BENGAL ECONOMY: Governor raises fiscal question – Asim called to Raj Bhavan as ‘unsustainable’ cloud hangs over state – Bengal goes from ‘Hero’ to ‘Zero’ and also ‘broke’ while it is at it too ?!!
FROM THE TELEGRAPH BUREAU
Forwarded by Gorkhs Daju
Calcutta, Nov. 12: Governor M.K. Narayanan today called over state finance minister Asim Dasgupta to enquire about the health of the state economy amid fears of near-bankruptcy of the Bengal government, which mopped up Rs 500 crore from the market yesterday to tide over an immediate crisis.
The meeting at Raj Bhavan on money matters is a break from the past, confirmed a Writers’ source, while adding that most recent discussions between the government representatives and the governor revolved around the other M-factor, the Maoists.
“I cannot recall any instance of the governor calling the finance minister to discuss the financial position of the state. But if the crisis is unprecedented, the reaction cannot be routine,” said the source.
Dasgupta’s meeting with the governor today comes 10 days after another one in Delhi during which Sushama Nath, the Union expenditure secretary, told chief secretary Samar Ghosh and finance secretary C.M. Bachhawat that the fiscal position of the state was “unsustainable”.
Although the details of today’s meeting between the finance minister and the governor were not available, sources in the finance department told The Telegraph that the governor expressed his concern over the fiscal position of the state. Dasgupta — who hiked VAT rates applicable on luxury and non-essential items by 1 per cent and promised to cut down on non-planned expenditure of the government ( ) — put up a brave face.
“This is a temporary problem and not a crisis,” said the finance minister.
Data available in the public domain do not support his claim and reveal that the liquidity crunch is a regular problem for the Bengal government that has to use the ways and means advances (WMAs) and overdraft facilities of the Reserve Bank of India to pay for daily expenses.
So far this year, the Bengal government has already approached the RBI on 12 days for normal WMAs, which help states tide over a temporary mismatch in cash flow. Andhra Pradesh and Maharashtra have not done so for even a day this year. In 2008-09, Bengal knocked on the RBI’s door on 39 days against none by Andhra Pradesh and Maharashtra.
For special WMAs (advances from the RBI against pledged Government of India securities), the state has approached the central bank 38 times this year, while Maharashtra has not done so at all and Andhra on three days. In 2008-09, Bengal fell back on special WMAs on 165 days.
In the last 10 days, the government has withdrawn at least Rs 800 crore using the overdraft route, said a source in Writers’ Buildings.
Data available from the RBI reveals the state government and its agencies have mobilised around Rs 9,500 crore — more than any other Indian state — from the market since April 13, 2010.
“The market borrowing at high rates, over 8.4 per cent per annum, may tide over the crisis today and allow the government to spend, but it will further weaken the fiscal position of the state,” said a senior finance department official.
According to an RBI report — State Finances: A Study of Budgets 2009-10 — Bengal had an average debt burden of around 47 per cent of the size of its economy between 2005 and 2008. The ratio of debt and gross state domestic product — value of goods and services produced in the state in a year — for 2008-09 was a shade better, around 43.2 per cent.
As the expenses on interest payment for the state is over 30 per cent of its annual earnings and most of the repayments are scheduled after 2012-13, the situation is likely to worsen in the next few years.
“The Bengal government is spending more than what it’s earning. What will happen to the new government in 2011? If we come to power, it will be difficult running the government,” said Partha Chatterjee, the leader of the Opposition, who is preparing a document on the state’s indebtedness to hand over to the government.
There is a political dimension to this worry over debt and servicing them till maturity. After the drubbing in the 2009 Lok Sabha polls, the beleaguered Buddhadeb Bhattacharjee government created around 1.02 lakh jobs in schools, colleges, panchayats and municipalities with an eye on the crucial 2011 Assembly elections.
Recently, the government has increased the dearness allowance for its 10 lakh employees and nearly four lakh pensioners. A back-of-the-envelope calculation suggests that the decision will result in an additional Rs 950 crore outgo, said an official of the state finance (taxation) department.
“The increased allowances for the employees cannot be contested from a humanitarian perspective as runaway inflation has robbed the common people of purchasing power. But the problem is the inability of the Bengal government in generating resources,” said a Delhi-based economist who did not wish to be named.
Data available with the RBI highlights that Bengal’s performance in revenue collection has been among the worst in the country. The ratio of own tax revenue and the gross state domestic product (GSDP) — an indicator of tax buoyancy in a state — for Bengal is the second lowest, after Bihar, among non-special category states.
Dasgupta tweaked the VAT rate today that will generate an additional Rs 200 crore a month, but he had his eyes set on transfers from the centre.
“The Centre owes us over Rs 7,000 crore under several heads…. Even if a part of that is paid, the scale of the problem can be substantially reduced,” said Dasgupta, hopeful of an amicable settlement on the dues.
The question is: when will Pranab Mukherjee loosen the purse strings?
Doubts also hang over how a Trinamul government — if voted to power — will run the state after the 2011 Assembly elections.
“Mamata Banerjee also believes in populism and she hates levying taxes. The income and expenditure gap for the Bengal government will only widen,” said the economist.