[Reader-list] Financial Statements WB

[A. Mani]

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Source:  People's Democracy
Vol. XXXVI
No. 11
March 11, 2012
WEST BENGAL



State Finances: Misleading Statements

by TMC-Congress-led Govt
Asim K Dasgupta

MISLEADING statements are often being made by the TMC-Congress-led
state government in West Bengal regarding state finances, particularly
relating to (a) debt of the state government and (b) low availability
of funds for Plan expenditure in the state. According to these
maligning allegations, these two financial problems have arisen due to
the wrong policies of the Left Front government in West Bengal. These
allegations have already been refuted several times by facts and
analysis, and the refutations have also been duly published in most of
the local print and also in some of the national newspapers. The
allegations have been rebutted through some news channels also. It may
be useful to restate the correct facts with analysis.



ON GOVT

DEBT

Misleading Statement:  The Left Front government in West Bengal has
left a debt of Rs 2.04 lakh crore.



Facts:  It is well known that in terms of Constitutional provisions
and existing centre-state relations, all state governments are
entitled to raise revenues from certain taxes and non-tax items; get
share of central taxes and central grants and they are also entitled
to borrow with approval of the central government.  The total borrowed
amount of the state governments usually consists of market borrowing
(raised in terms of state government bonds generally subscribed by
banks and insurance companies), central loans, loans imposed on the
states related to small savings, General Provident Fund (GPF) of
employees kept with the state governments etc.



In terms of these Constitutional provisions, all the state governments
have certain accumulated or outstanding debt, and similarly the
central government also has an amount of outstanding debt. The
outstanding debt of the government of West Bengal as on May 18, 2011
(the last date before the TMC-Congress-led state government assumed
power) was Rs 1.91 lakh crore, and not 2.04 lakh crore as wrongly
alleged.  As per the latest data on State-wise debt position (as on
March 31, 2011) published by the Reserve Bank of India (State
Finances, 2010-11, RBI, p. 152), the highest outstanding debt among
the states is that of Maharashtra (Rs 2.36 lakh crore), followed by UP
(Rs 2.35 lakh crore), then West Bengal (Rs 1.91 lakh crore as on May
18, 2011, as already mentioned),  Andhra Pradesh (Rs 1.37 lakh crore),
Gujarat (Rs 1.36 lakh crore), Tamilnadu (Rs 1.09 lakh crore) etc.  The
debt figures of all these other states will, of course, be higher on
the later date of May 18, 2011, but for that date only the figure for
West Bengal is readily available as has already been presented.  The
outstanding debt of the government of India is, of course, very high
at Rs 39.44 lakh crore as on March 31, 2011. The debt position of the
states is usually compared by the Reserve Bank of India by expressing
outstanding debts of the states in terms of ratios of debts to
corresponding Gross State Domestic Products (GSDP) of the states, and
that of government of India as ratio of debt to the corresponding GDP.
 In terms of this proper measure of comparison, the debt position of
government of West Bengal has been 11th among the states with the
debt-GSDP ratio at 40.8 per cent in 2010-11 (State Finances, 2010-11,
RBI, p. 153).  It may further be noted that due to the policies
followed by the Left Front government in West Bengal, this debt-GSDP
ratio has systematically fallen from 49.9 per cent in 2005-06 to 40.8
per cent in 2010-11.  However, the debt-GDP ratio of the government of
India has still remained high at 50.1 per cent in 2010-11 (Economic
Survey, Government of India, 2010-11, p. 59).  It is by now well known
that debt-GDP ratio of the US has recently increased to reach 100 per
cent and that of the several European countries has crossed 100 per
cent.



A distinguishing feature of the debt of West Bengal is that the most
significant component (nearly Rs 75,000 crore) of this total debt has
been caused by small savings related debt burden imposed by the centre
on the state government.  The Small Savings programme implemented
primarily through post offices across the country is a good national
level programme.  However, according to the unilateral decision of the
government of India, if in any financial year, there is a certain
amount of net small savings collection in the post offices in a state
by the people of that state (i.e. after allowing for withdrawals),
then 80 per cent of that amount of net small saving collection would
be compulsorily imposed as debt on the state government with high rate
of interest, without the state government having any say in the
matter. Since people of West Bengal have over the years decided, for
reasons of financial security and returns, to keep their hard-earned
savings significantly in the small saving schemes, and West Bengal has
occupied the first position among the states in this important
national programme, the government of West Bengal has, in effect, been
paradoxically penalised in terms of the most significant incidence of
the small savings related debt component in the total debt of the
state.  The Left Front government of West Bengal has repeatedly argued
before the government of India that if net small savings collection in
a state is a positive surplus, then after allowing for a deduction for
interest payment, that net surplus of small savings collection should
be shared between the centre and the state as grants, and that this
surplus should not be unilaterally imposed only on the state as loan.
But, the government of India has not listened to this argument,
presumably because of the fact that if net small savings collection is
imposed as central loan to the states, that will, through loan
repayment, add to extra earnings for the centre.  This unjust decision
of the centre has specially increased (because of the highest position
of West Bengal in small savings collection) the debt of the government
of West Bengal.



Despite this injustice, the Left Front government had succeeded, as
mentioned earlier, in reducing the debt-GSDP ratio systematically in
recent years.  This was made possible by higher collection of state
tax revenue, and availing lesser market borrowings than even what was
approved by the government of India.  In the 2010-11, the last
financial year of the Left Front government, the total market
borrowing approved by the government of India was Rs 15,056 crore.
But the actual borrowing taken by the Left Front government in the
entire year 2010-11, was much less - only Rs 9,500 crore. In the
sphere of market borrowing, the position of government of West Bengal
was sixth among the major states.  However, after TMC-Congress-led
government came to power on May 19, 2011, over a period of only nine
months, this new government has already taken recourse to market
borrowing of an alarming amount Rs 17,500 crore and has become the
highest market borrower among all the state governments.



ABOUT LOW

AVAILABILITY OF FUNDS

Misleading Statement:  Payment of salary and pension of employees,
teachers and others and payment of interest and principal of loans
take away 94 per cent of total budget, and only 6 per cent is
available, which is too low for Plan expenditure etc.



Facts : The Left Front government of West Bengal has given effect to
pay revision of not only state government employees, but also of
teachers, employees of panchayats, municipalities, undertakings etc.,
and has during its tenure already borne the entire financial burden of
current revision from 2009-10, and two-thirds of arrear payments. At
the same time, with introduction of comprehensive Value Added Tax, and
strict measures at tax compliance, there has been a significant growth
of state tax revenue, of about 25 per cent in the last financial year.
In consequence of these measures and other factors, the space of state
budgetary resource available for Plan expenditure after payment of
salary, pension and interest and principal of loan is now
significantly much wider than 6 per cent.



According to the Budget Publication No. 9 (pages 4, 5, 6, 7 and 20),
presented by the TMC-Congress-led government itself in West Bengal
state assembly in June, 2011, the estimated total receipts of the
state government in the financial year (2011-12) is at Rs 87,643
crore.  On the other hand, the sum total of payment on account of
salary, pension, interest and principal of loan is Rs 54,930 crore
which is 63 per cent (and not 94 per cent as misleadingly stated), and
therefore 37 per cent (and not 6 per cent) of total budgetary
resource, i.e. more than Rs 32,000 crore is available for Plan
expenditure and other essential expenditure.



Both the allegations relating to the debt of the state government and
availability of funds for Plan expenditure in the state have thus been
once again factually refuted.



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A. Mani





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