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Thursday, 08 December 2011 10:54
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With higher MSP, will Mamata support critical reform?


If the DMK and other allies got away with what they wanted in their ministries in UPA-1, Trinamool Congress chief Mamata Banerjee is extracting a different price—while she had asked for a R19,000 crore package, UPA-2 cleared a R8,750 crore grant for West Bengal. To put this in perspective, this is nearly 70% of the total grants-in-aid recommended by the Thirteenth Finance Commission (TFC) for the state for a period of five years—not only is her package in addition to the TFC amount, it is not tied to projects like TFC grants are, nor is there any need for matching support from the state for the backward regions grants that are being given to West Bengal.

That Mamata continues to hold out—what she did on retail FDI is just the latest example—is not surprising since her state is going to need a lot more support from the Centre, a lot more indulgence. The state is yet to present a budget—two votes on account have already been presented and, the way things are, Amit Mitra may well create history by presenting the highest number of votes on account in a year. West Bengal is one of the worst-run states in the country in fiscal terms and its 2010-11 fiscal deficit accounted for nearly 11% of the total of all the states put together. At 4.24%, its tax-to-GDP ratio is the lowest among the general category states—Andhra Pradesh’s is 10.8%, Karnataka’s 11%, Gujarat’s 7% and even Uttar Pradesh’s is 8.3%. Not surprisingly, then, its social sector expenditure is amongst the lowest in the country, at 6.7% of state GDP, that is itself abysmally low. It is true that all of this is in the past, and cannot be laid at Mamata’s door, but she is making no attempt to raise taxes and tighten tax administration—indeed, by saying she does not plan to hike electricity tariffs, the state’s electricity board, one of the few performing ones in the country, is likely to start making losses all over again.

At 4.94% in 2010-11, the state’s fiscal deficit is nowhere near the 3.5% the TFC had said it has to be in 2012-13, and ditto for the revenue deficit that was 3.64% in 2010-11 as compared to the 2012-13 TFC target of 1.1%. So, the state will need the Centre to overlook its breach of the FRBM targets—the CPI(M) passed the Act before it demitted office—for the next few years. Mamata will, simultaneously, want the Centre to give it the relief given to other states who passed FRBM Acts—this could add up to R9,700 crore in terms of interest payments—but without meeting any of the FRBM targets. To get this, she needs to turn the screws on UPA-2 just that much more.


Last Updated ( Thursday, 08 December 2011 10:54 )

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