full year budget before it goes to the polls next year and as may have been expected, it is full of freebies. The pattern of popular programmes announced are similar to those which were launched by Delhi’s AAP government. Though the budget was framed well before the choice of Delhi’s voters was known on Tuesday, party leader and chief minister Mamata Banerjee may well have guessed that Arvind Kejriwal was on a winning wicket.

The AAP government had delivered free or heavily subsidized power and water to the poor, transformed the state run school education system and taken major steps to deliver primary health care almost literally at the doorsteps of the poor.

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The West Bengal budget promises free power to consumers for 25 units per month, Rs 1,000 pension per month for scheduled caste and scheduled tribes senior citizens, government payment for the entire provident fund contribution of unorganized workers, homes for homeless tea garden workers, and more.

Concessions have also been extended to business, such as incentives for micro, small and medium enterprises, concessions on stamp duty to boost construction of residential realty and fresh settlement schemes for tax disputes.

Several questions arise from these largesses. Where are the resources? If they are not visible and the borrowing route is resorted to then what will it do to the future financial condition of the government as fresh debt will have to be serviced? Additionally, promising to dole out money is one thing, actually getting work done out of the expenditure incurred is another.

A key aspect of the AAP government’s performance was that it turned out to be very good on delivery. At the end of the day, a lot of the stuff promised was actually there on the ground. The transformation of government schools is recognized by all. Health delivery through mohalla clinics, has been slow to take off but here also perceptible change is seen to have taken place. But what truly sets apart West Bengal from Delhi is that the latter, the largest urban conglomerate in the country with substantial industrial capacity, is hugely resource rich. Delhi can and has paid for its freebies, but can West Bengal?

The West Bengal government has been lauded for the success of its scheme Kanyashree aiming to keep girls in school and college and not get married early and state healthcare does run better but the administrative resources needed to run multiple new development schemes are not all there on the ground right now.

As for financial resources, it may be recalled that when the Trinamool government came to power nearly 10 years ago it kept referring to the huge public debt burden bequeathed to it by the previous Left Front government. The size of that debt has got a lot bigger. In fact, there is remarkable continuity between the two even though they are publicly critical of each other. Both have laid great store by social sector expenditure while taking care to remain within the laid down financial norms and repayment obligations.

The state’s own revenue projection in its 2020 budget is not out of line with the current year’s. It has projected its own tax revenue to go up by 7.5 per cent in the coming year, compared to 8 per cent in the current year. The state’s projected share of central taxes and grants in aid are in line with the immediate past. On the other hand, total capital receipts are projected to actually go down, from Rs 60,000 crore to Rs 50,000 crore.

Between 2015-16 and the current year (2019-20 advance estimate) the state’s gross domestic product (SGDP) at constant prices has gone up by 6-10 per cent. The state’s finance minister Amit Mitra has compared this with the central government figures (between 8 per cent in 2015-16 and 5 per cent in the current year) and taken much credit.

Is the state getting overindebted as a result of distributing freebies without the income to match it? Debt as a per cent of GSDP has gone down from 38 per cent (2015-16) to 33 per cent (2019-20). Interest payment as a percentage of revenue receipt has gone down from 21 per cent (2015-16) to 19.2 per cent (2019-20). And fiscal deficit as a percentage of GSDP has remained at 2.6 per cent between the two years. These figures, the budget documents say, demonstrate favorable movement towards compliance of conditions under WBFRBM Act, 2010.

What do others think of the state’s finances? According to an observation by the 15th Finance Commission made in 2018, the state can claim credit for running numerous social sector schemes, 96 per cent of births are institutional, infant mortality and maternal mortality rates are far better than the national average, its total fertility rate at 1.6 is the lowest in the country, it is the first in terms of school enrolment and distribution of scholarships, exceptional in production of pulses, rice and oilseeds and among the top in ease of doing business.

On the negative side, West Bengal has a high debt-GSDP ratio and low own tax revenue to GSDP ratio, huge debt liabilities, high interest payment obligations, historically low base of capital expenditure, limited revenue raising capacity because of the size of its informal sector, and huge population density. It has a low development expenditure and capital outlay to GSDP but a high social sector expenditure to GSDP.   The state has 20 per cent of its population living below the poverty line, compared to a national average of 22 per cent for the whole country.

Will the freebies put West Bengal in severe financial difficulties? For one thing, by the time the bureaucracy manages to sanction a sufficient number of pensions, one financial year at least will be over. West Bengal has had three finance ministers in the same mould - Ashok Mitra, Ashim Dasgupta and Amit Mitra - competent economists good at rhetorical combat with the centre. This gives them time to find the resources to pay up when the bills arrive.

Ashok Mitra, for example, famously questioned the book keeping accuracy of RBI. By the time the RBI rechecked their accounts and came back to Mitra to say they were on the mark, Mitra had got critical breathing space to arrange the funds. Most recently, Amit Mitra has dwelt at length on the amounts due from the centre. So the game goes on.

Subir Roy is a senior journalist and author. The views expressed are personal.

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First Published on Feb 14, 2020 09:00 am
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