Populism above prudence
Chief minister Parkash Singh Badal and his party, the Shiromani Akali Dal (SAD), had gone out all guns blazing against the Congress in the run-up to the 2007 assembly elections, blaming it for the fiscal mess in the state.
They had made the right noises about pulling the government out of financial morass by putting the economy back on track. But there has not been much change in the narrative during the SAD-BJP rule of nine years. The state finances are in a mess, owing to the high salary and pension bill of the government workforce, raising interest payments and ever-increasing subsidies, besides flagrant profligacy and the burden of revenue-guzzling populist doles.
The revenue receipts, which saw robust growth for two to three years during the tenure of the alliance due to value-added tax (VAT) and stamp duty, have failed to keep pace with the expenditure, falling short of targets. The biggest surge was in VAT and stamp duty, but the collections have been below expectations due to the economic slowdown.
The VAT collections, which saw a jump of 31% in one year alone, are estimated to grow by a minuscule 2% this year. On the other hand, the state’s committed liabilities such as salary and pension bill and interest payments have been growing, eating up bulk of its revenue receipts. The revenue deficit, which indicates the excess of revenue expenditure over the revenue receipts, is on upward trajectory again.
“The government has had to borrow liberally to meet its financial liabilities,” a government official said. The debt burden has gone up from Rs 48,344 crore in 2006-07 to Rs 1.25 lakh crore in 2015-16. Badal had, in a letter to Union finance minister Arun Jaitley on July 12, 2014, described the public debt as “humongous and unsustainable”, seeking a special package for the financial restructuring of the revenue-deficit state.
However, the FM, in his reply on August 19, 2014, made no commitment on the special package. He advised the state to consider routing receipts of the Punjab Infrastructure Development Fund and Rural Development Fund through its consolidated fund and rationalising power subsidy.
The government, in other words, was advised to adopt prudent financial practices. The fiscal stress has been affecting capital expenditure in the state. And, the government will need to get its act together and show fiscal discipline to salvage the situation.