Punjab in precarious debt trap
By Gobind Thukral
Tribune News Service

CHANDIGARH, Nov 22 — Punjab is caught in a precarious debt trap. At present whatever revenue Punjab is able to earn, largely goes to meet the debt servicing. As on March last year, it had an accumulated debt of Rs 19,853 crore. By March, 2000, this would go up by another Rs 2,000 crore at least. If the debt burden of the state is not lightened, the total revenue receipts of the government would not be sufficient to meet the requirements for servicing the debt and payment of salaries and pensions.

Punjab, therefore, has no money to fund its plans. It has to borrow to develop and then pay for the debts and thus survive on borrowed money. In other words it is total deficit financing.

At present, the Punjab Government owed Rs 13,124 crore or 66.11 per cent of the total debt to the Union Government. It is yet to have a final word from the Government of India about waiving the debt raised to fight terrorism and insurgency. A total of Rs 3772.2 crore is still outstanding. Two previous Prime Ministers, Mr P.V. Narasimha Rao, and Mr Inder Kumar Gujral waived Rs 803.23 crore and Rs 2114.66 crore, respectively. In addition, the Tenth Finance Commission helped to provide relief of Rs 495.22 crore. What Mr Gujral had promised further is now left to the 11th Finance Commission. The Chief Minister, Mr Parkash Singh Badal’s efforts to get any straight relief from the present Prime Minister, Mr Atal Behari Vajpayee, have come to a naught. It is for the 11th Finance Commission to decide, Mr Badal was told, curtly.

Punjab had received a total of Rs 5,800 crore to fund its anti-insurgency operations. The Centre had promised to help meet these expenses.

Tragically, Punjab has not been borrowing only to meet its ambitious development needs, but also to fund the ever rising Non Plan Expenditure. Here the state has to blame the leaders since 1984. Mr Badal had made a big contribution by messing up further. He is now in binds and does not know how to get out of it. His case is of a typical Punjabi farmer who thinks of one way today, abandons it next day and then repents when he finds himself leaving only debt to posterity. His government is a rollback government. He knows that the debt servicing ratio has crossed 30 per cent of the revenue, yet there is no concrete decision.

Also, Punjab has over 36 per cent of the debt compared to its total gross state domestic product in debt. It was Rs 19,853 crore or 34.83 per cent last year. The state had always a deficit account since 1984-85.

Having realised the grave situation, the Punjab government has taken shelter and put forward a number of concrete suggestions before the 11th Finance Commission. According to Capt Kanwaljit Singh, the Finance Minister, "the huge liability of outstanding central loans cannot be met out of the normal revenue of the state government. At present, a large part of the fresh central loans goes towards meeting repayment liabilities of outstanding loans from the Centre. Therefore, there is an urgent need to revise the pattern, terms and conditions of central loans given to the States to relieve them from the fiscal stress. The following suggestions are made for providing debt relief to the state".

He pointed out that "the rate of interest charged by Government of India from the State Governments has been increasing steadily over time and the current rate charged by the Government of India is significantly higher than the rate of interest paid by it to individual depositors. The Ninth Finance Commission had recommended that the rate of interest charged from the state governments should bear some nexus with the rate of which the Union Government obtains funds from the internal or external sources. The loans to each state should be given at market determined rates of interest. The Union Government should pass on the cost of funds to the state, in addition a credit rating of each individual State should be undertaken, and loans raised specifically for each state. This will give every State an incentive to improve its financial management to minimise its cost of debt."

The state government has requested the 11th Finance Commission to devise a scheme to deal with the non-plan capital gap of the states which not only opens the way for a more satisfactory creditor-debtor relationship between the Centre and States on a long term basis but also does not discriminate against States with a higher level of development measured by State Domestic Product and Revenue Surplus. Therefore, the Finance Commission should allow consolidation and rescheduling of repayment of central loans outstanding on 31st March, 1999 over a period of 30 years in order to reduce the fiscal deficit of the states. In addition, 50 per cent of the principal amount which is due for repayment period should be written off to relieve the states of their crushing debt burden.

The states and their agencies should be allowed to mobilise funds from the domestic and international capital market for funding their various development programmes.