Can Mamata Banerjee blame legacy issues for West Bengal’s economic performance?
Failure to improve tax-GSDP ratio significantly after a full term in power speaks poorly about Banerjee’s economic management
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As the Bharatiya Janata Party (BJP) seeks to extend its footprint in West Bengal, where it has witnessed a surge in popularity recently, a war of words has broken out between party chief Amit Shah and state chief minister Mamata Banerjee.
Speaking at a press conference in Kolkata recently, Shah claimed that West Bengal’s economic performance is much worse than BJP-ruled states. Countering Shah’s claims, Banerjee said that Bengal’s performance is better than the national average in many respects, and if the state’s economy is still fragile, it is because of long years of misrule by the previous Left Front government, which has saddled the exchequer with a pile of debt .
Is Banerjee right?
A look at the state’s finances shows that Banerjee did inherit a huge burden of public debt when she stormed to power in 2011, after 34 years of Left Front rule. Yet her own fiscal management has been less than exemplary.
The Trinamool Congress (TMC) government does deserve some credit in reducing the state’s debt burden. The state’s debt-GDP ratio has declined by nine percentage points after Banerjee-led TMC took charge of the state. But as the chart below shows, the pace of decline in the state’s debt-GDP ratio between fiscal year 2011 and fiscal year 2016 was nearly the same as in the previous five years when the Left Front was in power.
And despite the decline, the state’s debt-GDP ratio continues to be among the highest in the country. Despite relatively fast growth, the state’s public finances haven’t seen a sharp turnaround.
With an annual average growth (compounded annual growth rate) of 7.2% between fiscal year 2012 and fiscal year 2015, the state has been among the fastest growing major economies of the country (based on old GDP series numbers). The only two states among the 10 largest state economies of the country which clocked faster growth during this period were Madhya Pradesh and Gujarat.
Such growth has not translated into significantly higher revenues for the exchequer.
The inability to raise revenues and a tendency to overspend on revenue expenditure has crimped capital expenditure in the state. Lower capital expenditure threatens the sustainability of the state’s growth path, as well as the state’s ability to lower the debt-GDP ratio.
One reason why West Bengal has not witnessed a quick turnaround in its public finances is that like several other states, political expediency often over-rides economics in the state. The recent land tax waiver is a case in point. While the move is expected to help the TMC in local body polls, it will only add to the fiscal strain the state faces.