RBI Puts Ben­gal, Ker­ala & Pun­jab on Alert Over Debt

TOUGH TIMES RBI says 7th pay panel pay­out may have a cas­cad­ing im­pact

The Economic Times - - Economy - At­madip.Ray@ times­group.com

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.

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