India: Second West Bengal Development Finance Program

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West Bengal is the 13th largest and 4th most populous state of India. It recorded an average fiscal deficit of 4.3% of gross state domestic product (GSDP) from 2007 to 2012—double the state average of 2.1% in India during the same period. The fiscal stress was driven by the state’s low own-tax revenue (OTR) effort and high nondiscretionary expenditure on salaries, interest, and pensions. The exceedingly high preemption of own-revenue receipts had required large borrowings and trapped the state in a cycle of mounting revenue and fiscal deficits, with negative consequences on the state’s development agenda and growth prospects.

The Asian Development Bank (ADB) approved the first West Bengal Development Finance Program (WBDFP-I) in 2012, principally to create the fiscal space to augment and sustain higher development spending. Policy actions in the first program clearly boosted the state government’s revenue performance in a broad-based manner and helped improve the state’s financial position.  

The Second West Bengal Development Finance Program (WBDFP-II), approved by ADB for a $300 million loan in September 2017, was designed to help the state government further consolidate its finances and step up financing of infrastructure, social welfare, and development programs, with the envisaged impact of improving the accessibility, quality, and affordability of public services. The expected outcome of the two-tranche policy-based loan was improvement in and sustainability of investment, particularly in the social and economic sectors. It had three planned outputs: (i) expenditure rationalization accelerated, (ii) private investment promoted, and (iii) revenue administration strengthened.

WBDFP-II was implemented as initially designed and the scope was not changed. Output 1 was achieved through the implementation of several reforms, including (i) improving the operational efficiency of state-owned enterprises (SOEs) and settling the financial liabilities of two loss-making SOEs; (ii) using information technology to make the management of state expenditures more efficient, adopting a risk-based internal audit manual, and increasing capital outlay; (iii) integrating a gender-sensitive medium-term expenditure framework for the School Education Department and the Department of Health and Family Welfare and preparing gender impact assessment reports for selected programs; (iv) expanding the availability of quality health services by setting up outpatient departments in 34 new hospitals across the state; and (v) ensuring the payment of health insurance premiums for at least 95% of registered beneficiaries under the national health insurance scheme.

Under output 2, the state government established and transferred ₹3 billion to the West Bengal Infrastructure Investment Development Fund (WBIIDF) to promote public-private partnership (PPP) investments, particularly in the health sector. The WBIIDF offered viability gap funding (VGF) to eligible beneficiaries to enable them to provide five diagnostic services for free—digital x-ray, computerized tomography–scan,  magnetic resonance imaging, (iv) dialysis, and (v) audio-vestibular clinics—such that patients anywhere in the state would not have to travel more than 50 kilometers to access them. As against the target of ₹1.80 billion, about ₹1.84 billion was disbursed as VGF until September 2019. Given the successful uptake of such PPP projects, the government is proposing to expand coverage to other ancillary services such as laundry. The state government has also created a single-window portal from where investors can obtain the certificates and licenses required to set up and operate a business in West Bengal, eliminating the need to physically visit any government department or office.

Under output 3, all 16 commercial tax circles in the state have been integrated under the tax-monitoring system, and 100% of the permanent account numbers of dealers verified before the launch of the goods and services tax. A comprehensive tracking mechanism for all liquor trade in the state has been implemented and this helped minimize the risk of revenue diversion, resulting in more than 50% increase in excise revenue between 2017 and 2019. All legacy records (more than 24 million) starting from 1985 have been fully scanned and uploaded to the computerized environment with full metadata, enabling quick search and retrieval of data across all state registration offices. New property registration transactions are wholly digital. The land records and records of rights in all 346 state blocks have been digitized. Property registration and mutation of land records have been interlinked with complete digitization.

Having completed 24 of its 25 intended policy action outputs, the program successfully achieved its intended outcome and impact.  The policy conditions were appropriately sequenced, and the two tranches provided adequate support to the government to maintain its expenditure program. With support from the program, the state has thus further consolidated its fiscal situation. The annual GSDP growth rate increased from 7.2% in 2017 to 10.11% in 2019, in contrast with a decline in India’s gross domestic product growth rate from 8.17% in 2017 to 6.81% in 2019. A key impact of the state’s improved fiscal position was an increase in capital expenditure from 1.44% of GSDP in 2017 to 2.17% in 2019. Although delayed, the state is also on its way to complying with the requirements of the Fiscal Responsibility and Budget Management Act, which has three benchmarks: zero revenue deficit, fiscal deficit not exceeding 3% of GSDP, and debt stock reduced to 34.3% of GSDP.

The Finance Department was the executing agency.  The line agencies served as implementing agencies.

Project Information
Project Name: 
Second West Bengal Development Finance Program
Report Date: 
August, 2020
Main Sector: 
Project Number: 
Report Type: 
Policy-based loan
Goal 16: Peace, Justice, and Strong Institutions
Loan Number: 
Source of Funding: 
Date Approved: 
20 September 2017
Report Rating: