West Bengal: Debt-ridden state faces uphill task

West Bengal Finance Minister Amit Mitra's efforts to improve state finances in the past five years would be under threat if the state implements recommendations of the Seventh Pay Commission.

The state is now under pressure to revise the salaries of its 800,000 employees, which would add to the strain of an already debt-laden state exchequer. Last December, the state had constituted its own Sixth Pay Commission under Abhirup Sarkar, professor of economics at the Indian Statistical Institute, Kolkata.

"There is no doubt that the public finances of West Bengal have improved over the past few years. However, if the state pay commission recommends higher pay than what is accounted for in the Budget, there will be an adverse impact on state finances," said Devendra Kumar Pant, chief economist and head (public finance) at India Ratings and Research.

In 2015-16, the total expenses of the government on account of salary, pension and other retirement benefits were Rs 46,198 crore, which is budgeted to increase to Rs 50,607 crore in 2016-17, an increase of around 10 per cent; between FY15 and FY16, the rise was around 7 per cent, according to data from the state's Budget documents.

Besides the hikes, another cause of worry for is the state's dues on account of dearness allowance (DA). At present, there is around 50 per cent gap in the DA of central and state governments. While the central government DA is around 125 per cent, that of the West Bengal is 75 per cent.

According to Manoj Kanti Guha, general secretary, West Bengal State Coordination Committee, the cost to the government on account of clearing DA dues would be more than Rs 15,000 crore. Thus, clearing the DA backlog alone would wipe out around 30 per cent of the state's own revenues, which are expected to be around Rs 50,773 crore in 2016-17. With effect from January 2016, the state government had announced a 10 per cent hike in DA. This apart, with effect from July, the state had decided to give an interim relief of 10 per cent on band pay.

It's not without reason that Chief Minister Mamata Banerjee has been asking for a debt waiver. The state's loan payment bill in 2016-17 is set to increase to Rs 36,869 crore from Rs 33,067 crore in 2015-16. "Already there is a huge gap between the pay of state and central government employees. The state is in no position to meet the demands of pay parity," said Dipankar Dasgupta, former professor at ISI.