India: West Bengal Development Finance Program

Sovereign Project | 44453-014

Summary

The proposed program seeks to facilitate implementation of a comprehensive fiscal consolidation program in West Bengal. This will generate fiscal savings and thereby assist West Bengal to augment and sustain growth-enhancing development financing.

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Project Name West Bengal Development Finance Program
Project Number 44453-014
Country India
Project Status Closed
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 2926-IND: West Bengal Development Finance Program
Ordinary capital resources US$ 400.00 million
TA 8203-IND: Supporting West Bengal Development Finance Program
Technical Assistance Special Fund US$ 700,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector

Public sector management - Public expenditure and fiscal management

Gender Equity and Mainstreaming Some gender elements
Description The proposed program seeks to facilitate implementation of a comprehensive fiscal consolidation program in West Bengal. This will generate fiscal savings and thereby assist West Bengal to augment and sustain growth-enhancing development financing.
Project Rationale and Linkage to Country/Regional Strategy

Following the change in the Government in West Bengal in May 2011, there have been discussions on the possible introduction of a comprehensive support program to bring public finances in West Bengal onto a stable and sustainable path while improving development financing in the state. Accordingly, the Department of Economic Affairs (DEA), the Government of India (GoI) wrote to ADB on 19 September 2011 requesting ADB to hold discussions with the Government of West Bengal (GoWB) in this regard.

West Bengal is a densely populated state, 4th largest in India, with a population of 91 million. West Bengal is strategically located in eastern India bordering Bangladesh, Bhutan, and Nepal. Despite many achievements in the recent past, the deteriorating fiscal situation in West Bengal has placed added pressures on public resources constraining the delivery of public goods and services in the state. Over the years, the state government disregarded maintaining sound and sustainable public finances, leading to highest deficit figures in 2010-2011 among all the states in India. The revenue and fiscal deficit figures recorded 3.7% and 4.6% of gross state domestic product (GSDP), respectively. Similarly, the own tax revenue at 4.6% of GSDP in 2010-2011 clearly reveals the lowest tax efforts among all the states in India. The committed expenditures of the government (on salaries, pensions, and interest payments alone) have almost exhausted the total revenue receipts of the state in recent years, requiring the state to undertake ever larger borrowings to finance these expenditures, thereby trapping the state in a vicious cycle of mounting current account (revenue) and fiscal deficits.

A major contributory factor to fiscal distress is the state's low tax revenue performance. The own tax to GSDP ratio in West Bengal stood at 4.6% in 2010-2011 as against the average of 7.3% in all general category states and 9.5% in Karnataka. Even the average of the special category states was higher than West Bengal. The underlying analysis of West Bengal public finances suggests that the inadequacies of tax administration is one of the important factors contributing to low tax to GSDP ratio.

The deteriorating fiscal situation of the Government of West Bengal (GoWB, the Government) has had negative consequences for GoWB's development agenda. In particular, the increase in debt and resulting debt service payments has reduced fiscal space limiting the ability of the Government to make effective use of public spending to meet its policy priorities. More directly, increasing interest payments has resulted in a large opportunity cost as the disproportionate share of the fiscal adjustment fell on capital spending. Indeed, capital outlay to GSDP in West Bengal has been declining from a low rate of 1.2% of GSDP in 1994-1995 to 0.4% in 2003-2004 and is currently the lowest in India (0.8% in 2010-2011). Accordingly, limited public funds available to finance investment as well as to preserve the capital stock through spending on operation and maintenance have had serious impact on the state's growth potential, and capacity to improve service delivery.

These have had an adverse impact both in terms of (i) effectively using the budget as an instrument to set policy priorities particularly through discretionary spending, and more importantly (ii) constraining investment both public and indirectly private investment and undermining economic growth and development in the state. Needless to say, these have also had serious implications for manufacturing growth in the state leading to narrowing of the commercial tax base.

Impact Development financing has improved in a sustained manner.
Project Outcome
Description of Outcome Greater fiscal space is achieved in the government budget.
Progress Toward Outcome

1) Fiscal deficit GSDP ratio is expected to be 1.8% by FY2014, even with additional capital expenditure.

2) Own-revenue GSDP ratio improved by 1 percentage point during FY2010 -FY2014

3) Debt stock GSDP ratio declined by more than 5 percentage points from 40.5% of GSDP in FY2010 to 35.3% in FY2013.

Implementation Progress
Description of Project Outputs

1. Improved expenditure efficiency

2. Improved revenue efforts

3. Efficient debt management

Status of Implementation Progress (Outputs, Activities, and Issues) All the relevant policy actions have been complied with. The program loan was closed on 24 July 2014.
Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Responsible ADB Officer Cigdem Akin
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Finance Department- Government of West BengalFS-WB@NIC.INFinance Department, Government of West
Bengal, Writers' Building,
Kolkata 7000001, India
Timetable
Concept Clearance 11 Jul 2012
Fact Finding 26 Jun 2012 to 06 Jul 2012
MRM 09 Aug 2012
Approval 30 Oct 2012
Last Review Mission -
Last PDS Update 08 Sep 2014

Loan 2926-IND

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
30 Oct 2012 06 Nov 2012 26 Nov 2012 30 Nov 2014 - 24 Jul 2014
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 400.00 Cumulative Contract Awards
ADB 400.00 30 Oct 2012 400.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 30 Oct 2012 400.00 0.00 100%

TA 8203-IND

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
30 Oct 2012 12 Nov 2012 12 Nov 2012 30 Jan 2015 - -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
700,000.00 0.00 0.00 0.00 0.00 0.00 700,000.00 30 Oct 2012 529,575.00
Title Document Type Document Date
West Bengal Development Finance Program: Program Completion Report Project/Program Completion Reports Aug 2015
Strengthening Reforms: Supporting West Bengal Development Finance-I Program Final Report Consultants' Reports Oct 2014
West Bengal Development Finance Program (Second Tranche) Progress Reports on Tranche Releases Jul 2014
West Bengal Development Finance Program Initial Poverty and Social Analysis Jun 2013
West Bengal Development Finance Program: Project Data Sheet (हिन्दी) Translated PDS Feb 2013
Loan Agreement for West Bengal Development Finance Program Loan Agreement (Ordinary Resources) Nov 2012
Program Agreement for West Bengal Development Finance Program Project/Program Agreement Nov 2012
West Bengal Development Finance Program Reports and Recommendations of the President Oct 2012

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation

No documents found.


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