West Bengal’s Fiscal Strain: Revenue Outpaces Capital, Raising Sustainability Concerns

West Bengal's fiscal health is showing signs of strain, as a new report indicates that the state’s revenue expenditure has significantly outpaced its capital investment during the first half of FY25. This trend raises alarm bells regarding the sustainability of the state's financial management, echoing similar challenges faced by several other major states in India. According to the CareEdge report, West Bengal experienced a staggering 13.5 percent year-on-year rise in revenue expenditure, while its capital expenditure grew by only 7.7 percent. The disparity between these two figures not only reflects a concerning imbalance in fiscal priorities but also highlights the state's struggle to meet budgeted targets for capital investments, which are crucial for long-term development and infrastructure growth. Amit Mitra, the principal chief advisor to Chief Minister Mamata Banerjee, acknowledged this pressing issue, revealing that West Bengal's capital spending has seen a dramatic rise from Rs 2,226 crore in 2010-11 to a projected Rs 35,865.55 crore in the current fiscal year. Despite this significant increase, the report indicates that the growth in capital expenditure remains insufficient to match the rising demands of revenue spending. The CareEdge report emphasizes the broader context of state finances in India, noting that the top 20 states collectively utilized 41.5 percent of their budgeted revenue expenditure in the first half of FY25, a slight improvement from 40 percent in the same period the previous year. However, the report also attributes some of the fiscal slippages to the implementation of electoral promises, which often include subsidies, income support, and loan waivers that can strain public finances. Furthermore, West Bengal's fiscal deficit stands at 3.7 percent of its Gross State Domestic Product (GSDP), surpassing the recommended ceiling of 3 percent set by the 15th Finance Commission. This figure places the state in a precarious position among India's top 20 states, where the average fiscal deficit is reportedly 2.9 percent of GSDP. The elevated fiscal deficit, primarily driven by high revenue spending and lackluster growth in capital expenditure, underscores the state's ongoing fiscal challenges. The analysis of state finances for the first half of FY25 paints a mixed picture across major Indian states, which collectively account for a staggering 93 percent of the country’s GDP. While revenue expenditures have shown robust growth, the sluggish pace of capital expenditure raises concerns about infrastructure development and the long-term prospects for economic growth in the region. On a national scale, the central government is also grappling with fiscal challenges. During the first seven months of FY25, the Centre's fiscal deficit reached a staggering Rs 7.5 trillion, accounting for 46.5 percent of the budget estimate. Although tax collections remain steady, the sluggish capital expenditure further exacerbates the situation, particularly in light of the recent general elections, which have historically dampened government spending. As West Bengal navigates these fiscal hurdles, the focus will need to shift towards balancing revenue and capital expenditures to foster sustainable development. The challenge lies not only in managing current expenditures but also in ensuring that long-term investments in infrastructure and growth are prioritized to secure a prosperous future for the state.