Bengal’s hopes ride on a pie in the sky
THE TELEGRAPH, Issue Date: Monday , November 15 , 2010
Calcutta, Nov. 14: Bengal finance minister Asim Dasgupta today dismissed Opposition allegations that the state was heading towards bankruptcy and claimed that a few favourable developments could “significantly” reduce the debt burden of the state, estimated at Rs 1.69 lakh crore at the end of the last fiscal year.
With the ratio of debt and gross state domestic product (GSDP) — value of goods and services produced in the state in a year — at 42.9 per cent (as of March 31, 2010), the debt burden of the state is the third highest in the country after Uttar Pradesh and Maharashtra.
“One cannot forget that the debt has been accumulating since the 1950s,” Dasgupta told The Telegraph this afternoon while pointing out that the same ratio for the Centre stood at 56 per cent.
“Net small savings collected in Bengal is the biggest part of the debt burden…. Our government had championed the cause of small savings to save people from chit funds,” added Dasgupta, sitting in his office in the Writers’ Buildings this afternoon and criticising the Centre’s policy of treating it as part of the state’s total debt.
The Trinamul Congress, the state’s main Opposition party, is crying itself hoarse over the rising debt burden of the state and has sought the governor’s intervention in Bengal’s money matters.
Of its total budget of over Rs 75,000 crore, the state spends around Rs 30,000 crore — part of a bigger non-plan expenditure bill — in paying salaries and pensions. (See chart)
Many believe that the high volume of salaries and wages — for over 4 lakh government employees and an equal number of teachers, from primary schools to universities — is one of the major reasons behind the fiscal mess.
“The Left government has its arguments for pursuing such a policy and there can be debates on the subject, but no other Indian state takes so much liability on paying salaries and wages of teachers,” said Ratan Khasnabis, professor of economics in Calcutta University’s business management department.
Amid the concerns over the sustainability of the debt burden, Dasgupta stressed that he was confident of bringing down the debt-to-GSDP ratio to around 30 per cent and ending the fiscal with lower borrowing than predicted in the budget.
He did not set any timetable for reaching the target but rolled out a set of likely favourable developments that would “significantly” bring down the debt burden.
Even as the Massachusetts Institute of Technology-educated finance minister contested the use of the debt-to-GSDP ratio as a measure of the state’s indebtedness — the debt figure is cumulative while the GSDP measures a year’s performance — he was hopeful of a “few percentage points’ reduction” in the ratio.
“We will have a comfortable position as the debt component will continue coming down while the GSDP will keep growing at around 9 per cent,” said Dasgupta while explaining the central and state factors that would play a role in debt reduction.
The finance minister’s comfort depends largely on another Bengali at the helm of affairs in Delhi, Union finance minister Pranab Mukherjee, who, unlike Trinamul leader Mamata Banerjee, has maintained silence on Bengal’s fiscal position.
According to Dasgupta, a staggered repayment of the Rs 7,000-crore due from the Centre, regular interest relief due on account of the state’s adherence to fiscal discipline, a rise in the state’s earnings on excise and value added tax, and reduction in wasteful expenditure will result in improvement in the ratio. (See chart)
These estimates — against the backdrop of over 33 per cent growth in VAT collections, 40 per cent growth in stamp duty mop-up and 21 per cent growth in excise earnings — will give his cabinet colleagues a chance to present a better fiscal future for the state.
Economists aware of Bengal’s finances, however, want to see the improvement first. Many of them also stress that the debt-to-GSDP ratio is a standard measure of indebtedness, that cumulative debt is a problem not unique to Bengal and that the rule of including small savings as part of debt affects all the states.
“One of the major components of the dues from the Centre is coal cess to the tune of Rs 4,883 crore, but the Centre has to agree to settle this claim. No other Indian state has any dispute over coal cess,” said M. Govinda Rao, director, National Institute of Public Finance and Policy.
Insiders in the state government were also not hopeful of any central largesse on account of coal cess even as Dasgupta stressed that the Supreme Court had upheld the “constitutional validity of levy and collection of cess on coal-bearing land by the state government”.
The finance minister’s estimates of higher collection —through excise and VAT — and significant reduction in wasteful expenditure are “unreal”, said a government official.
“The target of saving Rs 1,200 crore by keeping a tab on expenses is unreal as we are less than five months from the end of this financial year. Additional earning of Rs 200 crore by increasing VAT by 1 per cent on non-essential and luxury items is not feasible as the festive season of buying is already over,” said the official.
Dasgupta’s other bet —higher excise collection from the existing level of Rs 1,505.64 crore — can turn into a political hot potato in an election year as it is linked to higher sale of alcoholic beverages. The finance minister is hoping for an all-party consensus on allowing opening up of liquor shops to shore up revenues — Uttar Pradesh, Andhra Pradesh and Tamil Nadu have excise revenues in excess of Rs 9,000 crore — but that seems to be a distant dream.
“This government pursued stringent policies on opening of liquor shops for over 25 years. Now it is very difficult to suddenly increase the number of liquor shops across the state,” said a senior official.