West Bengal a state which lost it's economic glory!



The Union Budget has been presented and it is high time that we look at the state of the economy, financial health and policy stance of the government.


In terms of per capita income ranking, West Bengal slipped from seventh place among 25 states in 1980 to 21st among 29 states in 2018-19. In the 1950s and 1960s, West Bengal was compared to Maharashtra and Tamil Nadu, now states like Andhra Pradesh, Chhattisgarh, Punjab and Rajasthan are at par. West Bengal has a long coastline and shares its international border with Bhutan and Bangladesh. The state is the gateway to the northeastern part of the country. It also has a rich history as an industrial and trading centre. It is close to many iron and steel factories. Obviously, in order to regain the glory of its past, the state needs to make the right policies so that it can move in that direction at a faster rate than the rest of the country.


The Government of West Bengal seems to be continuing the policy of purchase and expenditure for items of immediate consumption. Its outstanding debt is estimated to increase from Rs 4.82 lakh crore in 2021 to Rs 5.29 lakh crore in 2022 at the end of March. This may further increase to Rs 5.86 lakh crore in 2023. The state's debt-to-GDP ratio is also much higher than the 25 per cent limit prescribed in the Fiscal Responsibility and Budget Management Act. Along with Punjab, its interest payment share in revenue expenditure is also highest. In the budget estimate for 2022-23, West Bengal will depend on tax transfer funds and grants from the central government for 48 percent of its receipts. The remaining 33 per cent will come from borrowings. This ratio is too high. For example, in Maharashtra, the dependence on tax transfers and grants is only 21 per cent while borrowing is 27 per cent.


With the pandemic on the expenditure front, the state government preferred subsidies and transfers over capital allocation. The government justified this subsidy and transfer saying that it increased demand and helped the needy and downtrodden. With the pandemic slowing down in 2022-23 (Budget Estimates), the pace of subsidies as part of expenditure is projected to come down from 7 per cent in 2021-22 (revised estimates) to 4 per cent for the year. Whereas capital expenditure will increase like this. The subsidy had increased from Rs 10,955 crore (Budget Estimate) in 2021-22 to Rs 18,720 crore (Revised Estimate) in 2021-22. That too is estimated to come down to Rs 10,935 crore (Budget Estimates) in 2022-23. The government has launched about 50 subsidy and transfer schemes under the names Rupshree, Shilsathi and Anandadhara. It would be useful to know which schemes the government wants to discontinue or curtail so as to avoid repeating the 2021-22 experience. At that time the subsidy allocation had increased by more than 70 per cent in the Budget Estimates and Revised Estimates.


The government's capital expenditure includes allocations to increase the productive capacity of the economy and repayment of debt. From an economic perspective, capital allocation is an important variable. The increase in subsidy in the phase between BE and Revised Estimates for 2021-22 resulted in a reduction in capital allocation from Rs 32,774 crore in BE to Rs 19,355 crore in RE. Talking about the cut in BE and Revised Estimates of capital allocation, it has come down drastically and for social services it has come down from Rs 12,818 crore to Rs 8,245 crore. Whereas in agriculture and allied activities and programs for rural development and special areas it came down from Rs 6,183 crore to Rs 1,744 crore. With such a low capital allocation, it is doubtful whether the government has the necessary capital for physical and social infrastructure.


Between 2012-13 and 2018-19, except for 2013-14 and 2015-16, the state's GSDP grew at a slower pace than the country's every year. To boost our enthusiasm, the minister told how West Bengal has achieved post-Covid recovery and managed to increase demand. Also, its GSDP is expected to grow by 12.8 per cent in 2021-22 while the rest of the country's GDP is growing only by 9.2 per cent. There are three basic questions here. First, unlike developed countries, is West Bengal facing demand constraints or supply constraints? Second, how much of the increase in demand goes to other states of the country and how much is beneficial to the state? Third, how is the GSDP growing fast in view of the high density of population in the state while industrial activity is not showing any growth?


Talking about helping the needy and downtrodden, such relief is justified even without increasing the demand. The problem arises when such relief is given to non needy people for political gains and buying votes. This is done at the cost of long-term development and ignoring the social and physical structure of the state. The problem of subsidies and transfer going to the incapable of people can be controlled only if there is transparency in the beneficiary selection.


Significant investments should be made in social and physical infrastructure to accelerate the pace of industrialization. It is only through him that meaningful employment will be provided to the people in the state. Note that West Bengal has 1,082 people per square kilometer as compared to the country's population density of 382 per square kilometer. Industrialization required affordable infrastructure and a reputed international consultancy company had indicated this in the 1990s after the Left Front government of the state presented the new economic policy. But without policies of transfer and subsidy, and without a foundation of rapid industrialization, stability will not be achieved and fiscal crisis will only emerge with unpaid bills and unfulfilled promises.

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