The AAP’s economic challenge in Punjab

Freebies and mounting debt may prove costly for the State and AAP

Updated - September 30, 2022 12:01 pm IST

Published - September 28, 2022 12:15 am IST

A farm near Bhawanigarh town of Sangrur district in Punjab. Free power is provided for irrigation borewells to farmers in Punjab. File

A farm near Bhawanigarh town of Sangrur district in Punjab. Free power is provided for irrigation borewells to farmers in Punjab. File | Photo Credit: The Hindu

Earlier this month, the Aam Aadmi Party (AAP)-led Punjab government failed to pay salaries to its employees on time. This led to questions on financial prudence and, specifically, the AAP’s pre-poll promises of providing ‘freebies’.

The AAP government has completed six months in Punjab. The government began giving 300 units of free electricity to every household from July 1, which is expected to place an additional burden of ₹1,800 crore on the State exchequer. As per the State’s annual budget, a total power subsidy bill of ₹15,845 crore has been proposed compared to the ₹13,443 crore in 2021-22. One of the AAP’s key pre-poll promises, of giving financial assistance of ₹1,000 to all women aged 18 and above every month, is yet to be implemented. There are close to one crore women voters in Punjab. This means the cost of fulfilling this promise would amount to some ₹12,000 crore per annum.

Also read | Opposition tears into AAP’s six-month rule in Punjab

The salaries of government employees were delayed by a week for August. Usually, government employees receive salaries by the first of every month for the previous month. Sources said a reason for the delay could be that the five-year compensation for States under the GST regime has ended. During the last financial year, Punjab received around ₹15,000 crore in GST compensation from the Centre.

On September 7, soon after government employees warned that they would go on strike if payment of salaries was delayed any further, the Punjab government released about ₹3,400 crore and paid salaries to Class A and Class B employees. Class C and Class D employees were paid the previous day. Finance Minister Harpal Singh Cheema said salaries were delayed as the State was gearing up for the revival of the special drawing facility.

Punjab’s 2022-23 budget shows that the effective outstanding debt of the State stood at ₹2.63 lakh crore (45.88% of GSDP). In addition, State agencies, State-level undertakings, boards, and corporations have a debt of close to ₹55,000 crore, of which about ₹22,250 crore has been guaranteed by the State government. A white paper brought out by the current government after coming to power stated that the debt indicators of the State are probably the worst in the country. Mr. Cheema said Punjab was reeling under a financial mess when the AAP came to power, but now the government is doing everything it can to improve the financial health of the State while also fulfilling its promises to the people.

According to the State budget, the government is expecting the State’s revenue receipts in 2022-23 to increase by 17.08% compared to 2021-22, contributing ₹95,378 crore to the State exchequer, with new policies, including the excise policy. It also expects a buoyancy of about 27% in GST collections in FY 2022-23 by plugging loopholes in GST collections, which would add some ₹4,350 crore more to the State’s kitty. But the State’s earnings are proposed at ₹95,378 crore against an expenditure of ₹1,55,860 crore.

Economists say there seems to be no road map to revive the State’s economy. “If we take into account all the subsidies and freebies and committed expenditures, debt servicing, the interest payments, free electricity, the free bus service for women (during the Congress regime), etc., it consumes 116% of the budgeted revenue. Last year, the budgeted revenue was ₹95,000 crore and collection was ₹78,000 crore. Even if this government collects ₹95,378 crore, which is next to impossible, subsidies will still consume 116% of the revenue,” said Ranjit Singh Ghuman, Professor of eminence (Economics) at Guru Nanak Dev University, Amritsar.

The government has also refrained from imposing new taxes. In the budget, it has proposed to raise loans to the tune of ₹35,000 crore in the ongoing financial year. The government is meeting the current account expenditure by taking loans; it is repaying loans and interests by taking loans; and also paying for freebies by taking loans. It is clear that Punjab is being pushed deeper and deeper into a debt trap.

Senior government officials asserted that while there is no immediate cause for concern regarding finances, in the long run there is bound to be anxiety given the increasing number of ‘freebies’ and the debt position of the State. The sixth Punjab Finance Commission report, submitted in March, pointed out that a plethora of election promises will further aggravate the crisis, and impair governance and economic growth. While the debt may not be the AAP’s contribution alone, the lack of serious reforms may prove costly for the State and for the AAP.

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