West Bengal Development Finance Program

Policy-based programs targeting fiscal consolidation should not sacrifice economic growth by insisting on rapid and drastic fiscal adjustment in the short-term. Instead, fiscal space must be created gradually through carefully sequenced and multifaceted reforms that promote a sustainable fiscal trajectory along with economic growth. To achieve this balanced approach, revenue collection should be augmented with more efficient tax administration and an expansion of tax base instead of tax rate increases, which might hinder economic growth. Expenditure rationalization should complement revenue reforms by substituting the fiscal savings generated through streamlining current expenditures with growth-enhancing capital outlay in infrastructure and critical social sectors. To promote economic growth, private investment must be encouraged at the same time, especially through PPPs in public service delivery, which reinforces the rationalization of public spending and improvement in the quality of services. Finally, accompanying social programs embedded in the MTEFs are necessary to distribute the reform benefits more equitably across the society, and especially to disadvantaged socioeconomic groups.