STATE OF THE ECONOMY. West Bengal: Status quo, by and large

As West Bengal gears up to vote its next government to power, we take a closer look at the State’s economy and finances under the incumbent Trinamool Congress (TMC), and compare it to the performance of its predecessor, the CPI (M), which ruled the State for over three decades.

Serving the economy

In line with what has been happening in the country, West Bengal too has seen a gradual shift from agriculture and industry towards services.

BusinessLine compared some recent years of the Left Front government (2004-05 to 2010-11) with those under the TMC (2011-12 to 2014-15) and gauged various parameters. Agriculture and allied activities (17 per cent share of GDP) grew at a compounded annual growth rate of 3.2 per cent under the TMC, up from the 2.2 per cent growth rate during the CPI(M)’s rule. Industry (18 per cent share) too clocked 7.2 per cent vis-à-vis the TMC, compared to the 5.4 per cent under the Left government. Services, which accounts for 65 per cent of the economy, has remained a consistent performer all through.

While Services, particularly the informal segment, has thrived under both the Left and TMC, the industrial sector has not had it any better under the TMC. This is not surprising, given the labour unionism and problems in land acquisition.

Burden of history

On the fiscal front, there has been some easing in recent years. The State’s fiscal deficit (as a percentage of the GDP) declined from 4.1 per cent in 2010-11 to 3 per cent in 2014-15, and the revenue deficit from 3.6 per cent to 1.3 per cent. The debt-to-GDP ratio also improved from 40.7 per cent to 34.3 per cent during this period. It was in July 2010 that West Bengal made the first step towards enacting the Fiscal Responsibility and Budget Management Act.

But, much remains to be achieved. Even as other States have completely eliminated revenue deficit, West Bengal still runs a deficit on this count. Its fiscal deficit is also higher than the all-States average. With expenses overshooting revenue over the years, the State government has been on a borrowing spree: hence the ballooning debt. About one-fifth of the State’s spending on the revenue account is on interest payments.

Where has Bengal faltered?

A large part of the problem lies in the failure of the CPI(M) government to raise sufficient tax revenue during its tenure. And there has been no significant change since the TMC took over, point out experts. The State’s own tax revenue-to-GDP ratio, though up from before, is still below the all-States average of 6.6 per cent. This is because a chunk of the State’s growth is accounted for by Services, and the informal segment at that, which does not fall within the tax net. This includes the tuition industry, small restaurants, hotels and roadside vendors. Taxing these is therefore critical, but a political hot potato.

Same old story

On expenditure too, the record of both the Left and the TMC has been far from impressive. Data show that the States’ social sector spend as a percentage of its GDP averaged 5 per cent during 2004-08 and 6.3 per cent during 2008-10, lower than that for comparable States. While the ratio went up to 6.6 per cent during 2012-14, it was still below the comparable State average.

Likewise, the State’s capital outlay as a percentage of its GDP averaged 0.8 per cent during 2004-2010, as against the comparable State average of 2.4 per cent. It was at 0.8 per cent in 2012-13 too before it rose to 1.3 per cent in 2013-14. But, this was lower than the comparable State average.