West Bengal's fiscal health under pressure despite Central aid: SBI

An SBI report highlights West Bengal's deteriorating fiscal health, marked by rising debt and high committed expenditure. Despite significant central government grants, the state's finances remain under pressure, limiting developmental spending.

West Bengal's fiscal position remains under pressure despite receiving a higher share of grants and tax devolution from the Central Government, according to a report by State Bank of India (SBI). The report noted that the state's fiscal health has not remained healthy due to rising debt accumulation over the years.

It highlighted that grants from the Centre and tax devolution have consistently accounted for more than 50 per cent of West Bengal's overall tax revenue.

Reasons for Fiscal Stress

According to SBI, the persistent fiscal stress is linked to several factors. It stated, "This has happened owing to rising unconditional cash transfers, higher off-balance sheet borrowings and higher committed expenditure and higher leakages in terms of 'middleman intermediation' siphoning of monetary resources."

Budget Outlook and Fiscal Consolidation

As per the research report, the state's revenue deficit widened further from FY20 onwards, post-legal removal of revenue deficit targets under the 2020 FRBM Act. Meanwhile, the FY27 Budget presented on 22 June 2026, signals a shift towards investment-led growth and fiscal consolidation as per the report. It outlined a net budget allocation of Rs 4.38 lakh crore. At the same time, it highlighted revenue deficit had reduced to almost half to Rs 21,948 crore for FY27BE, which stood at Rs 39,727 crore in FY25.

"Budget is not narrowly consumption oriented, but it attempts to support household welfare while also investing in human capital, urban services, logistics and infrastructure," it said.

Historical GSDP Performance

Highlighting the historic data, the report noted that during the CPI(M) period, the state's nominal GSDP rose from Rs 6,423 crore to Rs 4.61 lakh crore, marking a 65.6-fold increase, compared with 73.4-fold growth nationally. On the other hand, the TMC period saw GSDP increasing from Rs 5.2 lakh crore to Rs 19.9 lakh crore, a 3.8-fold rise, however, below India's 4.1-fold growth.

Revenue Challenges and Future Risks

As per the report, the state has the potential for higher non-tax revenue; however, it remains locked in legal disputes, which creates a massive fiscal drag and is unable to garner non-tax revenues, which remain ~3% of revenue receipts.

It further stressed that high proportion of the budget allocated for committed expenditures limits the state's flexibility to allocate funds towards other developmental priorities and capital infrastructure.

Apart from this, the state's non-tax revenues are linked to coal mining, a mineral that will be slowly phased out, which exposes the state's finances to the risk of green transition, as per the report. (ANI)

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