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| ADB Headquarters in Manila [PHOTO: ©Eugene Alvin Villar, 2007] |
Manila: The Asian Development Bank (ADB) today approved a $400
million loan that will help the state of West Bengal in India break a cycle of
debt and development spending cuts.
“Maintaining health,
education and other social and economic programs is essential for the
well-being and livelihoods of West Bengal people,” said Hiranya Mukhopadhyay,
Senior Public Management Economist in ADB’s South Asia Department. “To have
such higher, ongoing development spending, it’s essential to put the state’s
finances on a sustainable path.”
West Bengal is the
fourth largest state in India, densely populated with more than 91 million
people. The state government, however, is struggling to pay for essential
spending on development given its low tax and other revenues. In the past,
efforts to rein in the state budget shortfall have led to a cycle of cuts in
development programs which have hurt the state’s growth prospects and
employment opportunities.
In the 2010-11 fiscal
year, West Bengal had a high fiscal deficit of 4.1% of gross state domestic
product. In an attempt to contain these deficits, the development budget was
severely squeezed, undermining infrastructure development and economic growth.
In turn, heavy borrowing to cover the deficit pushed the state’s public debt to
40% of gross state domestic product.
In addition to the
loan, ADB will provide a $700,000 grant to help the West Bengal government put
in place reforms that will make spending more effective, boost revenues, and
improve the management of its fast-growing public debt.
These reforms will
include computerizing teacher salary payments,
streamlining drug procurement to reduce costs, simplifying and
modernizing tax payment and property registration systems to boost revenues and
helping the state manage its debt more efficiently to avoid spikes in future
debt servicing. More efficient public spending combined with improvements in
revenue collection is critical for the success of the program.
The loan and the
reforms are expected to allow development spending to rise to the India state
average of 2.5% of gross domestic product. The program’s emphasis on more
efficiently targeted spending on health and education will particularly help
women and children, who suffer the most from current service gaps.