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UK backs Bengal in cash row
- Delhi insists on interest from states on money given free

Sept. 19: Delhi has slapped a price on Bengal for enjoying British benevolence. But Britain has begged to differ.

Britain today said the money a development agency has set aside for Bengal is “free of any interest charge”. The assertion followed a central decision to treat a large portion of bilateral aid to states as loan – which involves payment of interest.

A controversy had broken out after the Centre refused to pass on British development aid to Bengal, forcing the state to postpone a Rs 700-crore urban project. The Union finance ministry decided that Bengal and most states will have to pay interest on much of the aid they receive.

A puzzled British minister for development Gareth Thomas told The Telegraph: “The money we are giving to West Bengal and three other states is free of any interest charges as is any development aid disbursed through the Department For International Development (DFID).”

British high commissioner Rob Young echoed Thomas in Calcutta. “It has been the practice of the DFID to provide assistance for development in terms of grant, and discussions are on with the Union government on the issue. The same situation arose in certain other projects in the past. Those have now been resolved. We are hoping that this one, too, will be sorted out,” Young said.

Thomas, who represents Harrow West, a constituency with a large concentration of South Asians, added: “The British government is waiting and watching to see how this is sorted out.”

The DFID has allocated £16 million (Rs 120 crore) this year to Bengal. “We want to increase this money to about £70 million (Rs 645 crore) within the next two-and-a-half years. Some £27 million will go to supporting early retirement and social restructuring schemes in state-run enterprises over the next three years,” the British minister said.

The finance ministry order goes against a central government policy decision taken earlier this year to pass on any bilateral assistance given to a state as interest-free aid.

But the ministry is adamant that aid or loan, all money given to state governments by any foreign government or multilateral agency should be converted into a 70:30 loan-cum-grant ratio.

“The rule is and has been that whether a state gets a loan from, say, World Bank or a strings-free aid package from the UK, we will offer 70 per cent of it as a loan and the remainder as a grant,” said D. Swarup, budget secretary in the finance ministry. “Exceptions can be made and have been made as we made for British funding for post-flood work in Orissa.”

The Planning Commission termed this meaningless, saying it violates decisions taken earlier this year. .J. Kurien, adviser, financial resources, said: “We have taken a firm decision on this issue. Aid will go as aid, loans as loans. We don’t know why the finance ministry is taking this stand on converting aid into loans.”

The state government is fuming. It feels that the discretionary powers the Centre is trying to wield over what it sees as free money coming its way is unpardonable. Chief minister Buddhadeb Bhattacharjee will be in Delhi towards the end of this month and is likely to meet finance minister Jaswant Singh to thrash the issue out.

If the Centre converts a part of this aid into loan, the heavily indebted state ends up deeper in the red. The state already has a huge accumulated borrowing which stands at over Rs 80,000 crore or nearly 10 years’ tax revenue.

The state’s interest payment now stands at Rs 8,786 crore, which is Rs 600 crore higher than the tax revenue it will collect during the year. On top of this, it will be borrowing Rs 10,250 crore, which includes Rs 807 crore “borrowed” from the coffers of the state provident fund.

The DFID knows this. It said in a report that though Bengal “has been one of the most politically stable states in India, ... over recent years, there has been a significant deterioration in the fiscal situation in West Bengal. The current receipts of the government are not enough to meet even the committed expenditure (towards interest payments, salaries and pensions), making the fiscal position very vulnerable.”

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