FM has a face-off with the Left

Kolkata: Finance Minister P Chidambaram has yet again picked a fight with the Left.

The Left front government of West Bengal is peeved with Chidambaram?s remarks on the state?s fiscal health. On his return from the US, West Bengal?s Finance Minister Asim Dasgupta described Chidambaram?s criticism as unfair and unfounded.

During his visit to Kolkata last week, Chidambaram had said Bengal wasn?t doing enough to cut its fiscal and revenue deficits.

Chidambaram had pointed out that nearly half of the state?s revenue is used to service debts and Bengal had not adopted any measure to improve its fiscal health.

"Unfortunately, not all states have yet accepted the discipline. For example West Bengal has not yet adopted the fiscal responsibility and management act although the 12th Finance Commission has made that a condition," Chidambaram said.

"Nor has the state of West Bengal adopted what we call the state?s own fiscal correction path," Chidambaram added.

Dasgupta says the problem of high revenue deficit stems from the interest burden on small savings.

Dasgupta added that funds mopped up from small savings schemes are transferred to states as a loan, bearing an interest of 11.5 per cent which should be reduced.

The Centre borrows from the market at 7 per cent and states too should not pay more than that, Dasgupta said.

"We have reduced the rate of growth of non-plan expenditure to five per cent and tax growth is 20 per cent. The remaining part can be accomplished if this loan relief connected with small savings is provided to us," Dasgupta said

"There is still a gap of Rs 4,000 crore and if this interest relief is given then revenue deficit will be zero," Dasgupta added.

Dasgupta has a point, but there?s no denying that Bengal still spends far more than most other states on salaries and pensions and its tax to state domestic product ratio is still lower than five per cent.

And that?s the reason why Dasgupta was so keen to implement Value Added Tax in the state which he thought would widen the tax net and boost receipts.