While the state of Punjab is reeling under a massive debt burden, three economists have written to the state government suggesting the establishment of a debt relief fund (DRF) and seek voluntary donations from the public to get the state out of its financial bind. The letter was written by economists Lakhwinder Singh, Sukhwinder Singh, and Kesar Singh Bhango.
The three economists have also recommended in the letter that the government should establish a panel to provide recommendations for Punjab’s fiscal improvement and request a seven-year moratorium on debt payments to give the economy time to recover.
According to the reports, economist Lakhwinder Singh is a visiting professor at the Institute for Human Development (IHD) in New Delhi, Sukhwinder Singh is a former professor and consultant to the Punjab Finance Commission in Chandigarh and Kesar Singh Bhangoo is a former professor in the department of economics at the Punjabi University. In a study titled “Fiscal Policy Under Siege: Strategy for Making Punjab Debt Free” that was put together on Saturday, the group of three economists asked the Punjab government to seek help from other political parties in the state and push for a debt relief package from the Centre.
“We suggest to the government that among the several available options, one is to set up a debt relief fund and issue an appeal to all the concerned citizens to deposit the money in it voluntarily. This fund will only be utilized to reduce Punjab’s debt burden while making a tax exemption provision as in other similar cases. Punjabis all around the globe are by nature helpful and well-known for philanthropy. This cultural trait of Punjabis will go a long way in dealing with the debt,” the economists stated in the letter.
The analysts explained the backdrop of Punjab’s twofold debt trap by stating that, on average during the previous three years, the state government borrowed Rs 35,201.87 crores every year. It pays interest of Rs 18,209.8 crores and repays the principal amount of Rs 14,257.98 crores, totaling 32,467.78 crores, to cover the accumulated debt.
According to the study, the state government’s fiscal strategy has become dysfunctional. “The net availability of the borrowed funds turns out to be Rs 2,734.09 crore, which is just 7.8% of the total borrowings and the remaining 92.2% gets exhausted into servicing the accumulated debt,” it stated. The state lacks the potential to make fresh capital investments, and according to figures from the Reserve Bank of India (RBI), the amount borrowed by Punjab from different sources accounts for 53.3% of its Gross State Domestic Product (GSDP).
The economists added that the rate at which debt began to accrue was worrying, starting at 22.85% in 2015-16 and 40.80% in 2016-17, respectively. “It then continues to increase steadily, on average, by more than 9% per year. The present administration is borrowing similarly to the past administrations, and it will continue to do so until it leaves office,” they added.
They stated that the government would raise spending without increasing the necessary level of revenue due to the existing obligations, the promised creation of jobs in the government sector, and the promises of transfer payments and subsidies. Members reiterated that the government should form a panel to look for workable solutions to cut the debt load in half in the near future and to propose actions to free the state from debt in the medium to long term.
The economists suggested that in order to immediately relieve the rising debt burden, the government may issue bonds. The well-known intellectuals of Punjab and the leaders of other political parties should be trusted by the Punjab administration to reach a consensus and bring up this issue with the Union government for a debt relief package, they added in the letter.
“The people of Punjab had given a decisive mandate and elected a government with the expectation that it would revive the state’s lost glory. Therefore, it is high time that the government should swiftly act while gathering all the courage and will to revive institutional arrangements of policy making and big bang actions to break both the traps (debt and slow growth) for sustainable development of Punjab economy,” they were quoted.
In comparison to its own revenue deficit projection of Rs 12,553.80 crore for the year 2022–2023, the current government’s revenue shortfall during its first nine months in office has been reported as Rs 15.348.55 crore.
The economic condition of Punjab is becoming worse quarter by quarter. The fund-strapped Punjab government’s fiscal situation portrays a bleak image with the state having a very high debt-to-GDP ratio. The state exchequer is also bleeding as a result of freebies. The only state with a higher debt-to-GDP ratio than Punjab, which is predicted to be 47.6% by March 2023, is Mizoram, which has a ratio of 53.1%. Punjab’s ratio has slightly increased from 48.7% in 2021 and 48.4% in 2022 as the states have recovered from the epidemic in the last two years.
In its first 11 months of governance, the state has already borrowed more than Rs 35,000 crore. It has been unable to pay the Punjab Mandi Board installment of Rs 500 crore towards repayment of the loan to cancel farmers’ debts. Mandi Board has been requested to modify the loan in such a way that the state makes monthly payments of Rs 100 crore.
The state’s power utility is also in financial trouble. The state exchequer is expected to incur a cost of Rs 22,000 crore this fiscal year due to the weight of electricity subsidies, therefore it had to borrow Rs 500 crore to pay salaries for the previous month. The situation has worsened ever since the government rolled out 300 units of free power to the residents.
The state has also been unable to decide on a free bus service for women. The exchequer has been paying for it Rs 550 crore rupees annually. The government could not reach a decision despite the Transport Department’s suggestion to rationalize free travel.
On the other hand, in the middle of the financial crunch, Women and Child Welfare Minister, Punjab, Dr Baljit Kaur is promising Rs 1,000 per month to women, a promise which was made by the Aam Aadmi Party during elections. Recently, the state also shut down three toll plazas which the state CM alleged were allowed to operate by the connivance of the Akali-BJP alliance and Congress to loot the public. According to the CM, a daily sum of Rs 10.52 lakh of the public will be saved by shutting off the toll plazas.
The problems of Punjab have increased further as its capital investments are also not giving returns. Reports mention that several of the industries set up in the state have migrated to nearby states including Haryana, Himachal Pradesh, and Uttar Pradesh.
Reportedly, CM Bhagwant Mann has stated that the state would generate revenue by renting the 9,000 acres of public land recovered from the encroachers. He also said that the state would generate revenue from sand. Reports however mention that it is difficult for the state to meet its revenue targets in the current fiscal, according to the data released by CAG regarding the fiscal indicators from April to December 2022.
