Liquidity crisis hits West Bengal hard

If Centre doesn’t enhance borrowing limit further, state will have to use development funds to pay salaries and pensions

In about two months, West Bengal finance minister Amit Mitra is expected to present his first full Budget. But before that, he will have to steer through the worst liquidity crisis the government is facing so far.

Having exhausted the enhanced borrowing limit of Rs 20,523 crore, the state is likely to seek further relaxation in borrowing limit to the tune of Rs 4,000 crore to meet committed expenditure over the next two months, the second such since the new government took charge, said sources. West Bengal has already demanded from the Centre a moratorium on annual interest repayment of Rs 22,000 crore, on the accumulated debt of Rs 1.92 lakh crore.

H K Dwivedi, finance secretary, was not available for comment. Mitra, too, could not be reached for comment.

The original borrowing limit of the state was Rs 17,828 crore, but the Centre has already enhanced it by Rs 2,706 crore in view of the dire state of finances.

On January 24, West Bengal raised Rs 1,000 crore through SDL loans, thus exhausting its borrowing limit for the current financial year.

If the borrowing limit is not enhanced, the state will have to divert development funds for paying salaries and pension.

“Not a single paisa has been provided to the state government by the Centre on account of debt relief, repayment and backward area development project so far,” Mitra had said yesterday while responding to a statement by Congress spokesperson Abhishek Manu Singhvi that the Centre had provided Rs 8,000 crore to the government.

Interestingly, in spite of the liquidity crunch the state Budget has been avoiding hike in taxes to stack-up its revenue.

Against the target of 31 per cent increase in revenue collection, the state has not even been able to reach the 20 per cent mark.

“Ever since the new government took over, it has done everything to remain popular. It is strange that the state government is spending on the wrong things. Probably, it does not have enough money to spend on the right things,” said Dipankar Dasgupta, economist and former professor at the Indian Statistical Institute.

Small steps
Some small steps by Mitra to mop more taxes have failed to increase revenue collection.

The state has introduced a slew of tax reforms by starting an e-governance initiative in the commercial tax directorate. The e-enabled system was set to minimise human interference and eliminates corruption to a great extent. The state imposed higher taxes per lottery draw, against zero tax earlier, translating into an additional monthly income of Rs 5 crore. The Finance Bill sought to raise taxes on liquor and tobacco-related products, while all items under zero and four per cent have were kept untouched. Mitra had hoped to garner an additional Rs 6,000 crore through these measures.

“The idea is to enlarge the tax base and not to burden people already reeling under inflation. This is the “Ma Mati Manush” model,” he had said. Over the last six months, the state has been replacing high cost debt with low cost borrowing. Thus, it repaid more than Rs 1,100 crore loans taken from West Bengal Infrastructure Development Finance Corporation.

Most of the loans were borrowed at more than 10 per cent interest rate. In contrast, the last market borrowing of the state government was at 9.28 per cent. Similarly, it repaid Rs 300 crore to a consortium of banks, borrowed at more than 10 per cent. In the process, the state could save as much as Rs 15 crore.

PTI adds
The Congress Party, on the other hand, rejected Mitra’s remark that not even a paisa was received from the Centre.

The party said the Centre had already released Rs 23,695 crore to the state.