West Bengal Chief Minister Mamata Banerjee has taken serious exception to the Union government’s inability to accede to her request for a one-time special financial package to enable the state to tide over its precarious financial condition. Her more explicit reason for seeking this special favour is that the previous Left Front government has bequeathed a critical financial situation. The less explicit reason is that the Trinamool Congress’ support is crucial for the survival of the United Progressive Alliance (UPA) government, and this should come at a price. The inability to get what she wants partially explains the manner in which, at critical junctures, Ms Banerjee has refused to stand by the prime minister, forcing him to retreat with loss of face. This cold war has not remained restricted to domestic issues like the Lok Pal Bill and foreign direct investment in retail, but has led to the jettisoning of a crucial initiative to set relations with neighbouring Bangladesh on a new plane by concluding an agreement for the amicable sharing of the Teesta’s waters.
The Centre’s inability to oblige Ms Banerjee comes from its own difficult financial condition, as also demands for largesse from states in similar trouble, like Punjab and Kerala. With complex rules for sharing federal financial resources in place, the UPA government can hardly be seen to be openly partial to an ally. An important financial package of Rs 18,908 crore has indeed been announced, including Rs 8,750 crore for backward areas of the state affected by extremist violence. But the state cannot utilise the remaining Rs 10,158 crore unless it makes a matching contribution for half this sum. Hence the state has asked for an advance of Rs 5,300 crore to get things going before it is able to incur any expenses from its own funds. The reality is that the state is in need of a large accommodation to incur any kind of development expenditure as there is little left after paying salaries and pensions.
Some kind of moral right to special treatment could have been asserted if the state had shown itself to be financially prudent and reform-oriented. But the reality is the opposite. Ms Banerjee appears to be wedded to her long-term opposition to levying water charges, for example. Worse, the finances of the state’s public sector power companies, which were quite healthy when the Trinamool Congress took over, seem to be headed for crisis. This is because of the inability of the state-owned distribution company, on a nod and wink from the state government, to ask the regulator for tariff revision following the steep rise in coal prices. Perhaps the worst form of populism is Ms Banerjee’s (she is the sole decision-making authority in her set-up) decision to dole out cash to hundreds of youth clubs to promote sporting activity! Its sole effort at garnering more revenue, raising the tax on branded liquor, has backfired because of consumer resistance and switch to non-branded liquor. The future of the states’ finances and industrial growth appears bleak, and Ms Banerjee must share a good part of the responsibility for it. The Centre must stand firm; unless a package that stresses prudence and growth-enhancing reform is worked out by the West Bengal government, no bailout should be promised.