The economic situation in Punjab is so dire that the Aam Aadmi Party government in the state is advocating a moratorium on loan repayment for five years. Even so, Punjab CM Bhagwant Mann has been indulging in profligacy as reports suggest he is busy acquiring a new aircraft for welcoming the party supremo Arvind Kejriwal. The extravagance is underway even as a significant portion of Punjab’s budget is directed towards servicing old loans.
Both Congress and AAP are equally responsible for the economic crisis facing Punjab. While Congress holds the blame for pushing the state’s fragile economy into the ICU, the Aam Aadmi Party government has put it on ventilator support. Punjab is the country’s sole large state with a debt burden exceeding 50% of its economy.
Despite the substantial debt encumbering the day-to-day operations of the Punjab government, the AAP administration has shown little inclination to revise its policies. The government persistently offers freebies, further straining an economy already pushed to its limits. Whether it be the free electricity initiative or the provision of complimentary bus rides, AAP remains steadfast in its approach.
What is the current economic condition of Punjab?
Punjab, which was once considered one of the most prosperous states in the country, is currently burdened with a debt of approximately ₹3.40 lakh crore, a report recently published said. This debt accounts for more than 50% of Punjab’s total economy. The total size of Punjab’s economy was around ₹6.29 lakh crore in the fiscal year 2022-23. There was a change in power in Punjab in 2022, with the Aam Aadmi Party (AAP) coming into government.
In the period between 2017 to 2022, Congress was in power in Punjab. During this term, the Congress government accumulated new debts of about ₹1 lakh crore to the state. Subsequently, the AAP government, which came into power in March 2022, added approximately ₹50,000 crore of new debt to Punjab by the end of 2023.
It is worth noting that the recent astronomical rise in Punjab’s debt cannot be attributed to significant developmental projects in the state. A chief concern is that more than 50 per cent of Punjab’s Gross State Domestic Product is saddled by debt. Additionally, in the financial year 2022-23, the state’s fiscal deficit (the gap between the government’s revenue and expenditure) was 5.2% of its GDP. The government is spending more than it is earning, exacerbating the financial challenges faced by Punjab.
Taking debt to pay off old debts
The staggering amount of debt on Punjab has a cascading effect on its ability to repay loans. The Punjab government has drawn new loans to repay old debts, exacerbating the state’s economic woes. According to a report, since coming to power, the AAP government in Punjab has taken a loan of ₹47,000 crores, of which ₹27,000 crores have been utilised to pay off the interests on existing debts and the principal amount.
In the fiscal year 2022-23, the Punjab government allocated ₹20,100 crores to pay off the interest on old debts. Additionally, ₹15,146 crores were used to repay the principal amount of old debts. This means that in the fiscal year 2022-23, the AAP government not only paid off the actual loan but also had to cover more in interest payments. This trend does not seem to be changing shortly.
In the fiscal year 2023-24, the AAP government in Punjab is expected to spend approximately ₹22,000 crores on the interest of old debts and around ₹16,000 crores to repay the actual principal amount. If attention is not given to economic reforms and unnecessary expenditures in Punjab, its debt is likely to surpass ₹4 lakh crores soon.
Amidst scarce income and plentiful expenditure, the AAP govt continues to promise freebies
Instead of focusing on improving the state’s economy, the government is pushing it down a debt spiral. The AAP government-formulated policies are wreaking havoc on the economy. When AAP came to power in 2022, they promised to provide 300 units of free electricity to every household in the state. AAP also pledged free bus rides for women.
According to the Punjab State Electricity Regulatory Commission, the AAP government in Punjab will have to spend ₹18,714 crores in providing free electricity in 2022-23. Out of this, ₹8,809 crores will go towards providing free electricity to farmers, ₹5,886 crores for providing 300 units of electricity to families, and ₹1,427 crores for other expenses. In addition to this, providing free bus rides to women is also becoming a significant burden on the government.
The AAP government has incurred ₹550 crores in providing free bus travel for women in the state. Besides, the state government is considering several other schemes that will involve additional expenses. In a situation where a state is compelled to take loans continuously just to pay off debts, spending on promised freebies may not be a wise decision.
Even as Punjab staggers under the burden of debt, CM Bhagwant Mann goes for aircraft shopping
Even as Punjab staggers under the weight of ever-increasing debt, CM Bhagwant Mann has demonstrated little restraint in curtailing expenses and bringing his state’s economy in order. In August 2023, Chief Minister Bhagwant Mann invited tenders for the acquisition of a 10-seater aircraft.
This tender was floated even when the state already possesses a helicopter, which Chief Minister Bhagwant Mann routinely uses. There were allegations levelled that Arvind Kejriwal would be using the leased aircraft. When criticism of Bhagwant Mann’s government surfaced on Twitter, the tender was withdrawn. The Punjab Police even reportedly threatened an RTI activist for seeking details of the retracted tender.
The state government’s apathy and disinclination to ease Punjab’s economic stress is striking. CM Mann has been accused of spending time welcoming and hosting party members, including chief Arvind Kejriwal. Even when Kejriwal visited Punjab for meditation in December 2023, Bhagwant Mann was present there. Before this, Kejriwal visited Punjab almost every month.
Money received was not spent; instead, a moratorium on loan repayment was requested
The Punjab government consistently accuses the central government of not allowing it to take more loans. However, even with the funds provided by the central government, Punjab is struggling to spend it wisely.
Facing severe economic crises, the ‘Aam Aadmi Party’ (AAP) government in Punjab, which received ₹11,000 crores from the central government, has only managed to spend ₹3,000 crores in the nine months of the financial year 2023-24. Now, Chief Minister Bhagwant Mann has directed his officials to come up with strategies that would prevent the need to return the money to the central government.
On one hand, where it is unable to spend the money it received, on the other hand, it vigorously insists that it should not be required to repay any kind of debt for the next five years. In a letter to the Punjab Governor Banwari Lal Purohit in October 2023, Chief Minister Bhagwant Mann urged him to persuade the Modi government for a moratorium on debts from Punjab for five years.
What should be the ideal situation?
The current level of debt on Punjab is not reasonable from any perspective. Moreover, its fiscal deficit exceeds the norms set by financial management laws. Laws formulated in the country regarding the financial management of states, such as the Fiscal Responsibility and Budget Management Act (FRBM Act), dictate that a state’s debt should not exceed 20% of its total GDP.
In certain cases, a provision is made to allow a maximum of 25% with exemptions. Punjab’s debt is 50% of its GSDP, and there are no signs of abatement. Furthermore, concerning fiscal deficits, it should be capped at 3% of the GSDP as per the FRBM Act, but in Punjab, it stands at 5.2%. Despite these regulations, the Punjab government does not seem to make any efforts to reduce these figures.