Economists Turn Easy Truth To Difficult Confusion

Economists generally appear a confused lot when they discuss among themselves. When they speak to others, especially journalists, they help journalists make arcane-flavored analysis to hide the simple Truths to project economists and journalists as sophisticated experts.
Recently, Chief Minister of West Bengal, Ms Mamata Banerjee reportedly had pointed out that the State’s Finances have been brought to such an alarmingly poor health by the previous Communist government that ruled for 34 years, that the State does not earn revenues enough to finance development capital outlays beyond 7% of the revenues earned. The former Finance Minister, Dr. Ashim Dasgupta of the CPM, it seems told the journalists that Ms Mamata has given out an incorrect percentage: according to his calculations, the Budgets he had prepared recently when he was in charge allocated 37% of the State’s budget receipts on development capital outlays. The current Finance Minister, Dr. Amit Mitra (the third Dr. Ace and second Dr. Mitra finance minister of West Bengal (Dr Ashok Mitra preceded Dr. Ashim Dasgupta), retorted back saying that his Chief Minister had given the correct percentage and gave out the basis of arriving at the percentage. Dr. Ashim Dasgupta told the journalists that Dr. Amit Mitra has used an illegitimate basis of calculating the percentage and had made a mess by mixing up capital account and revenue account items in calculation of percentage. This is in short the arcane analysis of the journalists that helped create confusion in the minds of the common citizens and hid the simple truths.

First, Dr. Ashim Dasgupta’s calculation is absolutely correct. His figures are as follows: of the total budgetary receipts (both capital and revenue) of Rs 88,000 crore, the development capital outlays were Rs 33,000 crore. Thus 37.5% allocation of total receipts was for development capital outlays. (The figures I use here are just for illustration and not the figures quoted). I am sure that both Mamata Banerjee and Dr. Amit Mitra would have no hesitation in accepting the percentage calculated by Dr. Dasgupta. Because this is the simple Truth#1.

But there are more simple truths. Of the Rs 88000 crore of total receipts, fresh borrowings amounted to Rs 22,000 crore. So, Dr. Ashim Dasgupta had to borrow about two thirds of the money he used to fund development capital expenditure. This is the simple Truth#2.

Why was such huge borrowing required? Because the revenue account had yielded very little surplus of merely Rs3,400 crore or so. This is the simple Truth #3. It means that of the total revenue earnings of about 60,000 crore (net of tied central govt. revenue grants), only about 7 % was available for development capital expenditure, the percentage that Mamata and Amit are quoting. This is the simple Truth#3.

Why is the revenue account unable to provide larger surplus to fund development capital expenditure? Simple because the State’s revenue receipts of Rs60,000 crore are eaten up by Salaries and Pensions etc of Rs 49,000 crore and loan repayments (capital account outflows) and interest payments of Rs 7,600 crore or so. This is the simple Truth#4.

Why are revenue receipts not high? We have not heard the Finance Ministers speak the Truth in this respect. But most learned people say that the low revenue receipts in the relation to the State GDP is because of leakages in tax collections and narrow tax base continued by the communist government. This may be Truth#5.

Why are the Salary and Pensions high? Some experts say that this is because of overstaffed Government machinery at the lowest levels and pensions and subsidies to fictitious persons. This may be probable Truth#6.

Why is interest and loan repayments amount to 76% of the net revenue surplus before interest payments of about Rs10, 000 crore? This according to learned persons is due to high level of borrowings of the State (about Rs200000 crore) and high interest rates on borrowings. This is probably the simple Truth#7.

All this may also mean that the State is falling into a debt trap. It needs more and more funds to borrow to fund development expenditure as also meet repayment obligations on old loans and interest payments on all loans. This means that the State Government is running a spongy scheme of more borrowing to service existing borrowings while capital expenditures unable to boost revenue incomes adequately. This may be the probable Truth#8.

There is no journalistic analysis to find out if the probable Truths are really true or not.
Nor, are the former and the current Finance Ministers giving any proof to show that the probable Truths are not true. All this is really amusing interest of Bengalis in economics.

Note: Had Dr. Dasgupta Ashim borrowed Rs 52, 000crore instead of 22, 000 crore he could have said that 72% of the budeget receipts were allocated to development capital expenditure. And, yet the fact would still be that only 7% of the revenues would have been avialable to fund development capital expendiure. Financing development capital outlays in good and only way out for poor States, but such development capital expenditre should lead to faster growth in revenue receipts in future uears to service the borrowings (inteest and principal repayments and generate higher revenue surplus to fund new capital expenditure in future years. The problem arises if this does not happen as the case seems to be in West Bengal so far.
Dr Dasgupta may argue that if the Centrl Govt can borrow and print money, why can't the West Bengal Govt. borrow as much as it requires? That is the usual childish argment. The State of West Bengal gets its share from the borrowings of the Central Govt. through both tied grants in aid and the positive impact on State's revenue receipts. And, the argument is weak because all states and the central government had agreed to cut their deficits and reduce borrowings as part of fiscal discipline. Communist West Bengal however does not believe in fiscal discipline, probably because there is no reference to this in Das Capital and its derivatives.

Road to Backwardness: Bengal Marched Past Potholes and Mud

Undergraduate economics teaches the importance of roads in economic developmet and growth. Economists' turnpike theorems seeks to establish faster roads to economic progress. In Bengal left-thinking fashioed economists for decades rejoice with Panchyati Raj and Land reforms as roads to economic progress and economic justice for three decades. Little did they realise that even in conceptualising/ designing and implementing panchyati raj, economists' optimisation rule is applicable. We now see West Bengal in the quagmire of weal economic growth impulses with panchyati raj and land reforms throwing out the communist dominated leftists rule and expose the hurdles that the 34 year- rule of economic stupidity resuting in nearly bankrupt State finances, road pot holes and vast tracts on unsed/ under-utilised with weak links for movement of inputs and outputs throughout the State/ Weal links created the hill agitation problem and Maoist terrorism in the Jungles areas while Tata's unwilling to set up Nana project on only multiple cropping high fertile lands with good links in Singur and no where else and JSW steel plant waiting for good road inks to accelerate implementation of its Steel plant in Salboni. Panchyats developed roads that are too muddy for villagers on foot to be comfortable with and highways including the recent 4/6 lane ones not allowing uninterrupted flow of vehicular traffic by numerous crossings and encroament of hman beings and animals from either side of the roads to regulate long distance vehicular speed to raise the costs of economic activity.

Dr. Abhirup Sarkar, a Bengali economists known for application of economic analysis to West Bengal in recent times has today penned an article on Roads in West Bengal. The conclusions are revealing of the incomptence of the elite that planned and ruled West Bengal for over three dces since 1977:
1. West Bengal has one of the longest network of roads given its size in the India. But West Bengal remains a weakly linked State in terms of the quality of roads.
2. The proportion of good, durable roads is low in West Bengal as compared to more developed States in the country.
3. Large tracts of non-agricultural land awaits good road links to attract industries.
4. Many good roads connecting existing industries to cities, ports, railway junctions and markets are good enough to nurse potholes and congestion.
5. Panchayat developed roads are horrible to negotiate on automobile wheels and do not together constitue an optimal road network for efficient economic activity.

At last, West Bengal seems to have been provided a clue as to what not to do in respect of road development. Let us see what Mamata Government can do to draw up a road map for optimal road development in West Bengal. Can Mamata remove the inherited roads block to accelerated economic growth in West Bengal?
She must be aware thata significant proportion of the good, wide roads in West Bengal are used by long queues of trucks, buses and cars for repair works on wayside auto-repair shops, parking of motorbykes, hawkers, open warehouses of sellers of construction materials and etc - a usage of roads that slows vehicular traffic, transfers private costs to public costs of transportation, congestion and pollution. Govt. spend tax payers' money not to benefit the citizens in general but to private encroachers. Some how Bengali economists are not yet ready to to identify private misuse of of public roads as a bottleneck to economic growth in West Bengal. If West Bengal has to really change, the habit of encroachment of public roads for private use by small businessnesses and their poorly paid workers must go - sooner the better.