With devolution of funds from the Centre to states set to jump by 10%, Punjab will be pegging its budget for 2015-16 on higher cash inflow. So while it will help finance minister Parminder Singh Dhindsa to show better compliance to fiscal indicators — lower revenue and fiscal deficit — he is still a worried man.
The FM will will have to do the balancing act of allocating funds between important sectors, while also budgeting for unfulfilled poll promises and other subsidies of the Badal government.
Before he presents his budget on Wednesday, here’s a list of Dhindsa’s main challenges, both as he sees them and also in the eyes of economist Sucha Singh Gill and former FM Manpreet Badal.
1. Revenue growth
“We have pegged the figures of revenue growth conservatively this year. But we need to generate more revenue to rein in our revenue and fiscal deficit,” Dhindsa says. However, former FM Manpreet Badal says the Punjab budget every year gives inflated projections of revenue receipts and under-reports its revenue expenditure, including that on subsidies. “They commit mathematical suicide,” Manpreet says. Economist Sucha Singh Gill says Punjab is still lagging in tax collections. “The tax-to-GSDP (gross state domestic product) ratio of Punjab is still hovering around 7.5%,” he says. Punjab had pegged growth of 18. 27% in its tax receipts this year but it grew by just 7.66%. Dhindsa may scale down the revenue growth target to a realistic 10%.
2. Development expenditure
With high committed expenditure on salaries, pensions, subsidies and debt servicing, Punjab’s development expenditure has been a casualty. Dhindsa lists six sectors — agriculture, industry, education, health, infrastructure, and social security and welfare — as key areas. “We need to balance allocations among these six sectors,” he says. But Gill says the state has failed to boost industry, as investments are still not coming. “Agriculture should be the key area of concern. The state has been crying hoarse over diversification of agriculture, depletion of groundwater and erosion of its soil health. But it has never allocated enough funds towards its diversification agenda,” Gill says.
3. Poll promises
This is the biggest challenge for the Badal government as it completes three years of its second consecutive term. None of its flagship poll promises, be it laptops to school children or unemployment allowance to jobless youth, has been fulfilled. The promised hike in old-age and other pensions and the shagun schemes is still to be done. Funds permitting, Dhindsa may be tempted to announce funds for some of these promises. “If we allocate funds for the poll promises, we are blamed for prolificacy; and if we don’t, we are blamed for not fulfilling the promises. It is a no-win situation,” he says. But Manpreet asks where is the money for the promises. “The coffers of Punjab are empty. It is borrowing every month to stay afloat,” he says.
4. Central schemes
While devolving more funds to the states as per recommendations of the 14th Finance Commission, the Union government has tightened its strings on central schemes. Punjab may have to shell out money from its kitty on some of the schemes which were so far 100% funded by the Centre. The state’s share in some other schemes may also go up. Gill says the state will have to take a call on which central schemes to continue, while Manpreet claims funds under several central schemes will either not come to the states at all or will be reduced drastically. Dhindsa says the budget for 2015-16 is still pegged on the figures of the previous years for central schemes, as they still don’t know how the sharing criteria between the Centre and states have changed. “But the untied funds to states will go up, improving our cash position,” Dhindsa adds.
5. curtailing debt
With the 14th Finance Commission not considering Punjab among debt-stressed states, it may not get a bailout package from Union finance minister Arun Jaitley. To curtail revenue deficit, Dhindsa will also have to bring down the debt-to-GSDP ratio, as high debt leads to higher deficit. Manpreet says Punjab has failed to get relief from a “friendly” government at the Centre. “Punjab made its case before the 14th FC; now it will have to wait till 2020 when the next finance commission gives its report,” he says. But Dhindsa contends that the commission has not given any recommendation on debt but only not categoris-ed Punjab among revenue-deficit states.