|End Mamata's blackmail|
|Tuesday, 24 April 2012 00:00|
GoI must call her bluff, no relief till taxes raised
While it is true the UPA needs Mamata Banerjee to survive, it is time it stood up to her never-ending politics of terror. After asking for a package of R19,000 crore last year to rescue her debt-laden state, the Mamata Support Price (MSP) has gone up dramatically, to R22,000 crore each year for the next three years! And the threat is that if, within 15 days, this demand of an interest moratorium for three years—that means the Centre will have to pay West Bengal’s interest from its budget—is not met, she will walk out of the UPA. It is true, as Mamata points out, the debt of over R2,00,000 crore is a legacy from the communists, but that applies to every state, to even the central government—each government has to pay off the debts raised by the previous one. Were the debts to be written off, each time there was a change in government at the state or at the Centre, there would be no banking system worth the name in the country. Which is why, various Finance Commissions have put their head together and come up with various formulations to help the state, to lower interest rates on some of the state’s debt—8% is from the central government and 80%-plus is from small savings, banks and financial institutions, even the state provident fund, reserve funds of state government PSUs and deposits with cooperatives. The 13th Finance Commission had said an interest rate reset on loans from the NSSF would save the state R500 crore each year and that the Centre should open a separate window for the state to raise finances so that it doesn’t have to raise all its debts from the market, but can borrow from the Centre at a lower rate.
This is something the Centre is willing to do, but it can’t do this unilaterally. Mamata needs to do some walking of her own to meet the Centre half-way—at 4.24% (the FY13 budget target is 5.6%), Mamata’s tax-to-GDP is the lowest in general category states as compared to Andhra’s 10.8%, Karnataka’s 11% and even Uttar Pradesh’s 8.3%. At 3.9%, its fiscal deficit for FY12 is near the Finance Commission’s 3.5% target, but the Centre needs to see this happening before it gives more to Mamata.
Other than looking at the impact of an interest rate moratorium for West Bengal on its own budget (0.2-0.3% of GDP each year for three years) and the likely impact if others states start making similar impossible demands, the Centre needs to take a good hard look at the advantages of having Mamata in the UPA. Sure, on paper, it gives the UPA some more stability, but even the most ordinary of reforms have got held back due to her opposition.