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West Bengal & Andhra Pradesh: A Story of Fiscal Contrasts

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While the Union Budget is the mother of all, it is now evident the State Budgets in combination or independently have a considerable direct impact on citizens. Particularly when one is in reasonable financial shape and the other is not, or is compelled by politics to keep prices or taxes down.

 

With more States tabling their 2012 Budgets, IndiaSpend’s Dhritiman Gupta narrates a fiscal tale of two demographically similar states; West Bengal and Andhra Pradesh. He finds one state plagued by low revenues and mounting debt while the other enjoys rising revenues and lower debt.

 

Unlike the Union Budget 2012-13, there were not too many gives or takes in the two state Budgets. West Bengal increased taxes on luxury cars worth more than Rs 10 lakh, watches worth more than Rs 20,000, air conditioners larger than 1 tonne  and colour television sets worth more than Rs 25,000.

 

A Tale Of Two Budgets

 

In general, Bengal has given away much more in exemptions. Though it hopes to recoup somewhat by shifting to electronic filing of taxes.

 

Andhra Pradesh on the other hand has increased its subsidy burden by lowering the PDS price of rice. But has not imposed any fresh taxes possibly because its tax collections have improved steadily (or so it says) because of improved and electronic tax governance. The table below tells the story.

West Bengal & Andhra Pradesh Financials

  West Bengal Andhra Pradesh
  Budget 2011-12 Revised 2011-12 Budget 2012-13 Budget 2011-12 Revised 2011-12 Budget 2012-13
1.    Revenue Account      
a. Revenue Receipts 65,847 59,143 76,943 1,00,995 97,194 1,16,786
b. Revenue Expenditure 74,138 76,417 83,801 97,169 96,414 1,12,342
Revenue Surplus (a-b) -8,290 -17,273 -6,858 3,826 780 4,444
2.   Capital Account            
c. Capital Receipts 21,794 28,664 23,423 27,774 25,712 29,478
d. Capital Expenditure 13,507 11,562 16,571 31,371 26,445 33,511
Capital Surplus (c-d) 8,287 17,102 6,852 -3,597 -733 -4,033
Overall Surplus -3 -172 -6 229 47 411

(Figures in Rs crores)

 

Source: West Bengal Budget 2012-13, Andhra Pradesh Budget 2012-13

 

Before we go any further, here are a few definitions. Capital Receipt includes Loan Recoveries, Market Loans and Loans from the Central Government. Capital Expenditure includes Investments, Loans and Advances, and Repayment of Debt.

 

Now the first thing to take away from the table is that the two states have very different ways of financing their expenditure.

 

West Bengal is one of the very few states which have consistently spent more revenue than it has earned. In 2011-12 it had a Revenue Deficit of Rs 17,123 crore. It financed the deficit by taking loans, which forms a part of the Capital Receipts.

 

Andhra Pradesh on the other hand financed its excess Capital Expenditure (includes investments) from the surpluses on revenues. In 2011-12 Andhra Pradesh had a surplus of Rs 78o crore on revenues, which helped finance the excess investments.

 

However, the revenue surplus of Rs 780 crore was much less than the Rs 2,462 crore surpluses in 2010-11. The Budget has, however, projected a revenue surplus of Rs 4,444 crore in 2012-13, which though ambitious, is good news for Andhra Pradesh finances.

 

While in Bengal, there is a gross mismatch between Capital Receipts and Capital Expenditure.  The state ran a surplus of Rs 17,102 crore on the capital account as against budgeted Rs 8,287 crore in 2011-12. This is a pointer to the fact that investment levels are low in West Bengal.

 

Tax Collection Records

 

Let’s take a look at the tax collections of these two states over the last year.

 

  West Bengal Andhra Pradesh
Tax  Heads Budget 2011-12 Revised2011-12 Budget 2012-13 Budget 2011-12 Revised2011-12 Budget2012-13
Total Revenue Receipts 65,847 59,143 76,943 1,00,995 97,194 1,16,786
State Tax Revenue 27,690 24,934 31,222 56,438 53,398 66,021
Share in Union Taxes 19,166 18,587 21,975 16,826 17,804 21,964
Non- Tax Revenue 3,194 2,872 3,262 12,338 12,230 13,851
Grants-in- Aid from Centre 15,796 12,749 20,282 15,392 13,760 14,948

(Figures in Rs Crore)

 

Source:West Bengal Budget 2012-13, Andhra Pradesh Budget 2012-13

 

Interestingly, despite the population levels being similar, there is a wide gap between the Tax Receipts of Andhra Pradesh and West Bengal. In 2011-12, the Revenue Receipts of West Bengal was Rs 59,143 crore as against Rs 97,194 crore for Andhra Pradesh.

 

Besides, West Bengal depended on the Centre for a lion’s share of its receipts. It got 53 percent of its receipts from the Centre as against 33 percent in case of Andhra Pradesh.

 

Also worth noting is that West Bengal and Andhra Pradesh both fell short of their budgeted collections by Rs 2,756 crore and Rs 3,040 crore respectively in 2011-12.

 

However, Andhra Pradesh got more than the budgeted share in central taxes whereas West Bengal received less in 2011-12. Andhra Pradesh got Rs 17,804 crore as against a budgeted Rs 16,826 crore, a bonus of Rs 978 crore. West Bengal, on the other hand, got Rs 18,587 crore as against a budgeted Rs 19,166 crore, a loss of Rs 579 crore.

 

An additional area of concern for West Bengal is Non-Tax Revenues. In 2011-12, not only were the amounts collected very low when compared to Andhra Pradesh, but they also fell short of what was budgeted by Rs 322 crore, which is huge given the low budgeted amounts in the first place.

 

West Bengal Budget 2012

 

Now, West Bengal’s proposed state plan outlay is Rs 23,371 crore which is 11% higher than last year. There has been a rise of planned outlay in most of the departments, with the maximum in Agricultural Marketing which will get Rs 150 crore, up 318%.

 

The allocation and rise in a few departments:

West Bengal Departmental Allocations

Department Amount (Rs Crore) Rise (%)
Agricultural Marketing Department 150 318
Agriculture 315 18
Department of Health and Family Welfare 1,049 20
Department of Food and Supplies 68 106
Department of Minority Affairs and Madrassa Education 330 70
Public Works Department 1,175 31
Department of Power 1,010 94

Source: West Bengal Budget Speech 2012-13

 

In Tax, the main reform has been in the e-governance section. Tax returns will be e- filed now on. The government hopes to avoid tax evasions through this.

 

Otherwise, this budget has been one of tax reliefs and exemptions the only tax increase being on luxury goods like Motor Cars worth more than Rs 10 lakhs or television sets with an MRP above Rs 25,000. Such goods will be taxed at 14.5% instead of 13.5%.

 

Andhra Pradesh Budget 2012

 

Now let’s take a look at the salient features of the Andhra Pradesh Budget which envisages an overall expenditure of Rs 1.45 lakh crore, of which Rs 54,030 crore is plan and Rs 91,824 crore is non-plan expenditure. The Budget envisages a Revenue Surplus of Rs 4, 444crore.

 

Let’s take a look at outlays by sectors

 

Andhra Pradesh Sectoral Outlays

 

Sectors Amount (Rs Crore) Rise (%)
Agriculture 2,572 42
Civil Supplies Department 3,175 19
Rural Development 4,703 28
IT 151 193
Energy 5,937 19
Transport, Roads Buildings 5,032 22
Urban Development 6,586 30
Social Welfare 2,351 14

 

Source:  Andhra Pradesh Budget Speech 2012-13

 

There are no specific reforms in the Tax Department possibly because tax collections have been good, more than enough to finance expenditures.During the year 2011-12, upto January 2012, the growth of overall tax revenue was 19.5%.

 

Tax Collections have improved after e-filing was introduced. It helped the state government to plug loopholes in collections.

 

The highlights of this budget however have been

 

1)     Reduction of price of rice through PDS to Re 1 from Rs 2 per kg. This will benefit around 7 crore people.

2)    Rs 1,075 crore interest free loans to farmers and SHG’s under “Vaddi leni Runalu.”

 

Growth Over Last Year

 

Now, let’s look at how the states have done on the growth front over the last year. Andhra Pradesh and West Bengal are underdeveloped, with about 70 per cent of the population belonging to the agricultural sector in both states. Despite this, both states managed to keep up to the national average growth rate of GDP of 6.9% in 2011-12. West Bengal grew at 7.06% and Andhra Pradesh at 6.81%. Bihar incidentally has grown at around 11% over the past few years.

 

Let’s look at the Debt and Interest Payments of the states:

 

Debt & Interest Payments Of West Bengal & Andhra Pradesh

 

  West Bengal Andhra Pradesh
  Budget 2011-12 Revised2011-12 Budget 2012-13 Budget 2011-12 Revised2011-12 Budget 2012-13
Outstanding Debt 2,03,867 2,08,382 2,26,550 1,41,150 1,39,667 1,60,191
Interest Payments 15,092 16,096 18,108 11,437 10,790 12,226

 (Figures in Rs Crore)

Source: West Bengal Budget 2012-13

Andhra Pradesh Budget 2012-13

 

The outstanding debt of West Bengal in 2011-12 was Rs 2,08,382 crore or 37.8 percent of the GDP. For Andhra Pradesh it was Rs 1,39,667 crore or 20.65 percent of the GDP.

 

As IndiaSpend reported, West Bengal has been a leader when it comes to Debt-GDP ratios only behind Uttar Pradesh. West Bengal has had a Debt-GDP ratio over 40 percent since 2002.  It fell below that mark in 2011-12. Still the gross amount of outstanding debts is ominous at more than Rs 2 lakh crore. The interest payments on such loans were Rs 16,096 crore in 2011-12 and are expected to rise to Rs 18,108 crore in 2012-13.

 

Andhra Pradesh has done well to steadily reduce its Debt-GDP ratio to 20.65% in 2011-12 from 25%in 2006-07. However at Rs 1, 39,667 crore the outstanding debt is still a matter for concern, more so as it is projected to increase to Rs 1,60,191 crore in 2012-13. The interest payments also were huge at Rs 10,790 crore in 2011-12, even though they were considerably less than the budgeted figures.

 

Where Does The Money Go?

 

Let us look at outlays sector wise for the states.

 

Sector-wise Outlays Of West Bengal & Andhra Pradesh

 

Sector West Bengal Andhra Pradesh
Budget 2011-12 Revised2011-12 Budget-2012-13 Budget2011-12 Revised2011-12 Budget2012-13
Agriculture and Allied Activities and Rural Development 5,026 4,223 5,092 6,320 6,332 7,961
Irrigation and Flood Control 2,931 971 2,675 15,000 11,800 15,000
Energy 519 503 1,009 625 625 389
Transport 1,273 1,072 1,599 2,928 2,915 3,636
Others 65,535 70,779 76,995 2,093 2,010 2,700
Total Salaries 26,883 28,899 31,184 NA NA NA
Pensions and other Retirement Benefits 6,879 8,385 9,582 9,692 10,661 11,479

(Figures in Rs. Crore)

Source:West Bengal Budget 2012-13

Andhra Pradesh Budget 2012-13

 

In 2011-12, West Bengal spent less than budgeted in almost all the important sectors while having massive overruns in other heads (classed under “Others”).

 

For example West Bengal spent Rs 3,522 crore more than budgeted on salaries and pensions but investments in Irrigation and Flood Control fell short of budgeted by Rs1,960 crore. Allocating funds to create productive assets in important sectors doesn’t seem like something West Bengal is good at.

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