London, Jan. 15: Britain’s Department for International Development (DFID) has come under fire for using nearly ?27 million of taxpayers’ money allegedly to make redundancy payments to workers in Bengal.

It was claimed that more than 3,000 employees facing dismissal from loss-making state-owned companies in Bengal will benefit from the severance fund set up by the department.

Now the agreement between the Bengal government and the DFID will have to be defended by Sir Suma Chakrabarti, the 45-year-old Bengali who, as the department’s permanent secretary, is its most senior civil servant.

Chakrabarti, who has visited Calcutta, presumably to help negotiate the agreement, was knighted in the New Year’s Honours.

“This is a great honour for me ? and also for the Department For International Development,” he commented at the time. “It shows how much DFID’s work is appreciated, and the success we are achieving as an international organisation. My Indian heritage has meant a lot to me in my work with DFID, and has given it much purpose.”

DFID’s work in Calcutta has left the Sunday Times singularly unimpressed, though. It sent a reporter to Calcutta to dig up what it considers the scandal of British taxpayers financing redundancy packages in Bengal, and, worse, selling off the Great Eastern Hotel in Calcutta in dubious circumstances.

The paper quoted John McGhie from the charity Christian Aid as saying “people on the streets in England will wonder what on earth DFID is doing funding redundancy packages in a country many thousands of miles away. The link between laying off workers and poverty alleviation is not immediately apparent.”

McGhie told The Telegraph that “these decisions need to be questioned. But I am not taking DFID head on nor am I attacking the West Bengal government ? far from it. These are complex issues and need to be debated. What Christian Aid stands for is poverty alleviation.”

The paper has given the background to the “controversial scheme”, pointing out that “the nationalisation in the 1970s and 1980s of scores of loss-making companies ? ranging from handloom factories to hotels ? has landed the authorities in Calcutta, the state’s capital, with crippling debts that are diverting resources away from education and welfare projects.

“The authorities have now decided to close down or restructure and privatise up to 28 of these enterprises, which ran up losses of ?23 million in 2001, the latest year for which figures are available. The moves will affect up to 10,000 workers in West Bengal,” the paper added.

Nirupam Sen, the state’s industry minister, told the paper: “The burden (these companies) have placed on the state is huge, and as a result we have had to reduce our (welfare) spending. We decided to restructure our loss-making enterprises. If they’re not viable, we’ll close them. Those that can be made viable with extra funds will be offered as joint ventures. One of the major issues was how to compensate the workers who will lose their jobs. The compensation is being provided by DFID.”

It reported that the Great Eastern Hotel was sold last November to an Indian hotel chain for ?6.5 million. After the Bengal government had cleared debts of ?2.5 million, it made a net profit of ?4 million on the sale.

Despite initially resisting the privatisation, more than 400 hotel workers were laid off and shared just under ?2 million of the DFID’s severance money. The average redundancy package was ?5,000-?6,000 per employee.

The average Indian salary is about ?300, the report said.

In his interview, Sen insisted that profits from the Great Eastern sale would be ploughed back into further restructuring of public sector companies and towards retraining programmes for workers.

However, Andrew Mitchell, the Tory’s shadow international development secretary, questioned the DFID’s role in the sale. “This is hardly the way the British taxpayer would normally expect DFID to be making disbursements,” he protested to the paper.

“It’s not clear why our money should be used to underwrite a programme which the West Bengal state could carry out at a profit without our help.”

The UK-Bengal deal was defended by a spokeswoman for the DFID, who told The Telegraph today: “DFID is not subsidising a profitable deal for the government of West Bengal. Neither is it underwriting redundancies. This grant to the government of West Bengal is not a subsidy of any sort.”

She went on: “DFID backs the West Bengal government’s efforts to reform its loss-making public sector businesses ? including the sell-off of the Great Eastern Hotel. Whilst the West Bengal government is propping up failing businesses, funding is diverted from improving hospitals, getting more children into schools and reducing the number of people living in crippling poverty.”

She said: “Reforms like this must be carried out responsibly. Trade unions at the Great Eastern Hotel were consulted throughout the restructuring process. All workers at the Great Eastern Hotel have been offered a generous redundancy package including the offer of retraining or, alternatively, training for an unemployed relative. DFID’s grant ensures that the West Bengal government can meet its obligations in this respect. This initiative is the cornerstone of the West Bengal government’s attempts to free up millions of pounds which can then be re-directed towards relieving poverty in the state.”

The spokeswoman explained the UK government’s thinking. “Loss making state-owned Public Sector Enterprises (PSE) are a major contributor to the fiscal deficit in West Bengal and elsewhere in India. Faced with the realisation that supporting its PSEs is unsustainable, the West Bengal government drew up a strategy in 2003 to restructure the PSEs and end their dependence on government subsidies. Savings from enterprises closed or sold so far, plus the reduced losses of retained PSEs, are currently around ?5 million per year and are expected to rise to ?8 million per year by the end of 2006.”

She also said: “DFID is supporting the first phase of the Public Sector Enterprises Restructuring Programme in West Bengal. The aim of the programme is to free public resources for priority social development expenditure and poverty reduction. Phase 1 of the programme covers 28 PSEs. The total value of DFID’s support is ?26.73 million over three years. DFID support is used to pay the compensation for the redundancy of employees including monetary benefits and a Social Safety Net Programme, involving medical insurance, personal accident insurance and retraining.”

The spokeswoman confirmed that “DFID earlier supported the state of Andhra Pradesh to restructure its public sector enterprises. We are currently supporting a similar restructuring programme in Orissa. DFID’s aid framework for India for the financial year 2005-06 is ?255 million. The cost of our programme for West Bengal for 2005-06 is ?34 million.”