Kolkata: West Bengal is in a “perfect debt trap", says state finance minister Amit Mitra, taking on fresh loans to repay old ones that the Trinamool Congress government inherited in 2011 after 34 years of Left rule.

And it is the country’s most indebted state if measured by the metric of debt-to-gross state-domestic-product (GSDP) ratio, despite a substantial increase in GSDP in recent years, Mitra said in an interview.

“Of the ₹ 1.13 trillion increase in the state’s debt stock during the past five years, around ₹ 94,000 crore went into debt servicing. Remember when we came to office we inherited a debt of ₹ 2 trillion. So, this is a perfect debt trap," he said.

The ratio was over 50% previously, but has now come down to around 33%, according to Abhirup Sarkar, a professor of economics at Kolkata’s Indian Statistical Institute (ISI). The state’s tax revenue-to-GSDP ratio, too, is one of the worst in the country, he added.

Also Read: Mamata government inherited a debt of Rs.200,000 crore: Amit Mitra

A debt trap has serious implications for economic development because it hobbles the state’s spending power, said Dipankar Dasgupta, a former professor at ISI.

West Bengal has appealed to the centre repeatedly for a reprieve in servicing its outstanding debt of ₹ 3 trillion, but New Delhi has remained unmoved.

Asked if the centre’s refusal to grant relief on debt repayment was hobbling chief minister Mamata Banerjee’s politics of bottom-of-the-pyramid redistribution, Mitra said: “This is not the floor of the assembly. I will not answer that question."

But he did point out that India was willing to fork out $10 billion to the International Monetary Fund to bail out Greece, but was unwilling to help its own states tide over a financial crisis.

In fiscal 2016, West Bengal spent around ₹ 28,000 crore on debt servicing and, in the current year, it will pay ₹ 32,000 crore, Mitra said.

The money spent on debt servicing was depriving the people of West Bengal of resources which could otherwise have been deployed for development activities. In fact, it would have boosted the state economy by up to four times for every penny spent, Mitra said, referring to the Keynesian multiplier theory.

“I am in complete agreement with the finance minister’s case for restructuring of West Bengal’s debt," Dasgupta, formerly of ISI, said.

West Bengal’s own tax revenue has doubled over the past four years to ₹ 42,000 crore, but Plan expenditure has jumped several times during this period, from ₹ 14,000 crore to exceed even the budget estimate in fiscal 2016 to ₹ 53,000 crore, according to Mitra.

This is largely on account of what ISI’s Sarkar calls Banerjee’s investment to build human capital. In her first term as chief minister, she focused on building hospitals, educational institutions and road connectivity. It rewarded her with a thumping victory in the recently concluded assembly election.

Two things need to be done simultaneously to head off a financial crisis, said Sarkar. The state will have to take some austerity measures and boost tax revenue.

Because West Bengal’s tax revenue-to-GSDP ratio is quite low, at around 5%, there is scope to improve tax collections, Sarkar said, and added a caveat—gains from better compliance have already come in, and are unlikely to be repeated.

Dasgupta is of the view that shoring up tax revenue immediately may not be easy, so restructuring of the debt stock is the only way out. Introduction of the proposed goods and services tax will help West Bengal, but restructuring of the outstanding debt will still be required, he added.

Apart from a debt of around ₹ 3.1 trillion, the state had a liability of at least ₹ 16,000 crore as of May. This was what was to be paid to its one million employees on account of accumulated dearness allowance (DA).

DA, which is linked to inflation, is determined by the centre, but the consequent increase in wage bills has to be borne by the states alone, Mitra said, calling on the centre to share the burden of protecting wages against inflation.

“Even a 1% increase in DA translates into a ₹ 300 crore jump in wage bill for West Bengal. So, the centre should share the burden—it should give resources to the states every time it raises pay through DA. States have several restrictions such as under the FRBM (Fiscal Responsibility and Budget Management) Act, but the centre does not have any such restrictions. The centre can print money; states cannot," he said.

Mitra added that the state government was in the process of substantially clearing the DA backlog but did not share specifics.

There is no way that West Bengal can, in the foreseeable future, clear the DA arrears, said an economist who did not want to be identified.

Also, going forward, the state government will look to scale back non-Plan expenditure to free up more resources for its development goals, this economist added.

West Bengal has already launched a cost-rationalization drive by merging state-owned enterprises, Mitra said. Last week, the state announced a plan to integrate three transport corporations, while assuring employees that this will not lead to job cuts.

Still, the state’s wage bill is only going to increase, because of all the social infrastructure that has been created. The hospitals and educational institutions that have been built, for instance, will need staffing.

Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter.

Share Via