For 2005-06 to 2009-10, West Bengal has demanded Rs 114,000 crore from the 12th finance commission. This will not be what the state government gets. During the 11th finance commission, West Bengal got 38.6 per cent of its initial demand. This is understandable, because each finance commission uses formulae based on selected criteria to apportion scarce resources, and tensions between so-called forward and laggard states is inevitable. If anything, with increasing disparities across states, such tensions will be greater during the 12th finance commission. Having made the presentation to the finance commission, West Bengalís finance minister had several comments for the press, and these have elements of truth, half-truth and the patently false. First, West Bengal is not the only state to pass through a financial crisis. If anything, all states are in a similar mess.
This is indeed largely due to the partially implemented recommendations of the fifth Central pay commission. The Centre is thus culpable. However, logically, it was always possible for the West Bengal government to decide not to implement those recommendations, though that might have been politically difficult. Second, indirect tax revenue has dipped in the reform decade and this has adversely affected devolution to states. The manufacturing slowdown since 1997 compounded the problem, adversely affecting not only state share of the Central pool, but also state resource mobilization through sales tax.
With the economy and manufacturing perking up, this problem may be over. Third, in a restructuring programme submitted to the finance commission, the West Bengal government has talked of appropriate user charges and subsidy elimination. This programme is not in the public domain and is laudable if it accepts the principle of right user charges. However, this will not solve the fiscal problem. Without addressing salaries and pensions of government employees, West Bengalís finances will remain in a mess, and it is time the West Bengal chief minister took a leaf out of the Tamil Nadu chief ministerís book. Fourth, Mr Asim Dasgupta has ranted about the stateís constitutional responsibilities and the unfairness of a 29.5 per cent share in the Central divisible tax pool. Even if one ignores collection costs, this argument would have been more convincing had the finance minister talked of decentralization and devolution within the state. Instead, several comptroller and auditor general reports have castigated the West Bengal government for diverting social sector expenditure to salaries and pensions. Fifth, the Centre borrowing at 6 per cent and lending to states at 10.5 per cent may be unfair. But there is no compulsion to borrow from the Centre and nothing to prevent West Bengal from borrowing from the market, if it can find a lender. Finally, Mr Dasgupta is barking up the wrong tree when he talks about tax evasion. While tax evasion, both direct and indirect, is indeed a fact, the solution lies in implementing recommendations of the two Kelkar task forces, shorn of all exemptions. How about West Bengal taking a lead by implementing direct taxes on agricultural income'