As Buddha tries to put house in order, VS courts fiscal irresponsibility

Kerala moves towards fiscal irresponsibility. West Bengal tries

to put its house in order

Indian Express, July 10, 2006

The new LDF government in Kerela presented Budget 2006-07 for the

state with a sharp rise in spending. Revenue expenditure is budgeted

to increase from an average of 16.9 percent of Gross State Domestic

Product over the last ten years to 19.5 percent in the current

year. This will result in a sharp increase in the revenue deficit for

the state at Rs 5,415 crore. In 2005-06 the revenue deficit was Rs

3,561 crores. Having gone for a sharp increase in expenditure on

welfare and benefits, the Left front Finance Minister Dr Thomas Issac

criticized the centre for restricting deficits. The fiscal deficit in

Kerala in 2006-7 stands at Rs 7,534 crore, having gone up from Rs

4,513 crores in the previous year.

The minister said, "It is when we ask how a democratically

elected Government can show such an obvious anti-people attitude,

that the role of 'Fiscal Responsibility Legislation' imposed by the

Central Government as part of globalization becomes very clear. Their

commitment is not towards people who elected them but to certain

targets fixed by experts who framed the fiscal responsibility laws,

which are then enacted by some State Governments, knowingly or

unknowingly. This is truly anti-democratic."

Refering to the state fiscal responsibility legislation accepted by

the previous state government in line with the framework created by

the finance commission, Dr Issac said,

"The Centre has been thrusting targets related to income, expenditure,

Revenue Deficit and Fiscal Deficit on states in such a way that it

would be applicable even to future Governments. The Finance

Commissions have been made a tool for this. Governments, which come

to power giving a lot of promises, are forced to swallow them quoting

these conditions."

The West Bengal budget presented by Finance Minister Asim Das Gupta

after the CPM government was re-elected to power shows an estimate of

a revenue deficit of Rs 8,759 crore. The state has not been in a

position to sign up for the Fiscal Responsibility Legislation due to

the precarious fiscal position of the state. The CPM government headed

by Buddadeb Dasgupta appears to be making some progress on getting the

state out of the financial mess it is in. This is not an easy task.

The fical performance of West Bengal in the nineties was amongst the

worst in Indian states. Twelfth Finanace Commission estimates show

that West Bengal ranked the worst among all states in terms of its

revenue deficit in the years 2000-03 when its revenue deficit stood at

5.47 percent of Gross State Domestic Product. The Commission report

also shows that the revenue deficit in West Bengal worsened sharply

from 1993-96 to 2000-03. Only next to Gujarat where the slippage was

the highest, it worsened by 3.95 percent of GSDP.

The fiscal deficit in West Bengal was the second worst after

Orissa. Between 2000-03 the fiscal deficit in West Bengal stood at

7.31 percent of GSDP. The slippage in fiscal deficit over the period

1993-96 to 2000-03 was the worst among all states. It fell by 4.13

percent of GSDP.

West Bengal has also been the worst performer in terms of own tax

revenue collection. It collected 4.26 percent of GSDP as taxes. Even

Bihar collected more of its prodcuction as taxes (at 4.46 percent of

GDP) than West Bengal. Instead of improving, as most states did on

this front, West Bengal saw a decline in own tax revenue over the

period 1993-96 to 2000-03 by 1.2 percent of GSDP.

To tackle the financial crises in the state the West Bengal government

under Buddhadeb Dasgupta has been taking measures to raise own


Dasgupta, the West Bengal Finance Minister noted in his budget speech

that "the ratio of revenue deficit to revenue receipt which was 90.9

per cent in 1999-2000 has noticeably fallen to an estimated 34.87 per

cent in the year 2005-2006. At the same time, the ratio of fiscal

deficit to State Domestic Product which increased to 9.20 per cent in

19992000 has sharply come down to an estimated 4.67 per cent in


The state VAT which has been spearheaded by the West Bengal Finance

minister is one of the instruments through which the state government

hopes to improve the financial position of the state.



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