The Poverty Of Wisdom

The Marxist rulers of  West Bengal have done it again. The comrades have rejected out of hand a loan of Rs 3,400 crore from the World Bank to build essential services and improve the quality of life of the really poor. All because the Bank had suggested an independent survey of the state's finances to be certain of the borrower's repayment capacity. The fallout: sanitation and piped water and housing projects in many municipal areas in the state remain on paper. Additional buildings for the grossly overcrowded and unhygienic hospitals and a 900-km expressway connecting the state with national highways face the same fate. While shelving the first two projects will have considerable human costs, the delay in the expressway, for which a French company has completed a survey of the state's roads, will deal a body blow to West Bengal's efforts to improve its potholed roads which are a major dampener to fresh investments in the state. It is estimated that West Bengal suffers from an opportunity loss of over Rs 1,500 crore every year due to road congestion and lack of adequate parking at the land port of Petropole.

Apart from the World Bank's suggestion for a survey, what made the Marxists see red was the donor's additional suggestion that the state take some economic measures, like better tax collection, reduction of subsidies and restructuring of the bloated workforce, to improve its economic health. All these steps were aimed at reducing the ever-widening gap between the state's income and expenditure. But these suggestions were anathema to chief minister Jyoti Basu and his comrade, finance minister Asim Dasgupta. Basu dismissed the World Bank's proposal as 'an insolent demand (mamabarir adbar)'. Others, however, feel that not agreeing to the survey proposed by the World Bank is much more so. Dasgupta added: 'The World Bank may only examine published documents, such as the budget papers, but will not be allowed to tinker with the Left Front government's policies.'

Dasgupta, with the same confidence he had shown when repeatedly promising to reopen the still-closed Dunlop factory, said: 'Cancellation of this loan will not affect the projects as we can raise the required money from other sources.' This optimism rings hollow. West Bengal's efforts to attract substantial investments have proved disappointing and financial institutions are, naturally, no longer willing to extend loans without assessing the borrower's ability to repay. Dasgupta is now proposing to float a bond issue through the West Bengal Infrastructure Development Corporation to raise money for the stalled projects, but it remains to be seen how successful Dasgupta's fresh attempt will be against the backdrop of the World Bank loan imbroglio.

What is surprising observers is the vehemence with which the Marxist mandarins rejected the suggestion for an independent financial survey. After all, this is standard practice for large loans from multilateral agencies. The Union government accepts these conditions and the governments of Uttar Pradesh and Andhra Pradesh have done the same and been rewarded with generous loans on attractive terms. Industry circles point out that at least Dasgupta should be aware of the fact that the World Bank,after losing billions on dud loans based on debtors' evaluation,has now been forced to be much more careful in sanctioning future loans.

Some circles feel that the old suspicion of the World Bank being a Trojan Horse of imperialism still persists with the Marxist veterans in West Bengal. In which case, they should simply not have approached the World Bank in the first place for a loan. Others, however, are of the view that a much stronger reason for rejecting the independent financial survey is the fear that it may reveal many irregularities in the state's finances,ever so carefully hushed up over the years.

Dasgupta has kept a brave face by asserting that the state's finances are fine and, 'we have always repaid our loans in time'. But the facts do not justify his boast. The truth is that the coffers of the West Bengal government are practically empty. It is finding it an uphill task to even raise Rs 700 crore to pay dearness allowance and Puja bonus to its employees and will approach the rbi and the financial institutions for a bailout. The government is neck-deep in debt. Till end-March, it owed Rs 4,081 crore as interest on past loans, according to the Annual Financial Statement. It has paid Rs 2,410 crore and Rs 3,008 crore as interest on loans in 1997-98 and 1998-99, respectively. The budget at a glance published by the West Bengal government reveals that in 1999-2000, while the state's total revenue is expected to be Rs 11,466 crore, its expenditure is expected to overshoot this amount by Rs 7,510 crore. Informed circles say the state government may be forced to adopt the very measures advocated by the World Bank to salvage its economy. The era of the Leftist government pouring money in running loss-making state psus,many of which are out-and-out terminal cases,to protect some jobs, is coming to an end.

While the CPI(M) standard-bearers may be applauding the ,bold anti-imperialist' stand taken by the Marxist leaders, the image of the state as an attractive investment destination has taken a battering both within the country and abroad, according to industry circles. An evaluation of West Bengal as an investment destination made early this year by Mckinsey & Co, with the concurrence of the state government, while acknowledging that West Bengal had the potential to be India's powerhouse as it possessed key economic advantages, at the same time warned that potential investors were watching the state's performance like hawks. The report states that West Bengal's physical infrastructure is as low as twelfth among Indian states. West Bengal not only trails economically more advanced states such as Haryana, Punjab and Maharashtra, but is also rated below Orissa and Himachal Pradesh. The report underscores that earlier studies sponsored by the government indicate that to ensure that every Bengali family enjoys the current income levels of a state like Punjab, the economy of West Bengal has to grow at more than twice the rate that it achieved over the past decade. 'This modest goal will require investments of tens of thousands of crores of rupees.' But only agencies such as the World Bank are in a position to bring in funds of such magnitude for long gestation, infrastructure projects such as roads, ports and power. But by rejecting the World Bank loan, the government seems to have decided to sacrifice the economic well-being of the people of the state for unknown reasons. The CPI(M) election manifesto also supports the dogmatism of the state leaders. This document, while not attacking economic liberalisation frontally, makes it clear that to preserve its vote bank, the party is not prepared to disturb inefficient economics, particularly on the privatisation question. It wants to increase public outlay on infrastructure, but is mum on raising user charges to a realistic level. The party has also suddenly become the champions of Indian business which, it feels, is threatened by the infusion of foreign capital. And the party continues to oppose the opening up of the insurance sector to foreign companies.

All these actions are sending wrong signals to both foreign and domestic business entities and potential investors in West Bengal will continue to be wary of putting their money in a state ruled by an idea-less CPI(M) uninterruptedly for the past 22-years, with only a faint likelihood of being replaced in the near future.