West Bengal's economic slide continues

With West Bengal Finance Minister Chandrima Bhattacharya’s presentation of the Budget for 2022-23, it is an appropriate occasion to look at the state’s economy, and the financial health and policy orientation of its government.

In terms of ranking by per capita income, West Bengal has fallen from seventh position among 25 states in 1980 to 21st among 29 states in 2018-19. In the 1950s and 1960s, West Bengal used to be compared to states such as Maharashtra and Tamil Nadu; now it has Andhra Pradesh, Chhattisgarh, Punjab, and Rajasthan as its peers. West Bengal, with a long coastline and international borders with Bhutan and Bangladesh, is the gateway to the north-eastern parts of the country. It also has a rich history as an industrial and trading centre, and is close to many iron and steel mills. Thus, it is imperative for the state to steer its policies appropriately and grow faster than the country to reclaim its past glory. 

For West Bengal’s prosperity, its government appears to be continuing with its policy of borrowing and spending on items of current consumption. At the end of March, its outstanding debt is expected to increase from about Rs 4.82 trillion in 2021 to about Rs 5.29 trillion in 2022 and further to a little more than Rs 5.86 trillion in 2023. The state’s debt-to-gross state domestic product (GSDP) ratio continues to be far above the 25 per cent limit prescribed by its Fiscal Responsibility and Budget Management Act. Along with Punjab, its interest payments as a proportion of its revenue expenditure were some of the highest in the country. In 2022-23 (Budgetary Estimates, or BE), for 48 per cent of its receipts, West Bengal will rely on tax devolution and grants-in-aid from the Union government. Another 33 per cent will come from borrowings. These proportions are high —for Maharashtra, for example, the corresponding dependence is only 21 per cent on tax devolution and grants-in-aid from the Union government, and 27 per cent on borrowings.

On the expenditure side, with the pandemic, the state government emphasised subsidies and transfers over capital outlays. The government justified such subsidies and transfers on grounds of demand stimulation and helping the needy and the vulnerable. With the pandemic subsiding, in 2022-23 (BE), as a proportion of its expenditure, subsidies are expected to come down to 4 per cent from 7 per cent in 2021-22 (Revised Estimates, or RE), with a corresponding increase in capital expenditure. Subsidies, after going up from Rs 10,955 crore in 2021-22 (BE) to Rs 18,720 crore in 2021-22 (RE), are expected to go down to Rs 10,935 crore in 2022-23 (BE). The government has introduced some 50 subsidy and transfer schemes with beautiful names such as Rupashree, Shilpasathi, and Anandadhara. It will be useful to know which of the schemes the government wants to discontinue or trim to avoid a repetition of the 2021-22 experience, when the outlay on subsidies increased by more than 70 per cent between the BE and the RE stages.

The government’s capital expenditure includes outlays that enhance the productive capacity of the economy as well as loan repayments, which are mostly contractual. From an economic point of view, capital outlays constitute a critical variable. Corresponding to the increase in subsidies between the BE and RE stages in 2021-22, there was a reduction in capital outlays from Rs 32,774 crore in BE to Rs 19,355 crore in RE. The cuts in capital outlays between the BE and RE stages were, for example, quite drastic from Rs 12,818 crore to Rs 8,245 crore in social services, and from Rs 6,183 crore to Rs 1,744 crore in agriculture and allied activities and rural development and special areas programmes. With such meagre capital outlays, it is doubtful whether the government has enough for even maintaining its capital stock in physical and social infrastructure.

Between 2012-13 and 2018-19, every year, except in 2013-14 and 2015-16, in terms of GSDP, the state grew at a slower rate than the country. To cheer us up, the minister has pointed out how West Bengal has led the post-Covid road to recovery in India by stimulating demand and, in 2021-22, its GSDP at constant 2011-12 prices is likely to grow by 12.8 per cent while the country’s GDP grows by only 9.2 per cent. The fundamental questions that arise in this context are three. First, unlike developed countries, is West Bengal suffering from demand constraints or supply problems? Second, how much of the demand stimulation spills over to other states in India and how much benefits the state? Third, given the high population density in the state, how is its GSDP increasing rapidly without any visible addition to industrial activity?

In providing relief to the needy and the vulnerable, such relief can be justified even without any special need for demand stimulation. Trouble comes when such relief is extended to the not-so-needy and vulnerable for political benefits and “buying votes”, and is done at the cost of long-term development and growth by starving the social and physical infrastructure needs of the state. The problem of subsidies and transfers going to undeserving people can be controlled by bringing greater transparency in the enlistment and selection of beneficiaries.

Furthermore, critical investment in social and physical infrastructure must be secured for rapid industrialisation, which is the only way of providing gainful employment to the people in the state with a population density (per square km) of 1,082 relative to 382 in the country. Industrialisation requires efficient infrastructure and way back in the 1990s, after the Left Front government in the state announced its New Economic Policy, a reputed international consulting company had pointed this out. But seamless and efficient north-south road connectivity by NH 34 and a deep-sea port in the state still remain as dreams. Continuing with policies of transfers and subsidies without laying the foundations for rapid industrialisation will prove unsustainable and result in a fiscal crisis with unpaid bills and unfulfilled promises.

The author, former chief economic adviser to the Union finance ministry, is a BJP MLA in West Bengal