It is already declared in the West Bengal state financial budget 2010-11, that the state economy is bearing a burden of debt of Rs. 1.69 lakhs Crores. But this can never be a rationale economic parameter to identify the state as a ‘bankrupt’. If so, then the central government had to declare more than a dozen of states as bankrupt far ago. At the end of the last financial year, the amount of entire debt formulated in stae economy was 1.69lakh crores. And the amount started to consolidate since 1950’s. it is also very important to state in this juncture that, when our state economy is bearing a burden of debt of Rs. 1.69lakh crores, at the same time Indian economy is bearing a burden of debt of Rs. 35lakhs crores too (Source : Central Financial Survey, 2009-10).
According to the available data of RBI (Feb 2010) West Bengal is holding the third place in the context of debt burden out of all the states in our country. Uttarpradesh is holding the first place with Rs. 2.21lakhs crores and Maharastra is following UP by 2.08 lakhs crores. Andhra Pradesh and Gujarat are existing in the consecutive positions. But it is also pertinent to say, that as the amount of debt burden is varying among the states, the variations in income are also present within it. So the comparative study is done by debt-income ratio (GSDP). The RBI data reveals that , though West Bengal is holding the third place in the context of debt formation, but the state holds the 11th place in the country as well as 4th out of the large states in the country in terms of GSDP ratio.
Five years back, the GSDP ratio was 48% in the state, and, presently it decreased to 41%. But the data of GSDP ratio of Indian economy is fairly greater (56%) than our state economy in the same time frame.
It is very important to analyze the economic situation of our state economy now. The important feature of the debt formation in our state reveals that the major portion of it is generated from the micro savings schemes. Actually, the difference between the amount saved by the people of any state in post-office schemes in a specific financial year and the entire withdrawal out of it produces the debt of micro savings sector. For example, if in a a specific financial year if people save Rs 6,000 crores under micro savings scheme, and withdraw Rs.1,000 crores, then (6000crores-1000crores)= Rs. 5000crores is the net amount of debt generation under micro savings schemes. As bond papers of the micro savings schemes are provided by the central government, so essentially the burden goes to it. But according to the financial policy of our central government, the above said generation of debt is actually imposed on the corresponding state governments by the Central government. More than that, the state governments have to pay the rate of interest on this debt, which is 2% higher than that of the public rate of interest. To save the people of West Bengal from the traps of the Cheat Funds, the Left Front government started to emphasize on the micro savings schemes, and this is still going on by the declared principle of LF government in our state. Now West Bengal stands first in the country in the context of micro savings. This form of savings becomes boomerang in the form of debt to the states with more rate of interest. As the state governments do not limit on the amount of the small savings, so the amount of the debt is not also fixed by the concerned state governments. It is also seen that as Maharastra and UP is holding two highest position in the debt formation within the country, the advancement in micro savings schemes is much better in both those states.apart from micro savings the debt formation in the states depend on two more aspects- i) the state government bonds , ii) the deposits in the local funds.the states government bonds are usually purchased by the Public Sector Banks or by the Insurance companies. And the deposits in the local funds does not produce debt at all. The remitted or better to say the unspent amount of the Panchayats etc. are trated as the the debt of states by the mechanical procedure of of the central governments and the CAG. After repeated protests aginst this financial policy, the 13th Finance Commission started to impose a little lower rate of interest under micro saving schemes of the states than before.
The amount of debt of all states are fixed in the Planning Commission meeting by a uniform policy. The yardstick of measuring debt is, 3.5% of the gross revenue of corresponding state will be the amount of its debt. In this process the target is fixed 21,900 crores in this financial year. Out of which 15,500 crores can be earned by selling the bonds to the banks or insurance companies. But, West Bengal government has decided only to take Rs. 7,500crores out of the entire amount formed by selling the bonds. So at the end of this financial year, consolidation of debt may reach 10.92lakhs crores in our state. The borrowings will also decrease from this financial year too. One surprising statistics is pertinent in this context that, when GSDP ratio of our country is 56% now, the GSDP ratio is 80% for most of the advanced economies for several years.
If one feature of debt formation is due to the micro savings schemes, the important feature of state expenditure is to take the responsibility of paying salry and retirement benefit to all levels of teachers as well as the employee of the Panchayat and Municipalities. This expenditure is the part of beyond planned expenditure. Comparatively the other states do not take this responsibilities as well, even they have taken, it is purely partial.
In the current financial year the entire budgetary amount is Rs. 75,803 crores . Out of it the planned expenditure is 19,069crores. Rs. 56,744crores is the amount of beyond plan expenditure. If the expenditure in developmental activities (the total expenditure in social sector) are considered then the amount reached 42,000crores. Planned expenditure is a part of Developmental expenditure. Sometimes, the low allotment of planned expenditure of West Bengal comes into the unjustified debate of the oppositions. A comparative analysis is required to discuss upon this matter. In 1976-77 the planned expenditure of West Bengal was Rs.200crores under the Congress ruled government. In the periods of Left front Government the allotment increased in a continuous manner, in 2003-04 it reached 4,397crores, and in 2007-08 it reached up to 12,469crores, and in 2010-11 it is 19,069crores that implies , in the last 3 to 4 years it is enhanced by several times.
Most of the beyond plan expenditure is used to meet the salaries and the retirement benefits. In the time of 2nd Left Front Government it was decided that the state will take the responsibility to pay the salaries and retirement benefits to the State Government Employees, and the teachers from primary to university level, which is not at all practiced by most of the states. The salaries and other perquisites of the teachers are far increased than earlier days. Left Front Government has also taken the responsibility of paying salary and retirement benefits to the municipal as well as the Panchayat employees too. Presently total number of state government employees and teachers in our state is 4lakhs consecutively. Except it, there exists huge number of municipal and Panchayat employees. In each 7 to 8 years interval Central government restructures the pay scale. Taking all these factors the state government is now under a situation to take more financial responsibility than before.
The revenue side of the state government is also to be discussed with immense importance. It is expected in the state budget that VAT collection will be increased by18% and other taxes like stamp duty registration fee, excise fee will also icrease 15%. But in reality the VAT revenue increased 33% and stamp duty registration fees and excise duty increased by 40% and 21% respectively. So revenue earned more than that of the anticipative earnings. Computerization of tax collection resulted in a good note. West Bengal usually earns least from the wine industry in comparison to the relevant states in this particular sector. The excise duty earned by West Bengal is only 1,800crores. By selling only foreign liquor Andhra Pradesh is earning12,000crores. The government critically wants to deal the matter of reopening the wine shops in some publicly granted areas for further excise duty earnings considering the social issues relating with it. In this particular matter all party consensus is mostly needed. Introduction of VAT reduces the impact of tax evasion in the industries closely related with employment. Though Service sector is developing in West Bengal day by day, but still it is impossible to earn tax revenue from it. On the other hand, all the agro-products are out of the VAT and Sales Tax regime by the directives of the government. The rate of VAT on essential agricultural and industrial products is just 4%. When GST will be implied, state will definitely more than now.
All the problems are created due to the policy of the central government, which is full of disparities. According to the constitution of India, article 49&50 of State list depicts that state will have the right to collect the cess and will earn the royalty on coal sector. Since 1987 the rate of royalty increased five times but state did not receive the increased royalty ever. In this context, the amount of dues regarding royalty is generated by 4,800crores excluding the interest , which is still unpaid to the state by the central government. It is also important to note that, by the directives of 13th FC when the rate of interest on micro savings decreased by 2%, so by this way of evasion Rs. 700crores is still unpaid to the state by the central government. Regarding the imposition of GST, when it was decided that the inter state sales tax will be reduced by steps, then states will be given to power to impose some new taxes and an amout of subsidy will be given-on this very basis West Bengal is yet to receive Rs. 900crores from the central government. In the purpose of reconstruction regarding Ayla disaster Finance Commission allotted a scheme of Rs. 5,032crores, out of which Rs. 672State is still unpaid to the government for this financial year. Apart feom it central government did not disburse Rs. 776crores for drought recovery which was proposed by the National Disaster Management Commission under the recommendation of 13th Finance Commission. Summing up all these unpaid dues, West Bengal Government is yet to receive Rs. 7000crores from the Central government.
So to carry on the post drought financial processes and all the developmental activities in condition of huge dues , a financial problem is created in our state. In this perspective government of West Bengal has decided to reduce unnecessary unplanned expenditure by 10 % and to impose a 1% increase in VAT on the luxury goods excluding agro-products and raw materials used in agriculture and industry. It is expected that reduction in expenditure will definitely produce extra 1,000crores savings and the VAT increase will produce extra 200crores revenue earnings. It is an utopia that, State government will wipe out the all problems by receiving 7,000crores from the Central Government, but it will definitely help the state government easier to tackle this financial crunch. On the issue of overdraft, one thing has to be clear that, budgetary allocation is made for the one financial year. But in practice, the accounts of revenue earnings and expenditure is accounted in daily basis. The days, when revenue is greater than that of the expenditure, the extra amount is held by the state government in the form of treasury bills by the directives of RBI. The days, when expenditure becomes greater than than the revenue earnings within a limit, government has to take overdraft from RBI. In this year the number of days, where surplus generated is nearly 5 times greater than that of the days of the deficit.
It is also pertinent to note that in the year 2008-09 the deficit came to 3.8% in respect of income, but it raise up to 4.7% after restructuring of the pay scales. In the next year it will again fall up to 3.5%. Consisting the target of 8lakhs employment per year and maintaining all the production sectors unabated, government is highly optimistic to sail the economy smoothly, which in turn will reduce GSDP ratio. On the other hand it will increase VAT earnings. Implementation of GST will further benefit the state.