Bailout packages for fiscally stressed states are in the works, as the government seeks to garner political backing for the key policy reforms it plans to fast-track after the five state elections. A senior finance ministry official involved in the process said a high-level committee under expenditure secretary Sumit Bose had held consultations to identify measures to help West Bengal, Punjab and Kerala.
West Bengal Chief Minister Mamata Banerjee has been demanding a bailout package from the Centre to improve the fiscal situation of the severely debt-ridden state.
The Trinamool Congress leader's blocking of foreign direct investment in multi-brand retail and other policy measures of UPA-II is being seen, among other things, as a reaction to the delay in a bailout package for West Bengal.
The state government is scheduled to present its first Budget immediately after the Union Budget. The official said since it would be difficult for the Centre to help just one state, a comprehensive package for other states in trouble was being worked out.
It would be developed keeping in mind the tight fiscal space available with the Central government, he said.
The official said the panel was slated to resume work to concretise the states' bailout package after the Assembly polls would end in the second week of March.
But he hinted its contours could be outlined in the Budget by Finance Minister
Pranab Mukherjee.
That, he said, would likely help West Bengal Finance Minister Amit Mitra formulate Budget initiatives for the state and also lessen opposition by the Trinamool Congress to Central policy initiatives.
West Bengal is reeling under Rs 15,093 crore (Rs 150.93 billion) of interest payments and Rs 6,900 crore (Rs 69 billion) of prepayments for 2011-12. State finance ministry officials say the situation can't be tackled by raising tax revenues.
"The bigger picture is not manageable easily, with the state's total debt at Rs 2 lakh crore -- that can't go away easily," said an official.
"This unmanageable financial scenario inherited by my government can only be corrected by a large infusion of liquidity, particularly for non-Plan expenditure, in the form of a grant-based financial package," Banerjee had said at a National Development Council meeting on October 22, 2011.
The fiscal situations of Punjab and Kerala also indicate the two states have financially deteriorated considerably (see chart).
In the case of West Bengal, the government was likely to allow additional borrowing, proportionate to the borrowing the previous state government had done, and set a liberal fiscal deficit target, said the official associated with the process.
"Aid for Naxal-affected areas on the lines of the backward region grant fund for infrastructure development can also be part of the package," he said. The centre is also considering writing off a part of high-cost borrowings from the National Small Savings Fund.
West Bengal Chief Minister Mamata Banerjee has been demanding a bailout package from the Centre to improve the fiscal situation of the severely debt-ridden state.