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$300 Million Loan to Promote Further Fiscal Reforms in West Bengal

News from Country Offices | 20 September 2017

NEW DELHI, INDIA (20 September 2017) — The Asian Development Bank’s (ADB) Board of Directors has approved a loan of $300 million to continue a comprehensive series of fiscal reforms in West Bengal to bring about more accessible, affordable, and high quality public services.

“We entered into a successful partnership through a first program in 2012 with the West Bengal government to bring about fiscal reforms that could put the state’s finances on a balanced and sustainable path,” said Navendu Karan, an ADB Senior Public Management Economist. “But we recognized then that the full effect of reforms would take at least 5 years to materialize and a follow-on program would be needed to carry these forward.”

The first ADB policy-based loan of $400 million in 2012 for the first West Bengal Development Finance Program aimed to create the fiscal space necessary to sustain higher public investment in the state. It laid the foundations for improved targeting of scarce public resources to improve overall efficiency in spending. Public investment as a percentage of gross state domestic product reached almost 1.3% in FY2016 from 0.5% in FY2012, while the fiscal deficit reduced to 2.2% from 3.4% in the same period.

The state government achieved full compliance on all policy actions under the first program. Its commitment to fiscal consolidation has been recognized, with the state government receiving several awards for e-governance in tax administration.

Where the first program focused on augmenting public investment, the Second West Bengal Development Finance Program approved today will support private investments more directly by creating an infrastructure facility to support project preparation, development, and appraisal, with emphasis on public-private partnerships in health and education. It also seeks to simplify the registration and licensing procedure for micro, small, and medium-sized enterprises.

The new program, which will be undertaken over two years, will also carry forward reforms such as linking medium term expenditure plans to actual budgets, supported by strengthening internal audit system, and enhancements in the integrated financial management system (IFMS).

Other activities under the program include improved tax monitoring and continued support for information technology systems in strengthening tax and land administration.

Capital outlay as a percentage of gross state domestic product is expected to rise to 2.2% by FY2022 under the second program, with improved budget allocations geared toward development expenditure.

Accompanying the loan is a technical assistance grant of $500,000 to strengthen key institutions responsible for carrying out fiscal management reforms in the Indian state.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2016, ADB assistance totaled $31.7 billion, including $14 billion in cofinancing.