The maiden budget of the third Mamata Banerjee-led government presented on Wednesday (July 7) continued to focus on social sector spending, even as the state’s fiscal health is slipping into a perilous state with spiralling deficits and high borrowings.
The budget – presented by the industry and parliamentary affairs minister Partha Chhaterjee, as the finance minister Amit Mitra is unwell— has pegged the total expenditure for the 2021-2022 fiscal at ₹3,08,727 crore, which is an increase of 20.7 per cent from the previous year.
The revenue deficit has been pegged at ₹26,755.25 crore which is more than three per cent of the GSDP limit. Going by the past trend, the figure is likely to increase further. The fiscal deficit shot up from ₹52,350.01 crore in 2020-21 to ₹60,863.96 crore in 2021-22.
The upswing in deficit is expected, considering that both the state’s tax and non-tax revenues have plummeted during the pandemic.
The state’s own tax revenue dropped from ₹60,669.37 crore in 2019-20 to ₹59,886.59 crore in 2020-21 and its share in central taxes plunged from ₹48,048.40 crore to ₹44,737.01 crore during the same period. The period also witnessed a fall in non-tax revenue from ₹3,212.90 crore to ₹2,466.31 crore.
Given the pandemic-induced fall, the budget estimate of ₹50,070.29 crore as state’s share in central taxes, ₹75,415.74 crore as its own tax revenue and ₹4,611.72 as its non-tax revenue, appear unrealistic, which means the current fiscal may end with a higher revenue deficit as well as an increased fiscal deficit.
With an estimated fiscal deficit of 4.03 per cent of its GSDP, West Bengal is among those few states that have crossed the three per cent threshold limit. In 2020-21, the percentage was 3.86 as against 2.94 per cent in 2019-20.
Finance Minister Mitra in a post-budget virtual press conference, however, tried to draw comfort from the fact that the Centre’s fiscal deficit for 2020-21 was at 9.3 per cent of the GDP.
Then the growing deficit will lead to higher borrowings for the state which is already sitting on a pile of outstanding loans.
West Bengal’s debt-GDP ratio has shot up to as high as 35.54 per cent in 2020-21 with a debt burden of about ₹5 lakh crore. Only a few states like Maharashtra and Uttar Pradesh have higher outstanding liabilities. The budget 2021-22 has estimated that the debt-GDP ratio will slide marginally to 35.47 per cent.
The available statistics, however, give a different indication.
The market borrowing of West Bengal so far in the fiscal year 2022 is 20 per cent higher on a year -on-year basis, according to a report by the CARE Ratings. Only Nagaland, up by 71 per cent, had a higher borrowing during the period than West Bengal.
Haryana (by 11 per cent), Sikkim (by 7 per cent), Jammu and Kashmir and Maharashtra (by 4 per cent each) and Rajasthan (by 3 per cent) are the few other states that have higher borrowings so far in the current fiscal than the comparable period of a year ago. In the case of other remaining states, it is lower than last year.
West Bengal borrowed ₹10,000 crore from the market during the period from 7 April 2020 to 7 July 2020. This year within the period from 8 April to 6 July, it has borrowed ₹12,000 crore, as per the figures with the RBI and CARE Ratings.
A budgetary provision of ₹63,617.53 crore has been made in the current fiscal for the debt servicing charges alone, indicating that if the problem is not addressed soon the state may fall into a debt trap.
Sources in the state finance department said the government would be compelled to go for more borrowing to finance its fiscal deficits as the economy is unlikely to be back on track anytime soon with pandemic being far from over.
They pointed out that the prevalence of the COVID-19 pandemic will mean the trend of higher unplanned spending and drop in revenue earnings will continue.
Factoring the need to spend more to fight the pandemic, the budgetary allocation for the health and family welfare department has been revised to ₹16,368.38 crore from ₹1,2561.19 crore earmarked for the year in the interim budget presented in February, ahead of assembly elections. An amount of ₹1,830 crore has been allocated to curb COVID-19.
With Chief Minister Banerjee insisting on implementing populist schemes promised during the elections as soon as possible, the officials in the finance department said, it would need a tight rope walk to maintain the state’s fiscal health.
The state will need to incur an annual expenditure of ₹3,600 crore to finance its new Krishak Bandhu scheme. Under the modified scheme, the annual finance assistance to each farmer has been doubled from ₹5,000 to ₹10,000 per acre. It is expected to benefit 62 lakh farmers. The amount stipulated in the scheme is more than ₹6,000 per year provided to small and marginal farmers under the Centre’s PM-Kisan Yojana.
An allocation of another ₹10,000 crore has been made in the budget for another welfare scheme promised during the elections.
The scheme christened ‘Lakshmir Bhandar’ envisages a monthly support of ₹1,000 to a woman member of each SC/ST household and ₹500 for each general category woman.
For the state government’s new credit card scheme for students, ₹250 crore has been earmarked in the budget.
The scheme launched on June 30 provides soft loans up to ₹10 lakh at an interest of four per cent to students to pursue higher education.
Apart from these, the state is already running several other welfare schemes such as a universal cashless health insurance scheme that provides a health cover of ₹5 lakh per annum per family.
For the health insurance scheme a budgetary provision of ₹1,970 crore has been made.
A higher spending on the social sector is leading to a drop in capital expenditure or asset forming, officials pointed out.
The percentage of capital expenditure in the state’s total spending was 8.43 in 2019-20 (the last available data), according to an audit figure. In contrast, the social sector spending was 18.83 per cent of the state’s total expenditure for the year 2019-20.
The state’s spending on physical infrastructure is even less at just 3.33 per cent of the total expenditure in 2019-20.
Along with the impetus given to social sector spending, it is high time that the Trinamool Congress government also gives emphasis on asset creation for long-term economic growth.