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Asim Dasgupta on State Finances, 11th March 2012

Asim Dasgupta on State Finances, 11th March 2012

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Published by Ajoy Dasgupta
Former Finance Minister of West Bengal Asim Dasgupta analyze the financial situation of West Bengal (11th March, 2012).
Former Finance Minister of West Bengal Asim Dasgupta analyze the financial situation of West Bengal (11th March, 2012).

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Published by: Ajoy Dasgupta on Jun 30, 2012
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State Finances: Misleading Statements
by TMC-Congress-led Govt
Dr. Asim K Dasgupta
MISLEADING statements are often being made by the TMC-Congress-ledstate government in West Bengal regarding state finances, particularly relating to (a) debt of the state government and (b) low availability of fundsfor Plan expenditure in the state. According to these maligning allegations,these two financial problems have arisen due to the wrong policies of theLeft Front government in West Bengal. These allegations have already beenrefuted 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 thenational newspapers. The allegations have been rebutted through somenews channels also. It may be useful to restate the correct facts withanalysis.
Misleading Statement:
The Left Front government in West Bengal hasleft a debt of Rs 2.04 lakh crore.
It is well known that in terms of Constitutional provisions andexisting centre-state relations, all state governments are entitled to raiserevenues from certain taxes and non-tax items; get share of central taxesand central grants and they are also entitled to borrow with approval of thecentral government. The total borrowed amount of the state governmentsusually consists of market borrowing (raised in terms of state government bonds generally subscribed by banks and insurance companies), centralloans, loans imposed on the states related to small savings, GeneralProvident Fund (GPF) of employees kept with the state governments etc.In terms of these Constitutional provisions, all the state governments havecertain accumulated or outstanding debt, and similarly the centralgovernment also has an amount of outstanding debt. The outstanding debtof the government of West Bengal as on May 18, 2011 (the last date beforethe TMC-Congress-led state government assumed power) was Rs 1.91 lakhcrore, 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 ReserveBank of India (State Finances, 2010-11, RBI, p. 152), the highestoutstanding debt among the states is that of Maharashtra (Rs 2.36 lakhcrore), followed by UP (Rs 2.35 lakh crore), then West Bengal (Rs 1.91 lakhcrore as on May 18, 2011, as already mentioned), Andhra Pradesh (Rs 1.37lakh 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 onthe later date of May 18, 2011, but for that date only the figure for WestBengal is readily available as has already been presented. The outstandingdebt of the government of India is, of course, very high at Rs 39.44 lakhcrore 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 DomesticProducts (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 11thamong 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 tothe policies followed by the Left Front government in West Bengal, thisdebt-GSDP ratio has systematically fallen from 49.9 per cent in 2005-06 to40.8 per cent in 2010-11. However, the debt-GDP ratio of the governmentof India has still remained high at 50.1 per cent in 2010-11 (EconomicSurvey, Government of India, 2010-11, p. 59). It is by now well known thatdebt-GDP ratio of the US has recently increased to reach 100 per cent andthat of the several European countries has crossed 100 per cent. A distinguishing feature of the debt of West Bengal is that the mostsignificant component (nearly Rs 75,000 crore) of this total debt has beencaused by small savings related debt burden imposed by the centre on thestate government. The Small Savings programme implemented primarily through post offices across the country is a good national levelprogramme. However, according to the unilateral decision of thegovernment of India, if in any financial year, there is a certain amountof 
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 thatamount of net small saving collection would be compulsorily imposed as
debt on the state government with high rate of interest, without the stategovernment having any say in the matter. Since people of West Bengal haveover the years decided, for reasons of financial security and returns, to keeptheir hard-earned savings significantly in the small saving schemes, and West Bengal has occupied the first position among the states in thisimportant national programme, the government of West Bengal has, ineffect, been paradoxically penalised in terms of the most significantincidence 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 
small savings collection in a stateis a positive surplus, then after allowing for a deduction for interestpayment, 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 thatif net small savings collection is imposed as central loan to the states, that will, through loan repayment, add to extra earnings for the centre. Thisunjust decision of the centre has specially increased (because of the highestposition of West Bengal in small savings collection) the debt of thegovernment of West Bengal.Despite this injustice, the Left Front government had succeeded, asmentioned earlier, in reducing the debt-GSDP ratio systematically in recent years. This was made possible by higher collection of state tax revenue, andavailing lesser market borrowings than even what was approved by thegovernment of India. In the 2010-11, the last financial year of the LeftFront government, the total market borrowing approved by the governmentof India was Rs 15,056 crore. But the actual borrowing taken by the LeftFront government in the entire year 2010-11, was much less - only Rs 9,500crore. In the sphere of market borrowing, the position of governmentofWest 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 tomarket borrowing of an alarming amount Rs 17,500 crore and has becomethe highest market borrower among all the state governments.

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