RBI Puts Bengal, Kerala & Punjab on Alert Over Debt
TOUGH TIMES RBI says 7th pay panel payout may have a cascading impact
Kolkata: The Reserve Bank of India has put Mamata Banerjee’s West Bengal and other indebted states such as Kerala and Punjab on alert, saying their interest payments and rising expenses on salaries and pension will be major stress points. “The rising trend in the committed expenditure-GSDP ratio in recent years is a cause for concern,” the RBI said in a report.
“It is set to rise even further as the implementation of the recommendations of the Seventh Central Pay Commission may have a cascading impact on salary and pension burdens across states.” Interest payments, administrative services and pensions are committed heads of expenditure for every state and they account for a dominant portion of non-development revenue expenses. West Bengal’s outstanding liability has doubled to more than .₹ 3 lakh crore over the past five years even increasing tax revenue and a fall in non-planned expenditure. While its debt-GSDP may narrow by 900 basis points to 32.9%, according to budget estimates for 201516, from 41.9% in 2011, the ratio will still be the worst among key states.
The ratio is likely to ease to 31.4% from 33.1% in 2011 for Punjab and to 28.1% from 31.8% for Kerala. “West Bengal has improved its own tax re- venue but its indebtedness was so high that it will take a while for the state to look stable in terms of fiscal position,” said Devendra Kumar Pant, chief economist at India Ratings & Research.
Of every .₹ 100 that West Bengal spends, .₹ 21 goes to service outstanding debt. The state spends 2.1% of its total expenditure on road and bridges and 2% on energy. “Besides salary expenditure, growing pension liabilities could be another major source of fiscal strain for states in the future. Pension liabilities of states at an aggregate level have almost doubled between 1997-98 and 201415,” the RBI said.
The state used to borrow heavily from the market to make payments towards such committed heads. It borrowed .₹ 20,100 crore (budget estimates) in 2015-16 compared with .₹ 19,120 crore in the preceding financial year. West Bengal has .₹ 3,08,800 crore in debt and about 55% of the borrowings come up for repayment over the next seven years, putting the state in a precarious position.