Mamata Banerjee Is Wrong: It’s Not India, But Bengal, Whose Financial Condition Is Worse Than Sri Lanka’s

Bengal chief minister Mamata Banerjee attracted ridicule Monday (April 4) when she said that India's financial health is worse than Sri Lanka's.

Banerjee, known for hyperbole, based her contention on the rising prices of petroleum products in the country. Her comparison between the economies of India and Sri Lanka got her considerable flak from other parties and was dismissed as ‘Mamataspeak’ by most politicians.

But what the Bengal chief minister has conveniently overlooked is the financial condition that her own state is in. Bengal’s debt burden will balloon to Rs six lakh crore by the end of this financial year. And the state’s revenue deficit will stand at more than Rs 53,000 crore by March-end next year.

Bengal’s outstanding debt burden, which stood at Rs 1.92 thousand crore when Banerjee came to power in 2011, had gone up by more than 205 percent over the last eleven years. All because, say economists, of her financial mismanagement, populism and propensity to hand out doles for immediate and narrow political gains.

Bengal’s principal sources of revenue are excise tax and levies on petroleum products. Since it is a consuming state, and not a manufacturing one, Bengal gets huge GST returns and that is how it has kept itself going till now.

But the spiralling debt burden, fuelled by huge market borrowings, has brought Bengal on the brink of a financial crisis of unimaginable proportions. State finance minister Chandrima Bhattacharya said in her budget speech last month that Bengal will raise Rs 73,000 crore from the open market this financial year to service its debt and meet its expenses.

The catastrophic condition of Bengal’s finances prevented the Mamata Banerjee government from announcing any new welfare measures or fresh cash doles in this year’s budget. Not that the state needs to--elections are another four years away and populism can be put on hold till then--but this in itself provides a strong indication of the Sri Lanka-type financial crisis that Bengal is on the brink of.

Bengal’s debt burden will increase by Rs 57,605 crore between March 2022 and March 2023. The state’s revenue deficit will increase by more than Rs 20,468 crore within this period to stand at Rs 53,431.76 crore at the end of the current fiscal.

When she took over the reins of Bengal, Banerjee raised the issue of the debt burden that she inherited from the Left. She demanded a moratorium on debt repayment, and a generous special economic package from the Union Government. New Delhi refused, and that was one of the early reasons from Banerjee adopting a combative stand with the Centre.

However, points out CPI(M) leader Sujan Chakraborty, the Rs cumulative debt of Rs 1.92 thousand crore that Mamata Banerjee ‘inherited’ was largely borrowings against the state’s small savings. Bengal is one of the leading states in small savings and borrowing against that to meet expenditure on development projects was a sterling display of fiscal prudence, said Chakraborty.

“Mamata Banerjee has been borrowing from the open market where interest rates are high to meet wasteful expenditure like cash doles to Durga Puja organising committees. The debt burden will balloon when these loans mature for repayment in a few years’ time. Bengal, which is already caught in a vicious debt trap, will plunge into financial ruin then,” warned Chakraborty.

Instead of cutting down on wasteful expenditure and populist schemes, Mamata Banerjee did exactly the reverse after coming to power and recklessly borrowed over Rs 20,000 crore on an average every year from the open market. The borrowings--with a locked-in maturity period of ten years--will be due for repayment from this fiscal, thus imposing a huge burden on Bengal’s precarious finances.

The only way out for Bengal, say economists, is to put in place a sound debt repayment strategy which minimises, if not obliterates, the need to take fresh loans to service the state’s burgeoning debt. The strategy, they add, should also involve wiping out wasteful expenditures like cash doles and populist welfare schemes, trimming the salary and pension bill, augmentation of resources and exploring new sources of revenue.

But there are slim chances of Mamata Banerjee biting the bitter pill and desisting from travelling down the populism path. Had she been serious about addressing the grave fiscal crisis being faced by Bengal, she would have, for instance, done away with the cash doles to Durga Puja organising committees.

“Durga Pujas have been held in Bengal without a hitch for many decades now, and through donations raised from the local communities. No organising committee has ever complained of not being able to organise a Puja due to a cash crunch. So the doles were completely unnecessary and were only given for narrow political gains. This dole should have been done away with, but the state government has increased the budgetary allocation under this head to Rs 207 crore (from Rs 99.85 crore in last year’s budget),” said economist Tapan Kumar Bhowmick.

This in itself provides a strong indication that far from putting the brakes on populism that is running the state’s economy, Mamata Banerjee will walk down the populist path and push Bengal further into financial ruin.

Economists say that Bengal’s abject failure to attract big-ticket investments, its poor industrial climate and business-unfriendly environment, the state’s poor work culture, mis-governance and political turmoil act as impediments to the growth that the state badly needs.

Despite tall claims made by the state government, the manufacturing sector is in the doldrums. The MSME sector, which the government falsely asserts is flourishing, is actually ailing and that is evident from dwindling revenue receipts from this sector. Bengal, say economists, has entered the low income-high unemployment trap.

Bengal has little room for fiscal manoeuvring now, say economists. With a limited resource base and slim chances of earning more revenue from stamp duties and other sources, the state government ought to immediately stop populist welfare measures and wasteful or unnecessary expenditure, practice frugality and put in place an appropriate debt repayment strategy so that fresh borrowings are used to finance development projects only.

But all that, for a chief minister who practices unbridled populism to stay on in power, is bad politics. And, hence, there appears to be no chance of Bengal being held back from hurtling down the road to financial doom.