West Bengal has fared poorly in most parameters in state-wise comparison of finances by the Reserve Bank of India, even though some of the 'backward' states have showed improvement in their financial performance.
West Bengal and Sikkim are the only two states to have not adopted the Fiscal Responsibility and Budget Management (FRBM) Act. While in 2008-09, 13 out of 17 non-special category states recorded revenue surplus, in 2008-09 according to revised estimates (RE), West Bengal registered the highest revenue deficit of 3.7 per cent of GSDP. West Bengal was followed by Punjab (2.5 per cent of GSDP), Kerala (2 per cent of GSDP) and Rajasthan (0.1 per cent of GSDP) in 2008-09 (RE).
Revenue deficit (RD) formed a significant portion of gross fiscal deficit (GFD) in these states, especially in West Bengal (99.9 per cent), followed by Kerala (59.1 per cent) and Punjab (55.6 per cent), points out the RBI report.
“Ideally, the borrowings should be utilised to generate assets to ensure income for the state governments. However, the perpetual deficit in the revenue account compelled these state governments to divert the funds from capital account to finance revenue deficit,” the RBI report says.
The Twelfth Finance Commission (TwFC) had envisaged that the states’ interest payments should be brought down to 15 per cent of revenue receipts.
In West Bengal, interest payments preempted 30.3 per cent of revenue receipts in 2008- 09 (RE), followed by Punjab (21.2 per cent), Gujarat (19.9 per cent), Kerala (19.2 per cent), Rajasthan (18.2 per cent) and Orissa (16.1 per cent). “West Bengal is in a debt trap. Sales tax is one of the largest sources of revenue for the state, but the economy is not vibrant enough to generate business. The only way to come out of the trap is to bring in more industries,” said Abhirup Sarkar, professor of economics, Indian Statistical Institute (ISI), Kolkata.
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The West Bengal budget statement of 2009-10 shows the net market loan is estimated to increase to Rs 14,000 crore in 2009-10, against Rs 11,543 crore in the revised estimates of 2008-09. The share of loan from RBI (net) and other sources is estimated to increase to Rs 7,834 crore in 2009-10, from Rs 3,586 crore in 2008-09 (revised estimates).
Notably, Jharkhand, followed by Bihar and Uttar Pradesh, witnessed a noticeable improvement in their revenue deficit (RD) to the gross state domestic product (GSDP) ratio in 2008-09 (RE) over 2005-08 (average), the RBI report says.
During 2008-09, Bihar registered the highest revenue surplus of 3.0 per cent of GSDP, followed by Madhya Pradesh (2.0 per cent of GSDP), Chhattisgarh (1.3 per cent of GSDP) and Uttar Pradesh (1.1 per cent of GSDP). Jharkhand turned from a revenue deficit to a revenue surplus state in 2008-09. In 2008-09 (RE), all the non-special category states, except West Bengal, recorded primary revenue surplus (PRS).
This apart, the RBI report says that during 2009-10, Tamil Nadu, Jharkhand, Rajasthan, Maharashtra, Gujarat, Kerala, Goa, Haryana, Orissa, Punjab and West Bengal will not be able to meet the target of revenue balance on account of the impact of revised pays and pensions, higher need for public spending and a decrease in the flow of revenue receipts in view of the economic slowdown.
The GFD-GSDP ratio has increased to more than 3.0 per cent in case of 10 states, namely--Bihar, Uttar Pradesh, Jharkhand, Goa, Punjab, West Bengal, Karnataka, Kerala, Madhya Pradesh and Rajasthan in 2008-09 (RE).
The only positive point in the RBI report is the state's ability to increase revenue receipts on its own. While in a majority of states (non-special category), the increase in total revenue receipts was more due to Central transfers and less due to their own efforts, West Bengal is the exception, where the increase is more due to own efforts and less due to Central transfers, the RBI report says.