West Bengal's huge debt: Centre plans rescue package

The Centre is working out a financial package for West Bengal to tide over the huge problems the new government has inherited from the Left Front administration, Union Finance Minister Pranab Mukherjee said on Monday.

"We are working out a package through which we can provide necessary support to the state," he told PTI, ahead of his meeting with West Bengal Finance Minister Amit Mitra in New Delhi on Tuesday to discuss the state's finances and work out a recovery plan.

Mukherjee said Chief Minister Mamata Banerjee, who has inherited fiscal problems from Left Front's governance of over three decades, 'requires accommodation' and the Centre has something to 'accommodate her'.

The mechanism of providing assistance was being worked in a sustainable manner, he said.

The finance minister's remarks come against the backdrop of recent sharp criticism by Banerjee of Mukherjee over his reported statement on assistance to West Bengal.

"I do not know how these remarks have been ascribed to me when the meeting (with Congress MLAs last week in Kolkata) was a closed door discussion and there was no interaction with media," he said.

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Moreover, he said, no comment was made with reference to any particular state, including West Bengal, and that he had no interaction during his stay in Kolkata.

Mukherjee said the meeting with MLAs on July 29 was to explain the financial provisions of the Constitution and the principles of financial devolution through the Finance Commission and the modified Gadgil formulae.

The newly-elected legislators were apprised of the issues relating to the Budget, transfer of resources from Centre to States, legislative control of money and finances and accountability of the executive to the legislature, he said.

When some MLAs raised some political questions, he advised them that these issues should be sorted out in the Pradesh Congress Committee, Congress Legislature Party and with the guidance of the AICC in charge.

Mukherjee said one major signal has already been given to West Bengal when the Planning Commission has sanctioned Rs 22,275 crore (Rs 222.75 billion) for developmental agenda.

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The state has been given a plan for the current year of Rs 22,250 crore (Rs 222.50 billion), which is 59 per cent more than actual revised estimates of the previous year.

"The question is how to fund this plan and how to bridge the gap (between expenditure and income estimates)," he said adding, "we that the state does not come under a fresh debt trap".

The minister said the Centre was trying to work out a formulation and mechanism and it would be for the state to implement and fulfil the plan.

Mukherjee cited three basic problems of West Bengal--poor ratio of tax to gross state domestic product, excessive dependence on small savings and not doing resource mobilisation through taxes, especially service charges -- for its financial difficulties.

West Bengal's Tax-GSDP is 4.5 per cent compared with Karnataka's 16 per cent and Andhra Pradesh's 11 per cent in the non-special category states.

Since West Bengal did not enact a Fiscal Responsibility Budget Management Act for long, the state did not get the full benefit of Finance Commission's devolution.

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But in the last fiscal of the Left Front government, FRBM was enacted and consequentially the new government would get the benefit of the 13th Finance Commission devolution in the remaining four years.

Also dependence on small savings -- NSS funds, which had to be returned, was a borrowed resource which put a heavy burden on the state leading to a massive debt.

Per capita debt in the state was the highest in the country which also contributed to interest payments.

Mukherjee said Prime Minister Manmohan Singh has suggested that West Bengal's requirement could be over Rs 12,000 crore (Rs 120 billion) to bridge the gap on account of deficit (about Rs 8,000 crore) and other reasons.

The calculation sheet shows that every month the state's estimated expenditure to estimated income gap would be Rs,1,545 crore (Rs 15.45 billion).  The total expenditure on salary and allowances is Rs 639 crore (Rs 6.39 billion).

But now the gap looks like going up to Rs 19,000 core (Rs 190 billion) and the Centre was trying to work out a formulation and mechanism to fulfil the state's plan, he said.