New Delhi, Feb. 14: Is Bengal borrowing from Paul to pay Partho?

Maybe yes, say insiders in the Planning Commission, which the state government consulted before finalising its finances for the coming year.

The Bengal government plans to borrow Rs 19,677 crore during 2009-10 which, it believes, will help partly fund the Rs 22,513 crore it needs to pay interest on loans besides pensions and salaries.

The outgo, officials said, was around Rs 8,350 crore more than the annual plan of Rs 14,150 crore finalised by chief minister Buddhadeb Bhattacharjee and his finance minister Asim Dasgupta in discussions with Planning Commission deputy chairman Montek Singh Ahluwalia.

Bengal wants to use the plan amount for development work to fight the economic slowdown through a “New Deal” package of direct jobs for the poor in road, irrigation and other infrastructure projects. The Centre will fund 23 per cent of this amount.

Plan panel advisers say the “fight” could have been more “impressive” had the state government not been in a situation where it is borrowing far more than what it spends on development work. “And that, too, much of it to pay interest on debts,” said one official.

Of the Rs 19,677 crore, the government plans to borrow Rs 450 crore from the state provident fund, Rs 3,000 crore from small savings, Rs 14,000 crore from the market and take Rs 1,600 crore in negotiated loans from financial institutions like Nabard and IDBI.

Sources said the problem for Bengal — where 14 lakh employees and pensioners were already reaching for calculators after the state pay commission on Thursday recommended a 30-36 per cent pay hike with effect from April 2008 — was its mounting debt.

The debt now tops Rs 1,40,000 crore or around 40 per cent of the state’s GDP. Around Rs 13,123 crore will have to be paid out as interest.

According to statistics published by the RBI, Bengal is the country’s third-most indebted state after Uttar Pradesh and Maharashtra. Moreover, Bengal’s balance from current revenues — the difference between revenue income and revenue expenditure — is a negative Rs 6,023 crore. Which is why it has to borrow to just pay salaries, pensions and interest.

“This is a case of near bankruptcy,” said former plan panel member S.P. Gupta. “The Centre has also borrowed heavily, around Rs 1,50,000 crore from the market this fiscal. But the Centre’s revenues are far higher and it can hope to manage this.... I don’t know how the state will.”

Bengal, possibly, realises it, too. While discussing the state plan, Bhattacharjee asked Ahluwalia to consider an extra Rs 20,000 crore as grant to states to help them cope with the slowdown.

The states may get it too, but central sources said the grants would be linked to actual expenditure on infrastructure projects, not for writing off past debt. “If states are willing to work on infrastructure projects, perhaps the Centre would look into this,” said Suresh Tendulkar, chairman of the Economic Advisory Council.