Last week, the state had told the central government that it needed to borrow an additional Rs 10,000 crore over and above the sanctioned limit of Rs 30,465 crore.
Last year, the central government cut the state’s borrowing limit after the Mann government failed to reduce losses incurred by the Punjab State Power Corporation. In the post-pandemic period, the central government granted additional borrowing facilities to states, but this was conditional on them implementing power sector reforms. Punjab’s additional borrowing was reduced as the reforms were not fully implemented.
Presenting the annual budget in March, state finance minister Harpal Cheema had projected Punjab’s debt to reach 3.74 trillion rupees by the end of this fiscal year, more than 46 percent of the state’s GDP. Finance Minister Cheema told Parliament that over Rs 410 billion would be raised through borrowings and loans this year alone.
Dividing these figures by the state’s total population of over 30 million means that every resident of Punjab owes Rs 1.24 billion.
Last month, Satnam Singh Sandhu, BJP MP from Punjab in the Rajya Sabha, had sought answers from the Union Finance Minister over Punjab’s ballooning debt. Minister of State for Finance Pankaj Chaudhary informed Parliament that the budget estimates for FY24 are a whopping Rs 3.51 trillion.
As the state’s fiscal problems worsened, opposition parties began criticizing the state’s management of the economy. and othersLeader of the Opposition Partap Singh Bajwa had called for an all-party meeting to address the crisis.The Shiromani Akali Dal (SAD) has accused the state government of misappropriation and mismanagement and demanded a central government inquiry into the Mann government’s expenditure.
Writing in X newspaper, Bajwa said that during the two-and-a-half years of the AAP government, every Punjabi had to bear the brunt of financial problems. “The Punjab Chief Minister and his cabinet colleagues are drunk with their own ego and have no concern for Punjab and Punjabis. What is wrong with convening an inter-party meeting in such a situation?”
Cash-strapped @AAPPunjab govt has sought additional borrowing limit of Rs 1 trillion for the ongoing financial year. AAP has written to Union Finance Minister in this regard. pic.twitter.com/pD9cCD23r7
— Partap Singh Bajwa (@Partap_Sbajwa) September 9, 2024
State Congress leader Amarinder Singh Raja Waring wrote in X that the chief minister was ignoring the financial crisis and wasting precious funds on advertisements and events.
CM @BhagwantMann’s priorities are clear: squandering money on ads and events and ignoring the state’s financial crisis. Punjab seeks additional borrowing limit of Rs 10,000 crore. Revenue shortfall of Rs 73,000 crore, interest payment of Rs 23,900 crore and still no solution in sight! #PunjabInShambles… pic.twitter.com/u6Kpx4xrXS
— Amarinder Singh Raja Warring (@RajaBrar_INC) September 9, 2024
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Tax burden
Mann’s government has faced stiff criticism for increasing taxes to improve finances. The government increased property registration levies and road tax on cars in August as part of efforts to reduce the debt burden.
The government last week increased the value-added tax (VAT) on fuel by 92 paisa per litre for diesel and 61 paisa per litre for petrol. In the same week, it also withdrew power subsidy to domestic consumers with loads up to 7 kilowatts. The subsidy was first offered when the Congress government came to power in the state in November 2021.
Then on Monday, the government increased public bus fares by 23 paisa per kilometre per passenger.
Addressing a press conference on Tuesday, SAD leader Parambanth Singh Romana said the AAP has not undertaken any new infrastructure projects or social welfare schemes, yet has burdened the common man with Rs 12,500 crore of new taxes. Romana said Punjab’s financial crisis was due to “gross financial mismanagement and misappropriation”, huge amounts of money spent on advertising Mann and AAP national president Arvind Kejriwal, and hiring of helicopters and aircraft for election campaigning in other states.
“I will ask Chief Minister Bhagwant Mann to name one new infrastructure project undertaken by his government or discuss the scrapping of all social welfare schemes by the AAP government. I am ready to discuss this issue and the acute financial crisis facing the state at any stage the Chief Minister wishes,” he said.
Romana said Punjab was on the brink of bankruptcy and its debt-to-gross domestic product (GSDP) ratio stood at 46.81 per cent, the second highest among states.
He said when the SAD government came to power in 2007, the debt-to-GSDP ratio was 40.15 per cent, but by 2017 it had come down to 33 per cent.
“Since then, the state’s finances have deteriorated and the Congress had increased the debt-to-gross domestic product (GSDP) ratio to 45 per cent in 2022, which has now risen to 46.81 per cent,” he said.
He added that the annual fiscal deficit has risen to Rs340 billion and governance itself has been called into question.
Legacy of debt
According to government officials, the administration sought an increase in the borrowing limit because it inherited debt from the previous administration.
Punjab has informed the Finance Ministry that the provincial government has already repaid debts worth about Rs 7 trillion and the annual interest payments alone amount to about Rs 240 crore.
Mann had asked the 16th Finance Commission in July for a Rs 1.32 trillion relief package.
The Chief Minister told members of the Finance Committee that the relief package includes Rs750 billion development fund, Rs179.5 billion for agriculture and paddy diversification, Rs50.25 billion for prevention of stubble burning, Rs88.46 billion for combating narco-terrorism and drug abuse and Rs60 billion for industrial revitalisation.
Mann said urban local bodies need to be allocated Rs 9,426 crore and rural local bodies Rs 10,000 crore.
“On the one hand, the chief minister attends public functions and speaks from the dais that the state has plenty of money and there is no problem with funds. Then why takes his begging bowl to the central government,” senior BJP leader Subhash Sharma told ThePrint on Tuesday.
“AAP has fooled the people of Punjab and its bluff has now been exposed. Where is the Rs 5,400 crore they said they would earn from excise duty alone and the Rs 2,000 crore they were supposed to earn by plugging loopholes for illegal mining activities?”
“The speed at which the Mann government has sought loans has been four times faster than any other government. It has taken loans worth Rs 1 trillion in just two and a half years. In fact, Punjab is in financial distress and heading towards bankruptcy.”
Economists are warning governments that populist spending, subsidies, free services, unemployment benefits and ever-increasing wage and pension expenditures leave no money left for the country’s development. To save its economy, which has been left behind while the rest of the country is thriving, experts say the state needs to get its economy in order.
“Punjab is caught in a situation where whenever one government gives charity, the next one is forced to continue it. It is a vicious cycle of giveaways. Every political party comes out with a ‘menu’ instead of a manifesto. The menu includes monthly giveaways, free electricity, free travel, free this and that. Giveaways have not led to any development in the state and are putting a strain on the exchequer,” Dr Pramod Kumar, director, Institute of Development Communication (IDC), Chandigarh, told ThePrint.
The finance minister said that in this year’s budget, the government will reduce capital expenditure by about Rs 3,000 billion compared to last year. Capital expenditure proposed in last year’s budget was over Rs 10,300 billion, while this year it is Rs 7,400 billion.
Of the proposed revenue outlay of Rs 1.27 trillion this year, the government plans to allocate over Rs 35,000 trillion for salaries and wages and another about Rs 20,000 trillion for pension payment. The remaining about Rs 24,000 trillion will be for interest payment.
Another Rs933 billion has been allocated for power subsidy to agriculture, while Rs778 billion has been set aside to offset electricity bills of domestic power consumers who will get free electricity if their consumption is less than 300 units per month.
(Edited by Sugita Katyal)
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