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Empty Land Beckons

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Mamata Banerjee has won a massive victory; the prize for her win is the government of West Bengal. When he walks into the corner office, her finance minister will find on his desk a sheaf of circulars issued by the audit office of his ministry in the past two months. Their message is that the treasury is empty, that spending powers of district collectors are suspended, and that if they have overspent the balances they were last allocated, their cheques will bounce. Further down the corridor, the chief minister's personal assistant will be holding at bay an army of collectors and other civil servants whose cheques have bounced.

Perhaps Miss Banerjee had an inkling of what she was going to face, for the first person she sought out after winning the election was Pranab Mukherjee, the central finance minister. They were purported to be talking about what portfolios the Congress would get in her cabinet; the one portfolio Mukherjee could not have been keen on is finance. Much better to let it be handled by Amit Mitra, who is supposed to have access to big industrialists with deep pockets.

The budget tabled by Asim Dasgupta last March showed revenue receipts of Rs 52,951 crore for 2010-11, of which grants from the government of India accounted for Rs 10,658 crore. Revenue expenditure came to Rs 67,282 crore, leaving a deficit of Rs 14,331 crore. In the previous year, the deficit was Rs 21,570 crore on receipts of Rs 36,921 crore. In the past two years, West Bengal had the second-highest ratio of gross fiscal deficit to state domestic product amongst major states; only Goa was worse. West Bengal's debt in 2009-10 was 40.8 per cent of its SDP; the average for states was 25 per cent. It also had the lowest ratio of revenue receipts to SDP. It was the only state whose revenue did not even cover essential expenditure such as salaries and interest, and which was borrowing even to pay interest on its debt in 2009-10. Dasgupta has left his successor a legacy he is going to find it hard to live with.

Fortunately for the next man, he has a finance minister from his state in Delhi who promotes rampant inflation; the current year is his most successful to date. If inflation this year is 8-10 per cent, West Bengal can expect a revenue rise of 15-16 per cent, or some Rs 8,000 crore. He can thus expect to reduce his deficit to a half without doing anything. Unfortunately, doing nothing is not an option; with such raging inflation, he will have to give expenditure increases in some fields at least. So he will have to look where he can actually cut expenditure.

In three areas — interest payments, pensions and police — he cannot expect any relief; they account for some Rs 25,000 crore. The only areas where he will have discretion are social services — education, health, urban development, social services and welfare — which account for Rs 21,000 crore. He can avoid cuts by imposing user charges for the services. The charges need not apply to everyone; the genuinely poor should be given relief. User charges sound reactionary, and can evoke strong reactions from Kolkata's militant students. But they need to know, like everyone else, that the party is over, and is unlikely to return for five years at least.

A financial crisis is a good time for contrarian thinking. Cutting expenditure is always painful; how about raising some revenue? Raising taxes is always painful; how about attracting some tax-paying activities to West Bengal? If Mamata had allowed it, the Tatas would by now have been producing at least a lakh a year of Nanos in Singur; they would have easily paid Rs 100 crore in taxes. More important, all those Nanos on the roads of West Bengal would have brought in revenue from registration duties and fuel taxes. Narendra Modi capitalised on Mamata's folly and lured away the Nano factory. But the Tatas still own the land in Singur. How about persuading them to produce something on it? Mamata would have to swallow her pride and go to Ratan Tata with a welcome smile. But businessmen well understand the need to swallow their pride; so should politicians who want to attract business.
It may be too late for Nanos. There has been a great car boom in the past three years, but it is coming to an end. The Nano has not been even a minor success. The Tatas will not want to invest more in it; nor should West Bengal. Tatas' money spinner has been not Tata Motors, but Tata Consultancy Services. If they set up a centre in Singur for information technology and business process outsourcing, they could create a lakh jobs — much better than a lakh cars.

(This story was published in Businessworld Issue Dated 30-05-2011)