Centre weighs Bengal's moratorium demand

The finance ministry is in a dilemma on whether to grant a three-year moratorium on interest payments by West Bengal on loans by the Centre, approximately worth about Rs 20,000 a year.

Generally, such a step is taken after recommendations by the Finance Commission.

When asked whether the finance ministry could grant the moratorium before the Finance Commission recommended, Expenditure Secretary Sumit Bose, who heads a panel to look into the debt issues of West Bengal, Punjab and Kerala, said, “There cannot be a simple yes or no.”

On the practice in this regard, former expenditure secretary D Swarup said he did not recall any moratorium given by the Centre to a state without the recommendation of the Finance Commission.

 

However, there were no laid-out rules and no provisions which bar the Centre from doing so in this regard, said Swarup, a member convener of the Financial Sector Legislative Reforms Commission.

He added what West Bengal was demanding was a moratorium on the interest payment to loans given to the state under the overall Plan package.

The government had considered requesting the commission to give its recommendations on the issue of a priority basis, officials said. However, a view emerged that two commissions couldn’t give suggestions on the same period. The 13th Finance Commission, headed by Vijay Kelkar, had given recommendations for 2010-11 to 2014-15.

In the past, the Centre had taken the decision to give a moratorium to Punjab, as it battled militancy, an official said. However, West Bengal’s case was different, as relief was sought for development. Also, if relief was provided to West Bengal, other states might also ask for such treatment. The finance ministry is trying to find a solution to all these issues, officials said.

However, critics are already questioning the Centre’s optimistic target of cutting fiscal deficit to 5.1 per cent of the gross domestic product in 2012-13 from 5.9 per cent in the previous financial year.

However, if at all the Centre agrees to provide moratorium, it may not be on entire Rs 22,000 crore of the interest payment a year. The government may look into the books of the West Bengal government and suggest cutting down on some expenditure wherever possible. On the balance amount a moratorium could be provided.

WEST BENGAL’S FISCAL AND DEBT POSITION
	Previous year’s actual		Current year’s  Budget Estimate	Current year’s  revised estimates	Ensuring year  Budget  Estimate	Target for next  two years
	2009-2010	2010-2011	2011-12	2011-12	2012-13	2013-14	2014-15
Revenue deficit (as percentage of GSDP)	5.32	3.65	1.51	3.14	1.10	0.50	0
Fiscal deficit (as percentage of GSDP)	6.15	4.12	2.83	3.94	2.51	3.00	3.00
Total debt stock (as percentage of GSDP)	41.35	39.54	37.08	37.90	35.72	35.90	34.30
Note: Total debt given in (3) includes Centre’s loan to West Bengal on which state is asking for moratorium on interest for three years                                                                                         Source: Budget papers for 2012-13

The Reserve Bank of India, the banker to both the Centre and the state government, automatically deducts the interest payment from the state’s accounts while transmitting plan package from the Centre’s accounts. Thus the state cannot withhold the payment.