Bengal’s fiscal health: debt-to-GDP ratio, worrying past debt service
Serious concerns are being raised from various sides over the cash-strapped government of West Bengal borrowing trend and the nature of the use of the loans.
The first concern is the huge debt-to-state gross domestic product (GSDP) ratio in the state. According to statistics from the State Finance Department and the latest CAG report, West Bengal’s debt-to-GDP ratio for the financial year 2020-21 has risen to an alarming 37.05% from 35.68 % in 2018-2019.
According to Professor of Economics, PK Mukhopadhyay, if one considers the trends of market borrowing by the state government over the past 10 years and its projected borrowing for the current fiscal year, there is has a clear indication that the debt-to-GDP ratio will increase further in the coming years.
“As a professor of economics, I fear that West Bengal is heading towards a debt to GDP ratio of 50%, a situation that will be totally out of control unless drastic fiscal measures are taken, especially in this regarding the reduction of recurrent expenditure. and out-of-plan expenses. We need to find alternative means of revenue generation other than state excise,” he said.
Another alarming trend is the percentage of spending on new borrowings to service old debt.
An analysis of state budget documents for the past five fiscal years shows that nearly 72% of new market borrowing in each fiscal year was spent servicing old debts.
According to Santanu Basu, an economics professor, this means the state government has little money to spend on capital expenditure.
“Less spending on capital expenditure means less asset creation, which means less job creation,” Basu said.
According to the revised estimates of the latest state budget, the total accumulated state government debt is expected to reach Rs 5.86 lakh crore as of March 31, 2023, from Rs 5.28 lakh crore as of March 31, 2022.
As a reminder, as on March 31, 2011, which was the last fiscal year under the previous Left Front government, the accumulated debt of West Bengal was slightly over Rs 1.97 lakh crore.
This means that the state’s accumulated debt skyrocketed by around 182% during Trinamool’s tenure.