Squaring Economists' Traingle: Tangled Skien of Bengal State Finances

West Bengal State Government finances are reportedly in dire straits.  Three brilliant Bengali economists of Kolkata, the State Capital, seems to agree. Though the senior most, Dr. Ashim Dasgupta, the Finance Minister of the State for the last 20 years or so, is optimistic that the situation is managable, the other two economists have expressed grave concerns over the State's Finances.  Dr.Abhirup Sarkar of the Indian Statistical Institute interviewed by the widely circulated Bengali language daily exposes the weakness of the defence of the Finance Minister and holds the State Government for profligate spending and irresponsible borrowing together with incompetency in revenue collection despite high growth rate in the State's gross Domestic Product that have brought the State government to near bankruptcy forcing the government to withhold or delay payments to creditors, impose restrictions on future spending and raise the rate of State Value added tax on certain goods/ services. Dr. Sugata Marjit of the Centre for Studies in Social Sciences points to the failure of the State Government to improve revenue buoyancy and blamed the State's Finance Department for not willing to listen to expert advice for years together and thereby landing the State into a bankruptcy situation. Both these economists have found that the argument of the Finance Department that the delayed release of funds by the Central government had led to the grave situation as untenable and misleading. Both have found the management of the finances of the West Bengal Government poor compared to even Andhra Pradesh which also had a high debt burden comparable to West Bengal. Both the economists have expressed concern that the new government that would get elected to form the next Government in West Bengal in a few months' time would face an uphill task to bring the State finances to balance.
With the state elections due shortly, the opposition  has taken the opportunity of publicising the the idea that CPM is in pursuit of a  deliberate policy of handing over a treasure less coffer along with unserviceable and unsustainable levels of  high debt obligations to the successor government in 2011 since the CPM is now convinced of its greater chance of losing the State elections due to its poor performance in almost every area of governance from industrialisation to forcible land acquisition by the State from the poor farmers and others without giving them proper compensation, continued political murders in the State, inability control Maoists terrorism,  treating ruling party supporters and loyalists as higher class citizens than other citizens, inability to use Central government assistance for employment of people below the poverty line, police support to rich father-in laws to harrass son in laws,  use of ministerial power to favour suppotive officials and party colleagues in allotment of government acquired land or favour loyalists government supply contracts, low productivity of government employees, etc.
The political fighting will continue and accentuate as the state elections draw nearer. But the truth about the current state and future prospects of the State's finances remain hidden in the triangle of three sides represented by the three economists developed in the same city of Calcutta. Squaring up this triangle needs a deeper insight of the crux of the governments tripod of problems of (a) liquidity (government unable to pay bills)), debt-trap (inability to service debt obligations and interest expenditure prempting over 60% of the revenues) and structurally deficient poor revenue responsiveness to rise in State Domestic Product (inelastic tax and other revenues in relation to the growth in income generated within the State): this needs a detailed analysis of the budgetary information. This does not seem to be happening. Dr. Dasgupta and his department provides scanty and selective information for defence while Dr. Sarkar and Dr. Marjit depend largely on the Reserve Bank of India survey studies.

West Bengal intellectuals have already started appearing to outsiders as inadequately smart and good at wasting time in debates that are in the nature of hide and seek play over factual information and meaningful analysis of the reality about the State's finances and the efficiency and effectiveness of the functioning of the government's finance, revenue collection, expenditure planning and control, debt and liquidity management departments.

To answer the question ' how is it that West Bengal Government' has to resort to  emergency borrowings crossing the normal limits of ways and means advance ' overdraft facility of the Reserve Bank of India on many more number of days in a year as compared with most other States?', we need analysis of daily time series data on daily cash inflows and outflows on major heads and the Finance Department's cash flow forecasting techniques: maybe the governments' capability to analyse statistics and use of statistical methods are inadequate or the officials just do not care to manage cash inflows and outflows because the RBI's last resort facility is available at a nominal additional cost that is borne by the taxpayers. We need to know how much and where value added activities remain to attract tax. The state government is yet to link the PAN number of Income Tax Department to professional Tax account and allow professional tax payment by self-employed professionals to the State Government's designated bank account through any bank of the taxpayer's choice: why does the Government has to take taxes through its designated tax collection office counters only?  The pharmacy, drug stores, grocer shops, stationery shops most often sell wares without any receipt and they do not install computer-based credit/ debit card/ cash transactions recording. Most restaurants and  footpath hawker shops also in the same state. The malls have started using them and the government does not like malls to compete and take away the business of unorganised retailers. So, the State government has deliberately allowed the tax base to stagnate despite growth of value addition in the unorganised sector. This policy has nothing to do with socialism or interest of common man or poor income of unorganised units.
Consider just the fish/ mutton/ chicken vendors in different markets. The price of fish per kg ranges from Rs 120 to Rs 300 in Kolkata.  An average fish seller in Kolkata would sell 25- 30 kgs of fish per day. His annual sales turnover would be in the range of  Rs 18 to Rs 20 lakhs and value addition at least 30%. That means the Government is prepared to lose Rs24,000 annually per fish seller by not imposing a concessional VAT rate of 4% on fish. Just consider the loss with lakhs of fish sellers in organised market places throughout the State. Oh, fish is an essential food item for the Bengali's: how can it be taxed. We know that an average fish seller has to pay more than Rs24,000 to local political ruffians including forcible subscriptions to political parties and puja committees. No exception there on the ground that fish is a food item! Now add all the sellers of mutton, chicken, beef, rice and calculate the loss to the State exchequer at a VAt rate of say just 1%. The point is not about taxing food items but our knowledge about what the State Finance Department has considered as eligible and ineligible for VAT or sales tax.
The point is different. We need information and analysis on these aspects. Dr Sarkar and Dr. Margit may not have such information readily available to them. What about expenditure planning? Does the State Finance Department publish projections of expenditure on already committed heads like salaries to teachers, government officers and police, the pension payments and interest payments, etc for the next five years. I know Budgets are for one year: but the State Finance Departments exists for ever. They must be doing this five/ ten year projections on a rolling basis every year at the time of budget formulation. If not that is sad. If yes, such information must be easily accessible for analysis by Dr. Sarkar and Dr. Marjit. Such projections and the basis of such projections have zero confidentiality significance and must be in the public domain. There is no clear cut debt management, liquidity management and expenditure control management policy release to the public by the State Finance Department. In its absence what judgement Dr Sarkar and Dr Marjit can make about the desirability, prudence and effectiveness of these policies. If the auditor of the West Bengal's financial accounts comment that because of not implementing the FRBM (Fiscal Responsibility & Budget Management) Scheme of debt and interest relief by the Central Government to the State Governments, the West Bengal government has lost Rs 500 crore or so annually, the State Finance Department points out that by deferring the implementation of using the FRBM facility to 2011 the State would make larger gains of Rs1000 crore per year from 2011. Maybe this is correct. But the calculation is not in the public domain for Dr Marjit and Dr Sarkar to analyse and assess. In the absence of all information and projections as well as well articulated policies of the State government, the economic debates within the Economists' Triangle is not of much use. The State and its citizens must have complete information on the past trends and future outlook of West Bengal's State Finances analysed by experts outside the Government and know what are the problems and their critical significance as well as get to know from the experts the alternative solutions or solution time path of short-term and long-term actions that would secure West Bengal's State Finances a normal log-term health and permanently cure the sickness. Time is running out.  Economist Triangle debate of hide & seek will not do. We have to squarely and comprehensively deal with West Bengal government's financial sickness, irrespective political party affiliations and ideologies.
Maybe we are unnecessarily concerned. Dr. Dasgupta is an experienced finance minister, besides being a brilliant economist.  He has led the expert committee of finance ministers to suggest the framework of implementing the Goods & Services Tax (GST).  He may know exactly how beneficial would be the impact of introduction of GST on West Bengal's future revenue buoyancy. He may know how large the positive impact of FRBM debt and interest relief facility will be on West Bengal's State Finances from 2011-12 onwards. But that is not enough. Because Dr. Margit and Dr. Sarkar need access to the same knowledge and information in this regard to make their own assessment. The projections of the State Finance Department for the next two/ three years along with the assumptions they are based on should be in the public domain. We can not just go on debating to prove that Bengal does not suffer from poverty of intellect. Sharing complete information including projections and associated assumptions can only help squaring up the triangle of economists.

Landscams to Jyotinagar: Yet another tool of democratic exploitation

West Bengal has seen continuous exploitation of the citizens by the practising democratic politicians in the State. In the 1960s, communist democrats looted water bodies that were used by fish farming. Since then West Bengal which was self sufficient in fish became a big importer of fish and fish prices has since then been rising fast every year. The citizens suffered and the democratic politicians, their cadres and loyal fish traders made and is making lots of money. Fish trade is a gig unorganised sector activity that contributes to the State's domestic product but very little accrues to the State Exchequer from this economic activity - there are many such booming unorganised sector activity in West Bengal that pay unofficial levies of the ruling party or other political party politicians through their musclemen collectors and police but virtually no official tax to the State Government which lives on borrowing for decades.


After they came to power in 1977, the communist government and their democratic cadres grabbed most water bodies, filled them up and sold the land to to loyal supporters or themselves promoted housing complexes to make money. The common citizens suffered: inadequate roads, no rain harvesting resulting in depletion of underground water tables at a rapid rate, lower fish production.

The successive elections that the communists won only strengthened their legitimacy of democratic exploitation. Farmers and poor people were evicted from their lands and forced to sell their lands to State government agencies of party supported housing promoters. The Singur, Nandigram episodes aew well known and the exploited people rallied behind Mamata Banerjee, the current Indian Railway Minister and her political party Trinamool Congress to protest against such exploitation. The usual debate among the intellectuals mostly divided by the patronage they seek from different political parties continues but the elite intellectuals of West Bengal never condemned democratic exploitation by political parties by grabbing land and water bodies. Intellectuals are busy getting the little benefits that they can get from the political parties they seek patronage from. Increasing levels of honesty has not been the a great common characteristic of the Bengali intellectuals in the last five or six decades.

The latest debate is about how the West Bengal Government owned Housing Infrastructure & Development Corporation (HIDCO) activity in Rajarhat or New Town or JyotiNagar (named after the recently deceased Jyoti Badu the former Communist leader who ruled the State as the Chief Minister for 23 years or so). HIDCO has planned a beautiful new city in Rajarhat or JyotiNagar (it was named New Town in order for Jyoti Basu to leave this World so that it can be suitably renamed after him) - a city that is beautiful and fast developing. Mamata Banerjee now unearths the fact that was well-known but never discussed in public or intellectual meets: the fact is that the party cadres and their musclemen forced farmers and poor inhabitants of a very large tract of land, vegetation, tress and water bodies to sell these properties to HIDCO. The intellectuals are again battling in debates: some wants us to believe that all the landowners sold their land to HIDCO willingly and the prices they received for their land was market price. These intellectuals do not seem to have brains enough to understand what willingness to sell is and what market and market price are. Willingness to sell comes when there is competitive bidding for purchase by many buyers. The only purchaser was HIDCO: how could everybody become willing to sell just when only a single buyer available around wished to buy? Market for land in agricultural areas was non-existent because of the laws introduced by the Governments in the country and the State after Independence. We just don't need a market of a few transactions here and there ; we need competitive and transparent market for land. This was absent. Where is the question of market price. One fool said that the market price was nothing but the average price of a few land exchange transactions that took place in the recent past in nearby areas of any specific plot land being purchased by HIDCO. Communists do not understand what competitive markets are: unfortunately Karl Marx himself did not know what market mechanism is. It is silly that communists who are supposed to be the friends of the poor and the weak justifies their HIDCO's purchase of land in Rajarhat at the so-called market price.

The communists and their intellectuals have to fight this out because the State elections are due in a few months. Mamata Banerjee has chosen this Rajarhat Land grabbing issue for the same political reason of making the people realize what democratic exploitation HIDCO did in Rajarhat. All these politically motivated fighting is normal before the elections. But Bengali intellectuals have not come out clean as yet. They are still reluctant to say the Truth: the State should not be a monopoly purchaser where there are many potential sellers because this gives the State to become fascist and exploit the citizens in the name of democratic rights of the State and the politicians. Intellectuals are used to begging for State patronage: they cannot say that the Government should not be monopoly buyer becomes then the Government and politicians cannot patronage the intellectuals with small benefits like a position here and a piece of land/ flat at concessional price there.

Long live Bengali intellectuals with their slavery to the State and politicians. The Surplus Value of  Enlightened Lands are build on democratic exploitation of political power.