Punjab must rationalise subsidies to come out of debt trap
THOUGH the ever-increasing debt has been part of the public discourse in Punjab for the past several years, the recent correspondence between Governor Banwarilal Purohit and Chief Minister Bhagwant Mann has intensified the ongoing debate. The Governor, in a letter to the CM, has asked the government about the use of Rs 50,000-crore loans raised during the first 18 months of the AAP’s term. The Opposition is out to corner the government, even as Finance Minister Harpal Singh Cheema has provided a detailed account of the use of these loans.
The continuously rising debt remains a significant challenge for the financially stressed state. Such an unsustainable debt is bound to impede Punjab’s development as it leaves little scope for capital expenditure by the government. The tussle between the Governor and the CM is also not a healthy sign for Punjab’s progress. All this needs a responsible public discourse and scrutiny so that informed policies can be formulated to overcome the low-growth syndrome.
During the 1980s (the decade of militancy), Punjab’s outstanding debt increased from Rs 1,009 crore in 1980 to Rs 7,102 crore in 1990-91. It rose to
Rs 34,063 crore in 2001-02, Rs 51,155 crore in 2006-07 and further to Rs 83,099 crore in 2011-12. In 2016-17, it jumped to Rs 1,82,526 crore and rose to Rs 2,81,773 crore in 2021-22. It increased to Rs 3,12,758 crore in 2022-23; the estimate for 2023-24 is Rs 3,47,542 crore. As a percentage of the GSDP (Gross State Domestic Product), the debt increased from 37.6 per cent in 1990-91 to 48.2 per cent in 2021-22 and to 49.7 per cent in 2022-23. It is likely to reach 50.2 per cent in 2023-24. The ratios of debt to state’s total revenue receipts (TRR) and its own tax revenue (OTR) are also very high. The data indicates that Punjab is in a serious debt trap.
The rapidly growing annual average debt from 2011-12 onwards is a cause for concern. The debt increased by an annual average of Rs 3,418 crore between 2002-03 and 2006-07 (five years of Congress rule), by Rs 6,389 crore between 2007-08 and 2011-12 and by Rs 19,885 crore between 2012-13 and 2016-17 (10 years of SAD-BJP rule). From 2017-18 to 2021-22 (Congress rule), the annual average increase in debt was to the tune of Rs 19,849 crore. During 2022-23 (the first year of AAP rule), the debt jumped by Rs 30,985 crore and is estimated to increase by Rs 34,784 crore in the second year of the present government. Assuming that the average annual increase in the remaining three years of AAP rule will be equivalent to the annual average of the first two years, the state’s debt burden is likely to increase by at least
Rs 1,64,423 crore. This means that the total debt of Punjab shall be around Rs 4,46,196 crore by the end of 2026-27. In view of the current freebies, the pending ‘guarantee’ of giving Rs 1,000 per month to every adult female and the absence of a plausible roadmap for raising additional finances and offloading the debt burden, there is a strong probability that the debt burden of the state would exceed the estimates.
Paradoxically, nearly the entire amount of new gross borrowings is being consumed by debt servicing (interest + principal), leaving only a small amount (a few hundred crores or sometimes a negative sum) of net borrowings for other purposes. Barring a couple of years, Punjab has consistently had the highest per capita outstanding debt among the 17 major (general category) states for the past more than 20 years. The high deficit on revenue account (net of revenue receipts and revenue expenditure) is an indication that the government is not even able to meet its current expenditure from the current revenue. Around 20-22 per cent of the total revenue receipts are going towards the interest payment on outstanding debt since 2001-02. In 2021-22, it was 24.4 per cent and is likely to hover around the same proportion in the coming years.
The low-growth syndrome (below the national average and that of many performing states) over the past 30 years, mainly due to a low investment-GDP ratio, has limited the state’s capacity to mobilise additional financial resources. This, along with indiscriminate freebies and subsidies, has been the main contributing factor to the ever-increasing outstanding debt. Punjab’s investment-GSDP ratio was 30.22 per cent in 1995-96, whereas the national average was 27.34 per cent. Thereafter, it has almost remained nearly half of the national average, leading to an annual average investment deficiency to the tune of Rs 45,781 crore from 2000-01 to 2018-19. To come out of the low-growth syndrome, Punjab must raise its investment-GSDP ratio at least to around the national average. That would require political will to create an investment-friendly climate, besides enhancing government capital expenditure.
The AAP government has been able to generate additional revenue from GST, excise duty, transport, etc., but there is a huge untapped potential (up to Rs 28,500 crore annually, mentioned in the Sixth Finance Commission’s report) for mobilising additional financial resources without imposing new taxes. If the government succeeds in generating such a huge amount of finances (or even half), it can have a significant leverage for additional public investment (which is too meagre at present) and a roadmap for accelerating the growth rate, employment generation and debt retirement. Enhanced public investment would also spur private investment. Along with these efforts, the government needs to rationalise the system of wholesale freebies and subsidies and spend each penny judiciously.
