RBI raises alarm as Bengal goes into severe overdraft crisis

By
Ajanta Chakraborty | Times of India, 23 February, 2011

Kolkata: The Reserve Bank of India has warned the Union finance ministry that West Bengal is facing a “severe overdraft crisis” — in other words, it is going bankrupt. The state’s financial condition is so bad that it may have to dip into central funds for welfare projects if it has to pay its employees the salary for February.
Sources in the RBI say that as on February 21, Bengal has taken more than 1800 crore as loan. It has also been regularly dipping into the ways and means advances (WMAs) to meet its daily expenses. It has come to such a pass that the Buddhadeb Bhattacharjee government has been surviving on overdrafts running into hundreds of crores for the past 10 days.
Overdrafts from the RBI can be availed for a maximum of 14 days and is usually the last resort.
Punjab, which is also facing a fiscal crisis, is also in the WMA stage, but is yet to take recourse to overdrafts.
In November, the Union finance ministry had summoned Bengal chief secretary Samar Ghosh and warned him that the state’s fiscal position was “unsustainable”. This had led Governor M K Narayanan to call finance minister Asim Dasgupta for a discussion.
For around a month now, the government has not been able to clear treasury bills and has gone on negative balance. The finance minister had hiked VAT rates on luxury and nonessential items by 1% and promised to cut down on non-plan expenditure. None of these seemed to have helped.
Government sources confirmed that no payment is being released and funds allocated for areas, such as police modernization, have been stopped. The government’s only hope now are some central funds that it is withholding on the ground that the election code of conduct is about to set in and no welfare project can be launched at this hour. This includes a 600 crore grant released for drought relief. Sources say funds like these may be diverted by Writers’ to meet its daily expenses.
The liquidity crunch has been kept under wraps as the state is approaching assembly elections in about a couple of months from now.
Last year, the government had approached RBI on 12 days for normal WMAs, which help states tide over a temporary mismatch in cash flow. In 2008-09, it knocked on the RBI’s door on 39 days. For special WMAs advances from the RBI against pledged Government of India securities — the state has already approached the central bank 38 times this year. In 2008-09, it sought special WMAs on 165 days.
EMPTY COFFERS
Bengal has already taken more than 1800 crore as loan from RBI
It has also been regularly dipping into the ways and means advances (WMAs) to meet its daily expenses
For 10 days now, the govt has been surviving on overdrafts from the RBI running into hundreds of crores
RBI has raised an alarm because overdrafts can be availed for a maximum of 14 days