Bengal's economy is characterized by high debt and poor capital expenditure

Bengal's economy is characterized by high debt and poor capital expenditure

Although the state's economic statistics are acceptable, it has not been able to attract investors or control the amount of debt it has.

Bengal barely reached 65.8% of the planned capital expenditure goal for FY23.

In Bengal, voting will take place in all seven rounds between April 19 and June 1. In the 2018 Lok Sabha elections, three blocs are competing: the Trinamool Congress (TMC), the Bharatiya Janata Party (BJP), and the Congress in coalition with the Left.

April 26 is the day of the second phase of voting in the parliamentary seats of Balurghat, Raiganj, and Darjeeling. The BJP currently holds these three seats.

Moneycontrol examines the important economic indicators of the nation's fourth-largest state economy, which will send 42 lawmakers to the 18th Lok Sabha, as the election campaign heats up.

According to preliminary estimates, West Bengal's gross state domestic product, or GSDP (measured at constant prices) using 2011–12 as the base year expanded by 7.65 percent in 2023–24, while India as a whole grew by 7.32 percent, as per the state’s economic survey for 2023–24.

Averaging 6.6 percent GSDP (at constant prices) over the four years between 2019 and 20 is the state's forecast, which is double the growth of the whole India at that time.

Estimates for the GSDP in 2024–25 indicate that it will reach Rs 18.8 lakh crore (at current prices), representing an increase of 10.5% over 2023–24.

According to the updated forecasts for 2023–2024, the budget deficit of 3.5 percent is anticipated to stay above the 3.1 percent average of all states and Union territory and over the 3 percent limit recommended by the 15th Finance Commission.

The budget deficit for the eastern state is expected to reach 3.6% of GSDP in FY25.

Given the figures for 2022–2023 and the updated projections for the preceding financial year, senior analyst at India Ratings and Research Pvt Ltd Paras Jasrai believes West Bengal is unlikely to follow the tentative fiscal path recommended by the 15 Finance Commission of 3% of GSDP for FY26.

Even while the state reduced its budget deficit from 3.7 percent in 2021–2022 to 3.3 percent in FY23, there is still a long way to go before it can report a number like it did in 2019–20, when it dropped the gap to less than 3 percent.

Warning signs

The most worrying economic statistic for West Bengal is its high debt-to-GSDP ratio, which is predicted to reach 36.9 percent in FY25. This is much higher than the finance commission's indicative debt prediction of 32.8 percent, although it is lower than the revised estimate for 2023–24 (37.1 percent).

The debt levels of West Bengal above the national average as well. The Reserve Bank of India reports that at the end of March 2023, the states' debt-to-GDP ratio had dropped to 27.5% from its high of 31% at the end of March 2021. The central bank said on December 11, 2023, that the ratio might surpass 25 percent by March of 2024 when broken down.

When it comes to eliminating output gaps or forming capital expenditures, a high public debt-to-GDP ratio beyond 35 percent is cause for worry. The difference between revenue and GSDP is 1.7%. This would significantly reduce the state's available funds for upcoming development projects. In order to achieve a sustained economic growth recovery process, West Bengal is about to embark on a fiscal consolidation procedure that would improve tax buoyancy rather than reduce public expenditure, according to Lekha S. Chakraborty, a professor at the National Institute of Public Finance and Policy (NIPFP).

A deeper examination of the data reveals that capacity development concerns and budgetary constraints have caused the state's capital expenditures to fall short of planned levels, making them less than ideal.

Bengal barely reached 65.8% of the planned capital expenditure goal for FY23 and 54.3 percent for FY21–2022. In comparison to the updated forecast for 2023–24, the state aims to increase its infrastructure investment by roughly 16 percent for the current fiscal year.

Given the average 13.2 percent rise in investment from FY16 to FY23, India Ratings thinks the FY25 projected capex objective is excessive.

According to Chakraborty of NIPFP, West Bengal should follow other states' lead in devising innovative approaches to augment infrastructure development, considering the limitations imposed by budgetary regulations.

Bengal should work to extend the debt maturity structure in order to fund major infrastructure projects and plan for strong economic development. By having more long-term bonds, the state will be able to delay the refinancing risks and concentrate on strong initiatives for economic development, the source told Moneycontrol.

West Bengal spent 1.9 percent of its budget on roads and bridges in FY25, less than the 4.6 percent average for all of India in 2023–2024, according to a research by PRS Legislative Research. For example, 5.9% of Uttar Pradesh's total spending went on building roads and bridges.

Concerning is also the trend of West Bengal's per capita income over time. West Bengal led 18 of the 25 states in 1980–81, and by the conclusion of the more than three decades of Left administration, 15 of the 28 states led. However, according to RBI statistics, 18 of the 29 states performed better in 2018–19 under the leadership of the Trinamool Congress. To be fair, the TMC is not entirely to blame for this.

Even a smaller state like Haryana had a higher per capita net state domestic product (NSDP) in 2022–2023—Rs 2,96,685—than West Bengal, which had an NSDP per capita of Rs 1,41,373 at current prices. According to data issued by the statistics ministry back in July 2023, Tamil Nadu, Punjab, Telangana, and Karnataka all rated higher than the eastern state on this criterion, while Madhya Pradesh ranked worse.

education and health

West Bengal earmarked 15.6 percent for education and 6.6 percent for health in its budget for 2024–25. According to their budget forecasts for 2023–24, both are more than the average expenditures for 31 states, which were 6.2% for health and 14.7% for education. Higher funding is still required, nevertheless, in order to guarantee implementation on the ground.

The president of the Merchants Chamber of Commerce & Industry in Kolkata, Namit Bajoria, said that government policy involvement and infrastructure development in the areas of health and education are necessary for the social advancement of the underprivileged and marginalized segments of society.

Furthermore, it is essential to eliminate the regional differences that are present in West Bengal's health and education systems. Government action at all levels is the only way to address this, according to Bajoria, as the private sector would not build clinics or schools in isolated or underdeveloped regions.

In April 2024, Panchali Sengupta and Anjan Chakrabarti published a comparative study of regional inequalities in the state's districts. They found that the state lacks a strong manufacturing base and that there are noticeable developmental gaps between districts in the southern and northern regions of West Bengal. Additionally, the study noted that the secondary sector's relatively low contribution underscores these disparities.

Compared to all of India, West Bengal's infant mortality rate dropped from 33 per 1,000 live births in 2010 to 19 per 1,000 live births in 2020. According to RBI statistics, the state's average life expectancy between 2016 and 2020 was 72.3 years, which is higher than the average for all of India, which was 70.

However, the state is lacking in insurance coverage, with just 29% of families having any kind of health insurance, according to the National Family Health Survey 2019–21. Compared to the 41 percent national average, this is much lower. However, considering the disparity in sample size, the study advised using care when interpreting and comparing the trends between state and all-India levels.

Only 18% of women and 22% of men (aged 15-49) in the state had finished 12 or more years of education, according to the poll, despite the fact that the number of children aged 6-17 who attended schools climbed from 85% in 2015–16 to 90% in 2019.

In contrast, just 23% of girls and 22% of boys in Haryana attended preschool while they were between the ages of 2-4. In the state, 94.3 percent of students between the ages of 6 and 14 attended school. The National Family Health Survey 2019–21 found that among children aged 15–17, the percentage dropped to 73.4%.

In Tamil Nadu, males attended preschool at a greater rate (34%) than girls (33%), among children between the ages of 2-4. In Tamil Nadu, 96.9% of children aged 6 to 14 attended school, but the percentage fell to 74.3 percent for those in the 15 to 17 age range.

The survey measures are different for each state to be sure.

Chakraborty of NIPFP concurs that when discussing social infrastructure expenditure in West Bengal on healthcare and education, the issue is not one of money. It has to do with responsibility.

Voters' calculation of permission is reliant on how connected the government is to them on the final mile. The ability to skill is important for career mobility. The economist said that the government should prioritize fostering skill development, bolstering the MSME (micro, small, and medium-sized companies) sector, and luring private investments into important industries like manufacturing, tourism, and IT.

Continuous deindustrialization?

The state's decreasing industrial presence over time is perhaps the main grievance people have with West Bengal. West Bengal, which had been the most industrialized area of British India, began to lag economically not long after independence.

Although this decline started off slowly, during 34 years of Left administration, it quickly accelerated, and the new Trinamool Congress regime made a mistake when it came to the notorious Singur incident and the Tata group's industrial ambitions in Bengal.

In 2006 the Left administration said that Tata Motors will establish a vehicle manufacturing plant to introduce its Nano model, allotting about 1,000 acres of land for this purpose. Following the opposition's protests over the car major's land purchase, Mamata Banerjee's Trinamool Congress forced the latter to announce in 2008 that it was transferring its facility to Sanand in Gujarat, citing security concerns as justification for stopping operations at Singur.

Certain well-known companies in West Bengal have also left the state. In order to produce biscuits, a group of merchants in Kolkata founded Britannia Industries in 1892. The firm moved its headquarters to Bengaluru in 2013. Furthermore, according to recent media reports, State Bank of India, the country's largest government lender, intends to relocate its centralized global back office as well as a few other departments dealing with foreign currency from Kolkata to Mumbai. 2015 saw the establishment of the back office at the City of Joy.

West Bengal improved its ranking in the central government's ease of doing business rankings, placing ninth in 2018–19 compared to 10th in the previous fiscal year, but it still lags behind other sizable states like Andhra Pradesh, Gujarat, Haryana, Karnataka, Punjab, Tamil Nadu, and Telangana, which were the top achievers.

Data on the quantity of established startups in Indian states indicated that West Bengal is also trailing behind its counterparts in this regard. Between 2016 and 2022, there were 2,739 recognized startups overall, with over half of them being in Telangana and Tamil Nadu. Furthermore, states like Karnataka and Maharashtra, which claim to have 9,904 and 15,571 businesses, respectively, lag far behind.

West Bengal and Gujarat are the two most populous states in India, but between October 2019 and December 2023, West Bengal saw $1.54 billion in foreign direct investment flows, while Gujarat saw $37.73 billion, according to data from the commerce ministry's Invest India platform.

Indeed, the state continues to be proud of its booming steel and leather industries. But when it comes to courting the sector, it has not kept up with new trends.

It has the second-highest concentration of MSMEs in India and is the nation's top producer of rice, pineapple, vegetables, and jute.

According to Chakraborty, there is much cause for worry over the contentious status of labor relations in the state.

The issue of militant labor unionism is yet another. She said, "Streamlining the regulatory framework is essential for entrepreneurship."