M A I N   N E W S

An offer Punjab can’t afford to refuse
Nirmal Sandhu
Tribune News Service

The state’s finances are in a mess, courtesy politics of freebies and the expenditure incurred on combating militancy. Now, the Centre has offered a `35,000-cr package to bail out the state government. The terms are tough but the debt-ridden state seems to have run out of options. An indepth Tribune analysis of this make-or-break decision.

Chandigarh, October 6
The Punjab political leadership has an opportunity to end the ruinous politics of populism and return to fiscal discipline and responsible governance. The offer is huge: Rs 35,000 crore. The political parties have a chance to cut the state debt by half and start afresh. It is a historic opportunity.

Punjab’s present economic situation is pathetic. The state is heading for a debt trap, which means taking more loan to pay the existing loan. Any further slip-up can lead to a loan default, non-payment of staff salaries and invite the President’s Rule for a financial breakdown. The stakes are high.

In the past three years, the ruling Shiromani Akali Dal-BJP has borrowed Rs 7,000 crore annually to push the state’s debt to Rs 71,000 crore. It pays Rs 8,000 crore as interest annually. Before that the Amarinder Singh government, too, had resorted to borrowings to run the state affairs. After discontinuing free power for some time, the Captain embraced the politics of freebies, forgetting that despite free power to farmers, the previous Badal government had been voted out, as his own government was going to be. People want good governance, not populism; regular power supply, not freedom from bill payment.

Yet not many appear as enthused as Finance Minister Manpreet Singh Badal at the Centre’s Rs 35,000-crore offer tied to conditions, which actually encourage efficient fiscal management. Here are some key conditions, which Union Finance Minister Pranab Mukherjee has conveyed to Manpreet Badal for helping the state:

  • Cut power subsidy from Rs 3,100 crore to 1,000 crore in five years
  • Hike irrigation water charges
  • Impose property tax
  • Take steps to stop Rs 200 crore loss of the Punjab Roadways and the PRTC
  • Sell the state stakes in sick PSUs
  • Ensure a CAG audit of local bodies, the Punjab Infrastructure Development Fund and the Rural Development Fund
  • Introduce change-in-land-use charges
  • No premature withdrawals from the PF by employees
  • Collections by government agencies be put in Consolidated Fund.

Deputy Chief Minister Sukhbir Badal has dubbed the conditions “impractical” while Chief Minister Parkash Singh Badal is annoyed with the Centre’s habit of distributing funds through various “formulas”.

Manpreet Badal’s argument is: “We don’t have any inherent right of waiver as other states are in the same situation, but the Centre has agreed to revisit the issue of Punjab debt in the light of the toll taken by terrorism”.

In fact, Manpreet Badal is so excited about the Centre’s offer that he created a political row by openly airing differences with Sukhbir Badal. Some Congress leaders remained non-committal saying let the Akalis first set their own house in order.

Debt waiver has remained on the Akali agenda for quite some time now. The 13th Finance Commission had rejected the state’s request to waive or reschedule the debt.

The Badals are seeking a loan waiver on two grounds:

  • The debt had multiplied when the state was under President’s rule for about 10 years. No resources were raised then.
  • The state had fought the nation’s battle against terrorism.

The Centre had written off only Rs 6,000 crore, which was spent during militancy on the CRPF and the BSF.

According to Manpreet Badal, while setting the conditions, Pranab Mukherjee has agreed to take care of the following:

  • Rs 10,000 crore debt on account of militancy
  • Rs 29,000 crore small savings loan that will be rescheduled for payment in 30 years
  • Rs 6,000 crore is the disputed amount pending with the FCI.

Punjab’s another major worry is that if the tax on the purchase of foodgrains is merged with the Goods and Services Tax (GST), to be rolled out in April 2012, the state stands to lose Rs 2,000 crore. This issue has apparently remained unresolved.

The Centre recently released Rs 800 crore for Punjab’s power sector. It became controversial as farmers protested to stake claim to it believing it was meant for drought relief. Chief Minister Badal takes credit for unbundling the power board but the two utilities face severe financial problems. The Punjab State Power Corporation needs Rs 2,000 crore for the current projects to continue. Its accumulated losses are Rs 9,700 crore and has an outstanding loan of Rs 18,000 crore. In UP, Haryana and other states, new power utilities have started with clean balance sheets.

This shows the extent of Punjab’s cash crunch, which is taking its toll on various fronts. There is hardly any money left after meeting the committed expenditure. Development has become a casualty. The state’s growth rate is 4 per cent against the national 8 per cent. The Punjab leadership has no choice but to undertake drastic measures to raise resources and use them judiciously and responsibly.

The Sukhbir-Kalia committee did make an effort but against its projection of collecting Rs 4,000 crore its measures have yielded Rs 1,100 crore only. The Finance Minister’s plight is understandable. Now the Centre has come forward to ease Punjab’s burden. Will the political leadership of Punjab rise to the occasion?

  • Politicians refuse to go along with Manpreet
  • Economists call for need based subsidies
  • Industry all for accepting centre’s proposal
  • Top bureaucrats give the thumbs up

THE carrot and the stick

  • Pranab MukherjeePunjab’s debt in August 2010 : Rs 70,000 cr

  • Union Finance Minister’s offer : To write off Rs 35,000 cr
Pre-conditions for Central waiver :
  • Parkash Singh BadalReduce annual power subsidy from Rs 3,100 crore to Rs 1,000 crore in 5 years
  • Disinvest PSUs in the red
  • Impose Property tax, water charges, fees for change in land-use
  • Subject local bodies etc. to audit by CAG (Comptroller & Auditor General of India)
  • Reduce annual loss of Rs 200 crore of the transport department by raising fares
  • Stop withdrawal of sums from the PF

The State’s concerns :

  • Sukhbir BadalThey are unpopular decisions
  • They could alienate voters
  • The carrot is aimed at the Assembly poll due in 2012
  • Subjecting local bodies to central audit unacceptable
  • Agriculture unremunerative and requires subsidy
  • The Centre should write off the debt because Punjab ensures food security
Finance Minister Manpreet Badal’s arguments in favour of the offer:
  • Manpreet BadalSubsidies are untenable and unsustainable
  • Many other states have huge debts so an exception cannot be made
  • The opportunity to clear debt worth Rs 35,000 crore should not be missed
  • Political price to be paid is sacrifice worth making for future generations





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