Managing ‘rising debt burden’ the biggest challenge for Mamata govt

Presenting her maiden Budget, state Finance Minister Chandrima Bhattacharya pegged the estimated outstanding debt of the West Bengal government for till March 2023 at Rs 5,86,438.05 crore.

The quantum of debt will reach Rs 5,28,833.05 crore by the end of March, 2022, the minister said as she pegged the estimated fiscal 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 to raise a further Rs 73,000 crore from the open market in fiscal 2022-’23.

According to officials in the state finance department, debt management is now the biggest challenge for the Mamata Banerjee government.

When she first took charge as the chief minister in 2011, the state was saddled with a debt burden of Rs 1.92 thousand crore. Banerjee and then finance minister Amit Mitra, who is now the principal economic advisor to the CM, used to lable it as a legacy of debt left behind by the previous Left Front government. However, in a decade of her government, the state’s outstanding debt has since increased by more than 205 per cent, presenting her with a huge fiscal challenge.

According to data available with the Finance department, the TMC government, on an average, borrowed more than Rs 20,000 crore from the open market from fiscal 2011-’12, subject to repayment after completion of 10 years of its tenure.

Speaking to The Indian Express, a senior financial officer of the state said, “The market borrowing of the West Bengal government grew manifold between 2016-’17 and 2021-’22 as a result of which the state’s liabilities would increase from 2021-’22 onwards. The state has to repay its borrowings over a period of 10 years, thereby indicating huge fiscal stress.”

According to government data, the state’s debt burden started rising from fiscal 2015-’16. In 2015-16, the government took a loan of Rs 23,696.79 crore, which increased over the next 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 have to put in place a mechanism for augmentation of resources, exploring new sources of revenue and prioritizing expenditure. This will ensure that debt which matures in these critical years are met through an appropriate debt repayment strategy and fresh borrowings are channelized for development expenditure only. However, pursuing that course would also mean that the government has to cut down on new social schemes.”

Another senior state official said, “These direct cash transfer schemes are great vote-catchers in the short-term and explains the continuing electoral success of Mamata Banerjee. However, these populist schemes have pushed Bengal’s political economy into a low income, high unemployment trap and the government faces a grave challenge to come out of it. If it fails to do so, the state’s economy would be in tatters.”

While the state Budget had no new proposal of a cash transfer scheme, the government will continue with its populist projects despite the fiscal crunch. In its last Budget, the government proposed to allocate Rs 99.85 crore for grants to Durga Puja organisers but the actual expenditure increased to Rs 204 crore. In this year’s Budget, the state proposed to allocate Rs 207 crore under this head.

Eminent economist Saikat Sinha Roy said, “In terms of inflation, it is not very high when seen in the context of the state’s debt amount. But the state needs to minimise it. Market borrowing accounts for the bulk of the state’s debt burden. To raise more money from the market, the state has to take permission from the Reserve Bank of India. And the RBI only allows a state to borrow more from the market when it has the capacity to repay. However, Bengal could make more borrowings as its share of revenues increased.”
“West Bengal is a consuming state, not a producing state. So, it has huge GST returns. However, the government also has huge expenditure on wages and subsidies. It is true that Bengal’s debt burden increased but it can be minimised through management of revenue and expenditure. The state should increase revenue and reduce the cash transfer schemes as it is not fiscally prudent to give doles to clubs or puja committees,” Roy added.

“The state’s revenue comes mainly from excise tax and tax on petroleum products. That is also not a good sign. However, West Bengal has also increased revenue from stamp duties and through other avenues,” he said.

Senior CPM leader Sujan Chakraborty said, “During the Left regime, the debt amount was Rs 1.92 thousand crores. The borrowings then were mainly from small savings. However, this government has borrowed majorly from the market and is spending it on fairs, festivals and charity. The government has no right to impose debt on common people.”

BJP leader Samik Bhattacharya said, “This government’s main aim is to borrow from the market and spend it for political purposes. There is no parity between capital expenditure and expenses on flagship programmes. It is pushing the state to the brink of financial disaster.”

However, Chief Minister Mamata Banerjee blamed the state’s debt burden on the previous Left Front government and the outstanding amount that is yet to be claimed from the Central government.

“The Centre owes crores of rupees to us. But they are not giving us our due. They have also not given a single rupee for relief and rehabilitation in the wake of ‘Amphan’ and ‘Yaas’ cyclones. Even in this situation, we are doing everything we can for the people,” the CM told reporters after the Budget presentation on Friday.