Trinamool Congress’ defining parliamentary party meeting in the historic environs of Town Hall in Kolkata coincided with another meeting in the equally regal North Block in Delhi. But West Bengal finance minister Amit Mitra gave his meeting with Union Finance Minister, P Chidambaram, a miss, a first of sorts.
When President Pranab Mujkherjee was the Union finance minister, both Mitra and chief minister Mamata Banerjee had lined up for countless meetings in the hope of a financial package.
“During the last 11 months, I have met the Prime Minister ten times and finance minister 20 times,” Banerjee had earlier said.
Almost a year and half of the TMC rule in West Bengal, discussions on financial package for the state has not yielded much results—one of the reasons why Banerjee, and in a way emboldened her to walk out of the UPA.
“West Bengal was never promised a bailout package, though TMC requested the Centre several times,” Former head of the department of economics at ISI, Dipankar Dasgupta said.
Banerjee had gone ahead to say that her government was willing to provide 'full relief' to common people and farmers, on account of fuel price hike, if the Centre allowed the state to collect taxes taken away by it.
While states like Delhi, Haryana and Assam have announced a subsidy to offset the LPG decrease in the number of subsidised cylinders, West Bengal hardly has resources to provide such subsidy.
“The centre takes away about 70 per cent of the tax proceeds collected from the states and leaves behind a meagre 30 per cent for utilisation by the states. Centre must allow the state to collect all taxes which will enable the state to provide full relief and subsidy,” Banerjee had said.
How feasible is a financial package?
At a time when the country itself is grappling with debt and low growth numbers, a hefty bailout package for the state seems to be an unlikely proposition. And, West Bengal is not the only state to seek a bailout package. Uttar Pradesh, Bihar, Himachal Pradesh, Kerala and Punjab had been seeking special financial assistance too from the Centre. However, West Bengal’s demands top the list. It wants a moratorium on interest and repayment totalling Rs 22,000 crore on its debt for the next three years and formulation of a debt restructuring exercise over the interim period. The debt restructuring should include debt elimination, increased repayment tenure and reduced interest rate on loans.
However, there is no precedence of the Centre giving a moratorium on debt repayment, and the demand is unlikely to be met, as it would result in a similar demand from other states.
West Bengal's outstanding debt by the end of this financial year is slated to be about Rs 2.26 lakh crore , making it the most indebted state in the country in terms of debt to gross state domestic product ratio at close to 39 per cent.
So far, the only significant financial assistance the state has got from the Centre is the sanction of Rs 8,700-crore as 'backward region development' grant. Earlier, Bihar had got a similar package.
“A bailout package has to be laid down by a procedure. A special assistance to West Bengal can be given, only if the constitution permits it,” said Devendra Kumar Pant, director, Fitch Ratings.
Also, though Bengal has been seeking a hefty bailout package, it has so far not presented any blueprint for utilisation of such funds.
Already, West Bengal has availed relaxations like extending its borrowing limit, even with the FRBM Act in place. For example, last year, against the original borrowing limit of the state at Rs 17,828 crore (Rs 178.28 billion), West Bengal borrowed more than Rs 20,000 crore (Rs 200 billion) as market loan.
The dire state of West Bengal Finances.
With little scope for mobilization of internal revenues, West Bengal has been relying on market borrowings to meet its committed expenditure. So far, the state has raised as much as Rs 10000 crore through state development loan—one of the highest among states. While the state did not take any bold step to increase its tax collections, expenses are on the rise.
This financial year, West Bengal's revenue receipt is projected to be Rs 76,943 crore and expenditure Rs 83,801 crore leaving a huge revenue deficit of Rs 6,585 crore. West Bengal's expense on salaries alone is set to increase from Rs 28,899 crore to Rs 31,184 crore by the end of this fiscal, which is about 37 per cent of the projected expenditure of the government. Similarly, the cost of pension and other retirement benefits is projected to increase from Rs 8,385 crore to Rs 9,582 crore.
"The financial position of West Bengal is not good. Apart from some minor adjustments, between 2003 and 2009, when other states saw improvement in finances and fiscal consolidation, West Bengal did not keep pace with other states," said Pant.
The only noticeable measure to increase taxes by the state was the introduction of an entry tax this financial year. However, so far the collection has been just about Rs 500 crore.
West Bengal’s economic growth in the financial year 2012 was likely to remain at 7.06 per cent, same as the financial year 2010-11, down from 9.84 per cent in financial year 2009-10, said a recent report by Fitch. This will result in eleventh five-year plan period average real gross state domestic product (GSDP) growth of 7.32 per cent, much below the targeted 9.1 per cent, This forms a slippage of 1.78 percentage points and is the fourth-largest slippage among major states, the report said.