For the first time in nearly 50 years the ratio of tax to gross state domestic product has improved past the 5 per cent in West Bengal. This has been made possible as in FY14 the state has been able to garner tax revenue of about Rs 39,100 crore, a 19 per cent growth over the actuals for FY13.
Saugata Bhattacharya, senior vice president at Axis Bank said this is a commendable improvement in the state’s finances.
Presenting last year’s budget, state finance minister Amit Mitra had said he intends to improve the efficiency of tax collection. This is reflected in the numbers for tax collection as the state has not raised any of the existing rates. Though the actual collection is slightly below the target for the year it has created a fiscal space for Mamata Banerjee to try to use the state budget to push through her schemes.
Speaking after a meeting of the central board of directors of RBI in Kolkata in December 2013, Governor Raghuram Rajan had noted the state’s fiscal reform was headed in the right direction.
West Bengal has consistently been the worst performer in tax revenue collection for the past few decades. A Central government source said the state can easily reach a ratio of 6.5 per cent in the next couple of years. Planning Commission data shows the mean for all India was 7.35 per cent in FY12. Neighbouring states like Bihar and Orissa are at 5.5 per cent and 6.3 per cent.
While the higher tax collection has helped cut West Bengal’s revenue deficit over the last year but the fiscal deficit has risen to Rs 21,892 crore in FY14 compared with Rs 19,146 crore in FY13. Mitra had projected he would bring the fiscal deficit down to Rs 13,414 crore for FY14.
The effect of the hitherto low tax revenue was felt in all avenues of state expenditure. For instance, while all states (except special category) hand out about 60 per cent of their salary as dearness allowance for government employees, Kolkata offers only 48 per cent. At the Centre, the figures reached 100 per cent with effect from January 1, 2014.
Mitra has not provided for any tax rebate in his budget speech but has planned a massive jump in plan outlay raising it by 63 per cent for FY15 to Rs 43,563 crore compared with last year’s spending plan of Rs 26,674 crore. The state has one of the largest debt overhang at Rs 2.3 lakh crore, and spends Rs 22,000 crore annually in debt servicing.