The Telegraph
Since 1st March, 1999
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Bengal on verge of debt trap
- Plan panel flashes warning signal even as it grants Rs 100 crore more in outlay

New Delhi, Feb. 7: Faced with what the Planning Commission is calling a 'debt trap', Bengal chief minister Buddhadeb Bhattacharjee today joined his finance minister in pleading for greater central largesse from Prime Minister Manmohan Singh.

Bhattacharjee asked for a review of the Twelfth Finance Commission's report on dividing taxes among states so that Bengal 'is not punished for doing well'.

State finance minister Asim Dasgupta wanted his counterpart at the Centre, P. Chidambaram, to swap high-cost loans from the National Small Savings Scheme for those raised at 7 per cent.

Both Singh and Chidambaram remained poker-faced and non-committal on the demands. In fact, Chidambaram merely agreed to speak to Dasgupta over the phone.

It was left to Planning Commission deputy chairman Montek Singh Ahluwalia to offer Bhattacharjee and Dasgupta Rs 100 crore more in plan funds and permission to borrow an additional Rs 500 crore through new bonds.

Ahluwalia was not being too generous either. He had given Karnataka an extra Rs 170 crore three weeks ago and Meghalaya Rs 51 crore more a fortnight back.

The Prime Minister has few options but to second Chidambaram given that the Twelfth Finance Commission's suggestions may be politically difficult to tinker with. Two sets of weights have been used while dividing central taxes. One is for poor states so that they get more money to break the vicious circle of poverty. The other is for those that have performed and need to be encouraged on reforms.

At the bottom of the trouble for Bhattacharjee and his colleagues is Bengal's unsustainable financial situation. The state's debt-to-GDP ratio is 43.4 per cent compared with the all-state average of 28.7 per cent.

To service loans of over Rs 1,00,000 crore, the state uses over 46 per cent of its kitty of taxes, non-tax receipts and loans ' leaving little for development initiatives.

Ahluwalia is believed to have gently made this point to Dasgupta. 'The state seems to very close to a debt trap,' says the panel's document drawn up for the meeting.

The prescription for change from Yojana Bhawan is that Bengal sell off or turn around loss-making enterprises, cut the number of employees and raise user charges in areas like power and water. It should attract greater foreign direct investment, too.

The pill must be extremely bitter for the Marxists, who have protested against these policies of the Centre for years. To make matters worse, the share of salaries, pensions and other expenses of the Bengal government is 111.5 per cent against 75 per cent for all states.

To get out of this trap, the government needs more money, and fast. To qualify for higher allocations from the Twelfth Finance Commission, it has to turn as poor as Bihar and Orissa or join relatively better performers like Karnataka and Maharashtra.

Economists at Yojana Bhawan characterise Bengal as a 'medium pacer'. It has not done badly.

The state's per capita income stands at Rs 10,952, just a tad below the all-India average of Rs 10,964. Its human development index is 0.472, matching the average. At the bottom of the problem is the fact that state is neither a basket-case nor a top-notch performer.

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