Managing ‘increasing debt burden’ is Mamata government’s biggest challenge
Adhering to budget allocations and proposals for the financial year 2022-23 will cause the government debt burden to rise further to nearly Rs 6 lakh crore. The pressure on the coffers and the increase in debt prompted the Mamata Banerjee government to refrain from announcing any new social sector projects or direct cash transfer programs when presenting the budget on Friday.
Presenting her first budget, the State Finance Minister, Chandrima Bhattacharya, has pegged the estimated outstanding debt of the Government of West Bengal until March 2023 at Rs 5,86,438.05 crore.
The amount of debt will reach Rs 5,28,833.05 crore by the end of March 2022, the minister said fixing the estimated budget deficit and revenue deficit till March 2023 at Rs 53,431.76 crore and Rs 32,963.60 crore respectively.
Also during the budget presentation, Bhattacharya proposed raising an additional Rs 73,000 crore from the open market in the financial year 2022-23.
Debt management is now the biggest challenge for the Mamata Banerjee government, according to state finance department officials.
When she first took office as Chief Minister in 2011, the state was saddled with a debt of Rs 1.92 thousand crore. Banerjee, then Finance Minister Amit Mitra, who is now the CM’s chief economic adviser, used to refer to it as a legacy of debt left by the previous Left Front government. However, in a decade of government, the government’s stock of debt has since risen by more than 205%, presenting it with a huge fiscal challenge.
According to data available from the Ministry of Finance, the TMC government borrowed an average of more than Rs 20,000 crore on the open market in the financial year 2011-12, subject to repayment after the completion of 10 years in office.
Speaking to The Indian Express, a senior state finance official said, “Borrowing in the West Bengal government market increased multiple times between 2016-’17 and 2021-’22, following what government liabilities would increase from 2021-’22 onwards. The state has to repay its borrowings over a 10-year period, indicating huge fiscal stress.
According to government data, the government debt burden started to rise from the 2015-16 financial year. In 2015-16, the government took out a loan of Rs 23,696.79 crore, which increased over the following five years to Rs 34,430.52 crore rupees (2016-17), Rs 36,911.00 crore rupees ( 2017-18), Rs 42,828.00 crore rupees (2018-19) and Rs 56,992.00 crore rupees (2019-20).
The officer said: “The state will need to put in place a mechanism to increase resources, exploring new sources of revenue and prioritizing spending. This will ensure that debt maturing in these critical years is covered by an appropriate debt repayment strategy and that new borrowing is channeled only for development spending. However, continuing on this path would also mean that the government must reduce the new social systems.
Another senior state official said, “These direct cash transfer programs are excellent short-term vote collectors and explain Mamata Banerjee’s continued electoral success. However, these populist regimes have pushed the political economy of Bengal into a low-income, high-unemployment trap and the government faces a severe challenge to get out of it. If he didn’t, the state’s economy would be in tatters.
While the state budget had no new cash transfer program proposals, the government will continue its populist plans despite the fiscal crisis. In its latest budget, the government proposed to allocate Rs 99.85 crore for grants to Durga Puja organizers, but the actual expenditure has risen to Rs 204 crore. In this year’s budget, the state has proposed to allocate Rs 207 crore under this heading.
Prominent economist Saikat Sinha Roy said, “In terms of inflation, it is not very high when you consider it in the context of the amount of government debt. But the state must minimize it. Market borrowings represent the bulk of the State’s debt burden. To raise more money from the market, the state must obtain permission from the Reserve Bank of India. And the RBI only allows a state to borrow more in the market when it has the capacity to repay. However, Bengal could borrow more as its revenue share increases.
“West Bengal is a consumer state, not a producer state. So it has huge TPS returns. However, the government also has huge expenditures on salaries and subsidies. It is true that Bengal’s debt burden has increased, but it can be minimized through revenue and expenditure management. The state should increase revenue and reduce cash transfer programs as it is not fiscally prudent to give stipends to clubs or puja committees,” Roy added.
“State revenues come mainly from the excise tax and the tax on petroleum products. That’s not a good sign either. However, West Bengal has also increased its revenue through stamp duty and other means,” he said.
Chief CPM leader Sujan Chakraborty said, “During the left-wing regime, the amount of debt was 1.92 thousand crore rupees. Borrowing then came mainly from small savings. However, this government has borrowed mostly from the market and spends it on fairs, festivals and charities. The government has no right to impose debt on ordinary people.
BJP leader Samik Bhattacharya said, “The main objective of this government is to borrow from the market and spend it for political purposes. There is no parity between capital spending and spending on flagship programs. This is pushing the state to the brink of financial disaster.
However, Chief Minister Mamata Banerjee blamed the burden of state debt on the previous Left Front government and the amount still to be claimed from the central government.
“The Center owes us millions of rupees. But they don’t give us our due. Nor have they given a single rupee for relief and rehabilitation following Cyclones ‘Amphan’ and ‘Yaas’. Even in this situation, we are doing everything we can for the people,” the CM told reporters after the budget presentation on Friday.