Will cash-strapped Centre play Santa to ailing states?

The role of Finance Minister Pranab Mukherjee just gets tougher and tougher. Not only does he have to manage an ever-increasing fiscal deficit, he must now play Godfather for some state-level budgets as well.

If a report by Business Standard today is anything to go by, it seems he will not only have to find creative ways to fund the growing deficit, but also meet the demand of the UPA’s premium ally, Trinamool Congress, to bail out financially-ailing West Bengal.

“West Bengal is reeling under Rs 15,093 crore of interest payments and Rs 6,900 crore of prepayments for 2011-12,” the newspaper said. Add to that a total debt of Rs 2 lakh crore and things look ready to implode.

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West Bengal, unfortunately, won’t be the only state making demands on the Union Budget. Financial packages will also have to be worked out for other troubled states like Punjab and Kerela.

[caption id=“attachment_198761” align=“alignleft” width=“380” caption=“Mukherjee will not only have to find creative ways to fund the growing deficit, but also meet the demand of the UPA’s premium ally, Trinamool Congress, to bail out financially-ailing West Bengal.PTI”]  [/caption]

Pranab-da’s task will be to find out how to satisfy them all without stretching the fiscal deficit too much. Sounds like mission impossible - without Tom Cruise.

Most analysts, in fact, are hoping for some sort of fiscal consolidation in the Budget this year.

Top banker Uday Kotak, in an interviewto _PTI,_said, “Around the world, what we are seeing is an easing monetary policy and a move toward tighter fiscal policy. But, in India, we had a tighter monetary policy and an easier fiscal policy. It’s time for us to change that equation.”

In the recent monetary policy review, Subbarao also made it clear that the Reserve Bank would not ease interest rates until the government effectively managed its fiscal gap.

In an interviewto CNBC TV18 recently_,_ Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said the primary objective of the budget will be to contain fiscal deficit and lower subsidies, although that might not be easy.