On long road to fiscal recovery, Punjab still has miles to go

Kanchan Vasdev
Punjab government, Amarinder Singh, three years of Punjab government, fiscal deficit Punjab, Punjab government report card, Manpreet Badal, punjab news, indian express

The Congress government, that rose to power on the promise of bringing the state's economy back on track, has not been able to do much.

Mounting debt, missed revenue targets, no emphasis on mopping up resources, a fat salary bill, no hard decisions on already existing sops, not much expenditure on development and dependence on Centre sum up the fiscal scenario of funds crunched Punjab in the last three years of the Congress-led government.

The Congress government that rose to power on the promise of bringing the state's economy back on track, has not been able to do much.

Though the budget for 2020-21 showed a primary fiscal surplus and Finance Minister Manpreet Singh Badal in his budget speech said the government was on the path of fiscal recovery, and had become primary surplus state by after 2006, much needs to be done still.

MOUNTING DEBT

The state's debt has mounted to a whopping Rs 2.28 lakh crore as on March, 2020. It is Rs 94,000 crore more than the total budget size of the state, which is Rs 1.54 lakh crore. It increased by Rs 46,000 crore in three years of the Congress government. When the government took over in March 2017, it was Rs 1.82 lakh crore. By the next fiscal
it is likely to rise by another Rs 20,000 crore and touch Rs 2.48 lakh crore in total. The state then would end up Rs 32,002 crore on debt servicing alone. This is one fifth the size of the total budget outlay. While 20 per cent of the total budget is spent on debt servicing, only 7.5 per cent has been set aside on capital expenditure.

NO EMPHASIS ON MOPPING UP RESOURCES

In the past three years, there has been little emphasis on mopping up resources. The government has not levied any tax except the Development Tax on Income Tax payees to the tune of Rs 200 every month. This has bailed out the state as it has been able to pay the social security pension on time.

Instead of showing an increase in its collections, the state's budget document has revealed that the revenue receipts have fallen Rs 4,534 crore short of its target of Rs 78,509 crore in the last fiscal. The collection has been Rs 73,975 crore. It has set a target of Rs 88,004 crore for 2020-21 fiscal, which is Rs 14,029 crore more than the one
realised in 2019-20 and target looks pretty hard.

It has fallen short of Rs 3,935 crore in its own tax revenue as the collection has been Rs 33,739 crore against the target of Rs 37,674 crore. The target for 2020-21 fiscal is Rs 35,824 crore. The state's own tax revenue include GST, VAT, state excise, stamps and registration, taxes on vehicles, electricity duty.

While the GST calculation was Rs 13,443 crore against a target of Rs 17,109 crore, there is a shortfall in VAT collections also of about Rs 800 crore. This is being blamed on lowering the VAT on petrol by Rs 5 per litre last year. Collection of taxes on vehicles too has been less than the target, for which the slump in automobile sector is being blamed.

In state's own non tax revenue, the collection has been Rs 1,515 crore less than the target of Rs 9,476 crore. The new target is Rs 8,045 crore.

In share of central taxes too, the collection has fallen by Rs 2,973 crore from an estimate of Rs 13,319 crore. The target is again Rs 14,021 crore for 2020-21 fiscal.

While the state's functionaries say that the state should have shown a substantial increase in the excise collections, given the consumption of alcohol in the state, the collections have been far from satisfactory. Politicians-contractors nexus is often blamed for the fall in collections but the things remain unchanged on the ground.

DEPENDENCE ON CENTRE

As much as 50 per cent of the state's revenue is coming from Centre. In state's own Budget 2020-21 document, share of central taxes is pegged at16 per cent at Rs 14,021 crore and grants-in-aid is 34 per cent at Rs 30,113 crore.
By not setting any target of additional resource mobilisation, the state still gets the lion's share of funds for its expenditure as share of central taxes.

Interestingly, the grants-in-aid from Centre was Rs 3,889 crore more than the target of Rs 18,039 crore in the last fiscal.

The Centre has, after many years, included the state in the list of 12 states to be given revenue deficit grant. The 15th Finance Commission in its report recommended the grant worth Rs 7,600 crore to the state.

Also, the Centre has increased state's share in central tax devolution from 1.577 per cent to 1.788 per cent. This means the state will get Rs 4,000 crore extra as its share in taxes.

NO HARD DECISION ON SOPS

From Rs 8,795 crore in 2018-2019 to Rs 12,246 crore in the 2020-21 fiscal, Punjab's subsidy bill has increased by Rs 3,451 crore in just two years. The government has not done anything to rationalise the farm subsidy that accounts for about Rs 7,000 crore annually but has also given subsidy to the tune of Rs 1500 crore to the industry. The major share of industrial subsidy goes to big industrialists in the state.

As per the data provided by Finance Minister Manpreet Singh Badal to the CM during government's internal meetings, the farm power subsidy bill rose by about nine times, from Rs 693 crore in 1997-98 to Rs 6,060 crore in 2019-2020, out of which Rs 4,940 crore is spent on medium and large farmers. It was suggested that the state could easily save nearly Rs 5,000 crore if it subsidises only the small and marginal farmers. The marginal farmers (having up to 2.5 acres of land) in Punjab have 89,212 tubewells, cost the state Rs 400 crore in power subsidy.

Similarly, small farmers, having 2.5-5 acre landholdings, have 1.60 lakh tubewells and use free power worth Rs 720 crore. The semi-medium farmers (landholdings between 5 acres to 10 acres) have 3.41 lakh tubewells and cost the state exchequer Rs 1,553 crore.

The medium farmers (between 10 acres to 25 acres) have 5.22 lakh tubewells and government supplies them free power worth Rs 2,342 crore. The 2.37 lakh tubewells that large farmers (25 acres and above) run costs the exchequer Rs 1,065 crore.

The Finance Department has also recommended that the subsidy should not be given to former and current holders of constitutional posts, ministers, MPs, Rajya Sabha, all serving and retired employees, all income tax payees, professionals like doctors, engineers, lawyers, and chartered accountants. But nothing came of that meeting.

Similarly, of the Rs 1,500 crore annual subsidy given to the industry, Rs 1,140.96 crore goes to big units. The government, in a recent notification, withdrew subsidy from SCs, who pay income tax.

CAPITAL EXPENDITURE

The state could only spend Rs 2,412 crore on capital projects during 2018-2019 fiscal when virtually no development could take place in the state. Even the development projects started by previous SAD-BJP government, were stalled as the Congress accused the predecessors of fiscal profligacy. Neighbouring Himachal Pradesh, which has a smaller budget, comparatively had capex of Rs 3,756 crore during 2017-18 as compared to Punjab's Rs 2,352 crore.

The Punjab government has now set aside Rs 10,000 crore for capital expenditure. The government believes that increasing capex boost the state's economy and would lead to an increase in tax revenue.

DEBT WAIVER

Having come to power on the promise of providing a debt waiver to the state farmers, the government has paid Rs 4,700 crore to farmers as of now and has set aside Rs 2,000 crore in the current fiscal. But the amount is considered minuscule as according to State Level Bankers

Committee (SLBC), the state farmers had a debt of Rs 69,000 crore till March 2017. Though the waiver burnt a hole in the pocket of the state exchequer it is often debated that it did not serve much of the purpose. Various experts have frowned at the waiver and it is argued that the government should have spent this money on diversification rather than waiving off term loans.

SALARIES

Often frowned at for being a major drain on the state resources, the state's salary bill is set to rise to Rs 27,639 crore and the pensions would be worth Rs 12,267 crore. The government has now committed itself to implements the 6th pay commission as the elections are just two years away.

SAND MINING

Though the functionaries of the government privately agree that the sand mining business was worth Rs 5,000 crore in the state, the government has not been able to even make Rs 1,000 crore in a year.

During the 2019-20 fiscal, it recorded a revenue of Rs 306 crore, which is the maximum since 2007-08, the year the sand mining auction was started in the state. The reason behind the shortfall is pilferage in the form of illegal mining being backed by politicians. While the government records loss in revenue, the people are shelling sky-high prices for sand.

SMARTPHONES AND UNEMPLOYMENT ALLOWANCE

The government is ready to spend Rs 100 crore on smartphones to be given to youths in the state as a part of its pre-poll promise. This, while it has conveniently forgotten the promise of Rs 2500 per month as unemployment allowance. Experts see this as an example of misplaced priorities.

SOCIAL SECURITY PENSION

It had promised before elections to increase the social security pension to Rs 1,500 per month. The government in this year enhanced the pension from Rs 500 to Rs 750, but could not increase it further due to paucity of funds.

ADDITIONAL BORROWING

The state government decided to amend the Punjab Fiscal Responsibility and Budget Management (FRBM) Act, 2003, to allow for an additional borrowing of Rs 928 crore in 2019-20 over and above its net borrowing ceiling of 3 per cent of the Gross State Domestic Product (GSDP).

UNFULFILLED PROMISES

Another pre-poll promise of the government that remains unfulfilled is providing free tea leaves and sugar along with atta-dal scheme. Though the Congress government has not been able to provide dal to the BPL families and has been providing wheat alone, the tea and sugar promise appears far-fetched.

SOME SILVER LINING: NO DOUBLE OVERDRAFT

In an achievement, the state's treasury did not go into double overdraft for a single day in the last three years. The RBI had shut down the treasury of the state in March 2017, for the state being in a double overdraft for more than five days.

Ever since, the government has been able to avoid this situation. Finance Minister Manpreet Singh Badal owes it to fiscal prudence and better management of funds.

BETTER GSDP

During 2019-20, the GSDP of the state has increased from Rs 5,21,861 crore in 2018-19 to Rs 5,74,760 crore at current prices. This is better than the national average. The per capita income of the state has also increased from Rs 1,54,996 in 2018-19 to Rs 1,66,830 in 2019-20 and is 23.53 per cent higher than the national average of Rs 1,35,050.

TRR

The state's Total Revenue Receipts (TRR) are estimated to rise from Rs 73,975 crore in 2019-20 (RE) to Rs 88,004 crore in 2020-21 (BE), an increase of 18.96 per cent. During the same period, the Own Tax Revenue (OTR) is pegged to grow from Rs. 33,739 crore in 2019-20 (RE) to Rs. 35,824 crore in 2020-21 (BE).

Deficits down, no pending payments: Manpreet Badal

Punjab Finance Minister speaks to KANCHAN VASDEV on improving the state's fiscal health and managing debt.

How do you look at the financial situation in Punjab after having completed three years?

We are back on track. Our deficits have gone down, there are no pending payments. When he had taken over, there were pending bills worth Rs 7700 crore left by our predecessors. The RBI had closed down our treasury as it was in a double overdraft. Now, we do not have any funding gap. By the end of our four years, we would have pending bills worth Rs 2500 crore only. We have cleared all the bills up to March 6 including the retiral benefits. This has happened for the first time after many years that not a single retiral benefit is pending.

Our budgetary outlay is better than Haryana after a decade. Our debt is well within the FRBM limits. It is the outcome of three long years of very hard work, and lot of fiscal prudence. Punjab’s GSDP is better than the national average now. The industrial activity has picked up. The consumption of electricity by industry has increased by 17 per cent. This is a good report card.

Two months ago, you were saying Punjab was set to face an emergency as the Centre was not paying GST compensation? What magic wand changed things so fast?

Those are the standard threats to the departments. We have been tight-fisted. We have been asking them to give us the accounts of allocated budgets and their spending.

The debt has also gone up by Rs 40,000 crore in last three years. How do you look at that?

There is not a single state which is not under debt. We are well within the FRBM range of 3 per cent of GSDP. By the end of our fourth year, the debt would have gone up by Rs 66,000 crore. But during the previous SAD-BJP government’s last two years, the debt had gone up by Rs 70,000 crore. It has been a steady improvement for Punjab.

Why has the government not been able to fulfil all promises yet?

Only a few promises like an allowance of Rs 2500 per month for unemployed have not been fulfiled. It is a choice to make. If you open up 40 new ITI s in that money, and increase your budget by 20 times for skill development, what is better? The budget for skill development has gone up by 20 times from the Akalis' regime.

Opposition’s views

‘We are having to borrow money to pay off debts’

"The debt is increasing. We are borrowing money to pay off the debt. I think in two years Punjab would be the top state in Asia to have maximum debt. It seems these people will then put the people of the state on sale and sell the manpower to other countries to pay off the debt.."

"Manpreet Badal, despite being the Finance Minister for eight years, four years in Badal government also, has worsened the state of affairs. It is from their own confession that the debt is set to touch Rs 2.48 lakh crore next year. But if you calculate the debt on other departments, it would turn out to be Rs 6 lakh crore."

— Harpal Cheema, Leader of Opposition in Punjab Assembly

‘People have been cheated, central funds diverted’

"Revenue – both from own tax and non-tax sources -- has slipped drastically because of laxity in revenue collection as well as free hand given to liquor and mining syndicates run by Congress leaders to rob the state treasury. The debt has increased by 9 per cent in one year from Rs 2.28 lakh crore to Rs 2.48 lakh crore even as there is a dip in the GSDP also. Congress government has decided to reduce grants to local bodies and Panchayati Raj institutions by 33% besides earmarking only 2.2% of the budget on rural development. Everyone has been cheated. Even the paltry Rs 3,000 crore for farm waiver last year has not been released. Central share of Government of India schemes has been diverted."

— SAD president Sukhbir Singh Badal