May 10, 2012

Bengal borrows Rs 2.5Kcr from market to pay salary and pension

Ajanta Chakraborty, TNN | May 3, 2012, 04.19AM IST

KOLKATA: Ahead of CM Mamata Banerjee's meeting with Prime Minister Manmohan Singh on the three-year moratorium and a debt-restructuring, the state has just borrowed Rs 2,500 crore to pay salaries and pensions.

Just when the chief minister hopes to find a political answer to Bengal's fiscal miseries, armed with the state's debt records, her borrowing has gone up yet again just to pay salaries and the likes. Sources in the state finance department indicated that Bengal's total borrowings have reached Rs 2,08,382 crore in the last fiscal - up from Rs 1,87,387 crore as on March 2011, barely two months after Mamata took over Writers' Buildings.

The state's borrowing has been upped ahead of another crucial meeting in North Block to negotiate on Mamata's demands along with the chief ministers of Punjab and Kerala in the next fortnight. The finance ministry has set up a committee headed by expenditure secretary Sumit Bose which is likely to meet senior officials from the three most debt-ridden states this month. The committee will seek commitments from the states on raising resources and reducing borrowing and non-developmental expenditure.

A finance department official explained: "We had to borrow this amount in April for basic expenses. The borrowing will continue in this manner unless the Centre does something about the state of affairs in Bengal." Officials felt that the latest borrowing would help Mamata build her case of inheriting a bankrupt government. But the saddest part is that debt-stressed Punjab and Kerala, which are also seeking a moratorium and debt recast, borrowed only Rs 400 crore and Rs 1,000 crore respectively. Andhra Pradesh borrowed Rs 750 crore and Mizoram Rs 65 crore.

Soon after Mamata gave the Centre 15 days to grant a three-year moratorium to Bengal, one of the country's most debt-stressed states along with Punjab and Kerala, Punjab and Kerala followed suit in issuing similar demands.

While Punjab chief minister Parkash Singh Badal sought appointments with Manmohan Singh and finance minister Pranab Mukherjee, Kerala chief minister Oommen Chandy had met the central leadership with his plea that his state should be treated alike and not be discriminated against. He has sought a debt recast of Rs 11,000 crore.

Punjab is seeking a waiver on outstanding dues of Rs 22,202 crore from the centrally administered small-savings scheme and moratorium on repayment of the principal and interest on other loans spaced over five years. Punjab's outstanding debt on March 2012 stood at Rs 77,585 crore and its annual interest liability was Rs 6,500 crore.

North Block officials have already communicated to Writers' Buildings that Punjab has a stronger case because the state has been striving to raise revenues and cut expenditure. Neither Bengal nor Kerala cared to do so.

Mamata, on the other had, has been bent on "not increasing the burden on common people" and had gone soft on taxes. She has already written to the prime minister for a debt recast, inclusive of waiver of part of the components, repayable in 20 years. But the sorry state of fiscal affairs has hardly dissuaded her government from spending and creating jobs.

On the contrary, responding to a populist call, Mamata had sacrificed revenues on essential items like electricity, LPG and others. Unlike most states, Bengal did not enhance the base VAT from four to five per cent.

As a corrective measure, the state recently imposed "entry tax". It is yet to be seen if the measure could help boost the tax revenues by the targeted 25% in 2012-13. If the current indicators are of any significance, it will not be an easy task at all.

Mamata is confident that the UPA will adhere to her demands even as there is no ready reference of such a debt recast in Indian federal history. Her finance minister seems to have taken a leaf out of the Greek government which has recently averted default, thanks to bailout packages and debt haircuts.

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