FinMin rejects debt relief plea of 3 states

The finance ministry has rejected the requests of Punjab, Kerala and West Bengal for relief on their mounting debt.

The decision was taken by a committee chaired by finance secretary Sushma Nath, and was communicated to these states earlier last week, officials said.

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The committee felt any such relief would encourage fiscal mismanagement and set a bad precedent, the officials said.

The states have been suffering on account of heavy debt and interest thereon.

According to Reserve Bank data, West Bengal, Kerala and Punjab have outstanding debt liabilities of Rs. 1.98 lakh crore, Rs. 81,742 crore (Rs. 817.42 billion) and Rs. 73,794 crore (Rs. 737.94 billion), respectively, as on March 31.

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This constitutes 40.8 per cent of GDP of West Bengal. For Punjab and Kerala, the debt-SGDP ratio was 34.1 per cent and 33.4 per cent, respectively.

These states have particularly asked for waiver of rural debt, so that the states have funds to contribute to flagship social welfare schemes.

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Of these states, Punjab has rural debt liability of Rs. 35,000 crore (Rs. 350 billion)and is paying Rs. 6,500 crore (Rs. 65 billion) annually as interest.

Recently, Punjab chief minister Prakash Singh Badal had said that despite his government's excellent all-round showing, the state's finances remained under strain due to the heavy legacy of debt inherited from the period of militancy, when the state was directly under central rule.

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He sought a relief package in the form of complete debt waiver or rescheduling, since this debt was incurred for fighting the nation's war.

Kerala finance minister Thomas Isaac said in this year's interim budget speech that while Kerala's debt grew by 70 per cent in the past five years, it had risen by 92 per cent in the previous five years.

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"This shows the rate of increase of debt has come down sharply," said Issac.

He also opposed the centre's move to include the state among fiscally stressed states.

In his vote-on-account speech, West Bengal Finance Minister Asim Dasgupta objected to the centre's condition that states enact a Fiscal Responsibility and Budget Management legislation for partial debt relief from the burden of central loans of the states.

"In other words, the demands for reordering of the Centre-State relations, raised united by all the states, have once again remained neglected," he had said.