How Bengal economy has fared over the last decade

Scholars agree voters mostly reward or penalise the incumbent party for economic situations, such as inflation or unemployment rather than vote for future economic prospects.
A labourer carries a sack filled with sugar to load it onto a supply truck at a wholesale market in Kolkata. (Reuters)
A labourer carries a sack filled with sugar to load it onto a supply truck at a wholesale market in Kolkata. (Reuters)
Updated on Mar 18, 2021 05:02 AM IST
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By, Hindustan Times, New Delhi

During the Bharatiya Janata Party (BJP)‘s election campaign in West Bengal, home minister Amit Shah said the state’s economic performance was much worse than BJP-ruled states.

Countering that claim, CM Mamata Banerjee said the state’s performance was higher than national averages on many fronts. How do we square such contrasting claims?

Research shows the economy plays a key role in voter choices in advanced economies. There is, however, little empirical evidence to say how much household-level economic well-being decides voting preferences.

Indian elections are mediated by a complex combination of factors, such as caste and identity. The Centre for Study of Developing Societies’ National Election Study (NES) 2004 found a “positive relationship between evaluations of the national economic condition and votes in favour of the UPA (United Progressive Alliance)”.

Scholars agree voters mostly reward or penalise the incumbent party for economic situations, such as inflation or unemployment rather than vote for future economic prospects. Therefore, the NES 2004 points out voting on economic factors is more likely to be “retrospective” than “prospective”.

The economic dynamic

West Bengal looks headed for a classic identity-based electoral battle, but the Trinamool Congress is equally campaigning on a platform of pro-poor economic policies and welfare handouts. It is true that the state, when TMC’s rule began in 2011, was waddling through unsustainable levels of debt and still does. High debt levels limit the ability of a state government to borrow and spend. Moreover, natural disasters, such as Cyclone Amphan in May 2020, have battered the economy.

Steering through its debt pile, Bengal has been able to achieve relatively good levels of growth. However, it has been below the national average.

According to data from the ministry of statistics and programme implementation, the state’s average growth of gross state domestic product or GSDP, the most common measure of income at the state level, between 2012-13 and 2017-18 — which coincide, partly, with Banerjee’s first and second term — was around 5.5%, lower than the national average of 7.1%.

The state’s budget documents show 2018-19 was a turnaround year. West Bengal grew 10.7% in 2018-19 in real terms compared to 6.8% growth rate of the country as a whole. If these estimates, still subject to revision at the federal level, hold, then it will mean the state has seen a leap in growth.

According to SBI Research, the total size of West Bengal’s economy in FY2021 and FY2022 is estimated to be 13.5 lakh core and 15.1 lakh crore. Bengal’s most recent budget, presented in February, forecast a sharp uptick in nominal (inflation-unadjusted) growth of 8%.

Nominal growth is a key determinant of tax revenues. If the state achieves its projected positive growth of 8% (+/-2%), this turnaround will substantially help cushion its debt baggage, which at 5.25 lakh crore currently, is one-third of the total size of its economy.

In real (inflation-adjusted) terms, the state’s growth is estimated to be 1.2% in FY2021, at a time when the Indian economy is projected to shrink nearly 8%.

However, budget estimates of the state haven’t always been reliable. According to Soumya Kanti Ghosh, group chief economic adviser of public-sector lender SBI, “for a six-year period ending FY2020, real GDP estimates of the state were on average 4.8% lower than the first GDP estimates”.

Presenting the 2019 budget, Bengal finance minister Amit Mitra had claimed in his Budget speech that West Bengal led all states in achieving a nominal 16% GSDP growth in 2017-18. However, adjusted for higher-than-average inflation of around 7%, the state’s real GDP growth was 9.1% that year, as inflation was higher than the national average.

In 2020-21, the state’s fiscal deficit was estimated to be 31,483 crore or 2.18% of GSDP, well within the 3% limit recommended by the preceding 14th Finance Commission.

The state of jobs

West Bengal has the second-largest number of micro, small and medium enterprises in the country, comprising 3.7 million businesses employing roughly 8.6 million people, according to the state’s budget documents.

The national Periodic Labour Force Survey (PLFS) 2017-18 shows unemployment rose under the TMC’s rule between 2011-12 and 2017-18. However, the state has been able to keep the unemployment rate, both in rural and urban Bengal, below the national average. Overall, according to the PLFS 2017-18, the unemployment rate in West Bengal was 4.6%, lower than the all-India unemployment rate of 6.1%.

However, these unemployment rates must be seen in the context of quality of job creation. For instance, the proportion of casual wage workers in the state’s workforce was 33% in 2017-18, the latest available estimates show, which is higher than the national average of 25%. This means the state has failed to create sufficient number of decent jobs with social security.

Welfare handouts

Under TMC’s rule, Bengal expanded its welfare programmes and schemes.

Budget 2020-21 announced that persons aged 60 and not covered under any pension scheme belonging to the Scheduled Castes and Scheduled Tribes will get a monthly pension of 1,000. The new pension scheme is expected to cover 2.5 million beneficiaries, with an allocation of 3,000 crore.

In 2019, the state announced also a Krishak Bandhu scheme, its own version of the federal PM-Kisan cash transfer scheme, which offers 5,000 a year to 7.2 million farmers and landless share-croppers.

The state also has a scheme to provide free electricity for the poor Under the Karma Sathi Prakalpa scheme, 100,000 unemployed youth will be provided subsidised entrepreneurship loans of up to 2 lakh, with the budget allocating 500 crore for it.

Expenditure profile

The TMC government has tended to spend more in areas such as rural economy, education and agriculture, than on roads and other infrastructure when compared to average of other states.

A PRS Research comparison shows Bengal allocated 17.6% of its expenditure for education in 2020-21, higher than the average expenditure of 15.9% by 29 states, based on 2019-20 Budget estimates.

Bengal’s budget allocated 2.3% of its expenditure for roads and bridges in 2020-21, which is lower than the 4.2% average allocation for roads and bridges by 29 states.

West Bengal’s overall economic performance shows it has expanded welfare handouts, spent robustly in rural sectors and laid out investment-friendly policies but the state is still burdened by high debt and lower-than-necessary resource mobilisation. Urban unemployment remains fairly high.

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  • ABOUT THE AUTHOR

    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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Saturday, May 21, 2022