ADB approves $400 mn loan to help it control debt cycle

The Asian Development Bank (ADB) today approved a $400 million (around Rs 2,159 crore) loan for West Bengal to help it tide over a debt cycle and development spending cuts. Besides, the Manila-based multi-lateral agency will provide a grant of $ 0.7 million (around Rs 3.78 crore) to help the state pursue reforms to effectively spend money, boost revenues and manage its fast-growing public debt.

The move by ADB came even as the fate of a proposal of West Bengal to seek a moratorium on repayment of interest (Rs 20,000 crore) on its loans from the Centre for a period of three years hangs in balance.  

West Bengal is the fourth largest state in India, densely populated with more than 91 million people.

The state government, however, is struggling to pay for essential spending on development given its low tax and other revenues, ADB said in a statement here.

In the past, efforts to rein in the state budget shortfall have led to a cycle of cuts in development programs which have hurt the state’s growth prospects and employment opportunities.

In the 2010-11 fiscal year, West Bengal had a high fiscal deficit of 4.1 per cent of gross state domestic product. In an attempt to contain these deficits, the development budget was severely squeezed, undermining infrastructure development and economic growth.

In turn, heavy borrowing to cover the deficit pushed the state’s public debt to 40 per cent of gross state domestic product that year.
Fiscal deficit came down to 3.94 per cent of GDP in 2011-12 and is projected to come down to 2.51 per cent in the current financial year.

The reforms for which the grant was approved today include computerising teacher salary payments, streamlining drug procurement to reduce costs, simplifying and modernizing tax payment and property registration systems to boost revenues.