Once again, 15 years after P.V. Narasimha Rao lost the general election and took his finance minister, Manmohan Singh, with him out of the government, a finance minister is doing reforms. His name is Amit Mitra. He is no relative of Ashok Mitra, who preceded him as finance minister of West Bengal some decades ago. The two could not be more different. Ashok Mitra is an angry once-young man who never grew out of his acerbity; Amit Mitra cannot take his smile off. Ashok Mitra was a dyed-in-the-wool Marxist; Amit Mitra was a saffron Hindutwit in his student days. If there is any similarity between them, it is in the way they changed masters. Ashok Mitra was once chief economic advisor in the Central finance ministry in the age of Indira Gandhi; later he became finance minister in a rabidly anti-Congress government in West Bengal. Amit Mitra served businessmen’s interests as secretary general of the Federation of Indian Chambers of Commerce and Industry, and propagated positions contrary to those of the Trinamul Congress on Singur, foreign investment in retail trade, labour laws and other issues. This is not particularly shameful. It is quite all right to change one’s views. Needs of survival come before calls of conscience. Everyone has to make the best of the opportunities that come to him; that may require expressing views that one does not hold. Some degree of hypocrisy is often necessary for worldly success. Those who sacrifice good jobs to be true to their convictions are saints who would be well advised to live in the jungle; and they would not find much jungle left to live in.

Asim Dasgupta, Amit Mitra’s predecessor, invented a revolutionary theory of public finance. The general conviction of economists is that a government must distinguish between current revenue (that is, revenue raised from taxes or received from transfers) and borrowed money. At one time, they used to believe that borrowings should be used only to finance productive expenditure — expenditure that would generate income in the future, from which interest could be paid and debt repaid. They ceased to believe that when Keynes pointed out in the 1930s that when an economy is in depression, a government may have to run budget deficits to stimulate the economy and reduce unemployment. But they would still say that a government should minimize borrowings and not let government debt rise above a sum which can be repaid in a foreseeable period. Many Western governments are facing a dilemma just now, that they are running deficits to stimulate their languishing economies, but they would find it difficult to repay the resulting debt because their future growth prospects are so poor. That has been true of West Bengal as well. But Dasgupta borrowed for West Bengal as if there was no tomorrow.

The Centre does not have the political will to force any state to improve its finances. If it punished a state ruled by an enemy, it would have to mete out the same punishment to its own states in the same situation. So it uses carrots. Till the 1990s, when states got into financial trouble, the Centre lent to them. Since it was itself borrowing, it meant that it borrowed on behalf of the states and let them ride on its better credit rating.

The Bharatiya Janata Party- led government got tired of these proxy borrowings. When inflation came down and interest rates started falling, it introduced a debt swap scheme in 2002, under which states could exchange the loans they had taken from the Central government for loans from banks and the small savings fund at lower interest rates. Most states swapped their entire outstanding debt; West Bengal, for some reason, swapped only Rs 10,925 crore out of its total debt of Rs 15,412 crore.

The Congress-led government that followed implemented a debt consolidation and relief scheme as proposed by the 12th Finance Commission. Under this scheme, the Centre promised to reduce interest rates; and if states reduced their revenue deficits (that is, the excess of their non-capital expenditure over their revenue), it promised to write off some of their debt as well. As a result of Dasgupta’s borrowing spree, the West Bengal government missed out on this free gift. His incontinence was expensive for the state. The average ratio of public debt to their gross domestic product for all states in 2010-11 was 23.1 per cent; for West Bengal it was 40.8 per cent.

Because of this debt burden, West Bengal spends more on interest; its interest payments came in 2010-11 to 2.9 per cent of its GDP against 1.6 per cent for all states. It also raised less revenue of its own — 4.8 per cent against 6.7 per cent for all states. It made up by spending borrowed money; but contrary to sound budgetary practice, it spent little of its borrowings on building up assets. In 2010-11 it borrowed 4.6 per cent of its GDP, but spent only 1.1 per cent on capital assets. The corresponding means for all states were 2.5 and 2.1 per cent respectively. In other words, an average state spent 84 per cent of its borrowings on capital assets; West Bengal spent 24 per cent.

This is the legacy of improvidence that Amit Mitra inherited from Asim Dasgupta. That is the story that can be gathered from the Reserve Bank of India’s figures: I have not cited a single figure from Dasgupta’s budget, because it is impenetrable. His budget statistics are the most voluminous of any state; it is impossible to make sense of them because the descriptions of expenditure beneficiaries are obscure. But before Mitra could get down to making sense of Dasgupta’s budget, he found that his treasury had run out of money; in June, Mitra had to rush to the state assembly and ask it to pass a vote on account. He said it would take four months to penetrate Dasgupta’s budget and make up a new one.

That was the budget he presented last week. Earlier he had complained that Dasgupta had exaggerated future revenue. Either he did not, or Mitra is doing it too. For revised estimates of revenue are higher for all heads than budget estimates; in other words, Mitra is expecting more revenue than Dasgupta did six months ago. Only a part of it is due to the tax increases Mitra announced. His estimate of fiscal deficit for 2010-11 is lower than Dasgupta’s; that of revenue deficit is only slightly higher. He is expecting to get more from the national small savings fund and in ways and means advances from the RBI; he will therefore borrow less from the market — that is, from banks — and will be paying less in interest. So Mamata Banerjee’s chumminess with the big brother in Delhi is paying off; there is nothing for Mitra to complain about.

Why then did he raise sales tax and liquor duties? It was not necessary; he probably did it to convince the big brother in North Block and the little tyrant in Mint Street that he was a good boy. On the other hand, I still do not see any signs that he has subdued the bureaucracy of his ministry. That is what I hope to see in March.