The Telegraph
Since 1st March, 1999
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Finance panel in Bengal alert

Calcutta, July 25: C. Rangarajan, chairman of the 12th Finance Commission, has expressed “concern” over the state of finance in Bengal.

Identifying areas for immediate action, the former RBI governor urged state finance minister Asim Dasgupta to initiate steps to stem an impending crisis.

“Low tax to state domestic product (SDP) ratio and a high debt to SDP ratio are the two main problems facing the state. The state government presented its case before the commission members for easing the burden with a debt relief package,” Rangarajan told The Telegraph this evening.

The state’s tax to SDP ratio (an indicator of a state’s tax collection initiatives) was 3.99 in 1999-2000 and its stock of debt as a percentage of SDP (an indicator of a state’s indebtedness) was 44.9 in 2002-2003, according to data used by Dasgupta in his memorandum before the panel.

The finance commission’s members — Som Pal, T.R. Prasad, D.K. Srivastava and G.C. Srivastava — held meetings with state government representatives, Opposition parties and civic body members during their two-day stay in the city to assess the state’s financial situation and its resource requirements. The constitutional body will hold similar meetings in the remaining 27 states before submitting its recommendations on the distribution of central tax pool among the states and the Centre, and the principle governing the sharing, before July 31, 2004.

“We discussed both general problems in the economy and specific issues pertaining to the state. The state government made presentations on its financial position and gave forecasts on its future incomes and expenses before presenting its requirements,” said Rangarajan.

Dasgupta has demanded Rs 1.14 lakh crore from the Centre for the period 2005-2006 to 2009-2010. The amount includes his demand for Rs 3,500 crore for the municipalities and panchayats.

The finance minister did not just ask for money, he also came up with suggestions to help the Centre generate resources and reduce the debt burden on states. Higher allocation to the states can be done without straining the Union Budget, if the Centre can trace and tax black money that amounts to Rs 1 lakh crore per year, he said, quoting a 1983 study conducted by the National Institute of Public Finance and Policy, a premier economic research agency.

“This issue of tackling black money is not in our domain and we will see whether we should refer to this suggestion in our recommendations,” said G.C. Srivastava, member secretary of the commission, while Rangarajan remained silent on this issue.

But all comments weren’t so guarded. “People in policy circles are aware of the study on black money. I don’t know what magic formula can be used to unearth the black money,” was the caustic comment from M. Govinda Rao, director of the institute. Dasgupta argued that it was just a matter of “political will”.

The finance minister’s other proposal — to remove the limit on accessing cheaper funds from the market — was also questioned on pure economic logic. “Look at the debt burden and the interest component of the government. Who will take the risk'” demanded Rao.

The state’s failure in revenue mobilisation — with the finance minister himself admitting to a shortfall in sales tax collection of Rs 600 crore in 2001-2002 — was also criticised. Incentives through exemptions to upcoming units was primarily responsible for the shortfall, was Dasgupta’s argument.

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