ADB is helping India’s West Bengal state break a cycle of debt and development spending cuts. The project will support measures to make spending more effective, boost revenues, and improve management of public debt. Its emphasis on more efficiently targeted spending on health and education will particularly help women and children, who suffer the most from current service gaps.
|Project Name||West Bengal Development Finance Program|
|Project Type / Modality of Assistance||Loan
|Source of Funding / Amount||
|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.|
|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.
|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.|
Summary of Environmental and Social Aspects
|Stakeholder Communication, Participation, and Consultation|
|During Project Design|
|During Project Implementation|
|Responsible ADB Officer||Akin, Cigdem|
|Responsible ADB Department||South Asia Department|
|Responsible ADB Division||Public Management, Financial Sector and Trade Division, SARD|
Finance Department - Government of West Bengal
Finance Department , Government of West
Bengal Writers' Building,
Kolkata 7000001, India
|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|
|Approval||Signing Date||Effectivity Date||Closing|
|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%|
|Cofinancing||0.00||30 Oct 2012||400.00||0.00||100%|
|Approval||Signing Date||Effectivity Date||Closing|
|30 Oct 2012||12 Nov 2012||12 Nov 2012||30 Jan 2015||-||-|
|Financing Plan/TA Utilization||Cumulative Disbursements|
|700,000.00||0.00||0.00||0.00||0.00||0.00||700,000.00||30 Oct 2012||529,575.00|
Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.
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|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 Agreements||Nov 2012|
|West Bengal Development Finance Program||Reports and Recommendations of the President||Oct 2012|
Safeguard Documents See also: Safeguards
Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.
None currently available.
Evaluation Documents See also: Independent Evaluation
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