Case for special package: Punjab must seek a package, not a packet

  • KR Lakhanpal, Hindustan Times
  • Updated: Jun 11, 2015 15:42 IST

Union Minister of State for Finance Jayant Sinha’s recent observation that a ‘prosperous’ Punjab doesn’t deserve a special financial package has triggered a huge debate.

In a web poll by Hindustan Times, 78% of respondents replied in the affirmative to the question: “Is the Centre justified in refusing such a package to Punjab?”

Now, the issue has been joined by chief minister Parkash Singh Badal, who has reportedly said: “Punjab is no longer a prosperous state and is rightfully demanding a special financial package.”

By way of amplification, the chief minister said the state government was seeking this package not as a concession, but as a right because:

a) Punjab fought nation’s war against militancy

b) Suffered a lot due to the discriminatory attitude of successive Congress governments at the Centre

c) Faced mass exodus of industry due to tax sops granted to the neighboring states by the Congress-led central government.

To set the record straight, it may be pointed out that there is no hard evidence to suggest that a discriminatory treatment was meted out to Punjab by the Centre. The tax incentives to the neighboring states were granted by the NDA government, in which the Akali Dal was duly represented by a Union Cabinet Minister.

Prolonged period of militancy was, of course, a big jolt to the social cohesion and economic prosperity of the state. But it should not be a handy alibi to explain the current socio-economic malaise afflicting the state. That calls for a serious soul- searching by the political class across the aisle.

Coming back to the special financial package for Punjab, the question to be asked is not whether the state deserves it or the Centre is right in refusing the same? The question is does Punjab need a special grant to pull itself out of the current economic mess and what will it take, on the part of the state government, to make it succeed?

Reeling under economic mess

Since the mid-90s, Punjab has been on an economic downslide. Not only it is one of the least growing states, it has come down to the ninth position in per capita terms. Failing to achieve its fiscal targets mandated by the Fiscal Responsibility and Budget Management Act, the government has resorted to repeated amendments to the law, rather than striving hard to improve its financial situation.

The revenue receipts barely suffice to meet the committed liabilities in respect of salaries, pensions and debt-servicing charges, leaving virtually nothing to be invested in the future growth. Revenue deficit is over 80% of the fiscal deficit. Simply put, it means that out of every rupee that the government borrows, 80 paisa are spent on current consumption. Consequently, debt burden has ballooned to a staggering Rs 1.13 lakh crore. If contingent liabilities, deferred liabilities and off-budget borrowings are added to this, the government is really broke. No wonder, it’s capital expenditure is not even 1% of its gross domestic product (GDP).

Structurally, state’s economy continues to be agrarian, with farmers contributing over 20% to the GDP as against 14% at the national level. At the same time, nearly 50% of the workforce continues to depend on agriculture. Due to the operation of the law of diminishing returns, agriculture is no longer profitable. Ever increasing minimum support price (MSP), free water and power and subsidised fertilisers are of little help to a vast majority of farmers. The next generation farming requires huge investment.

Punjab cities lack infrastructure, amenities

By 2050, more than 50% of the state’s population would be forced to move to cities in search of better economic prospects. Cities and towns are going to emerge as engines of growth. However, our cities suffer from derelict infrastructure and deplorable civic amenities. After Chandigarh, Punjab has not built a single new city or an urban corridor, largely because of lack of futuristic planning and financial constraints.

Micro, small and medium enterprises (MSMEs) were once the industrial backbone of the state. Due to globalisation, rising input costs, obsolete technologies and inadequate credit, they have lost their competitive advantage, even to the domestic firms. Revitalising these units means a huge investment by the state.

Despite being relatively prosperous, Punjabis have not enjoyed better education, nutrition and health facilities as compared to other states. Unfortunately, Punjab has the dubious distinction of not having even one top university, professional college, school or hospital in the country.

State requires huge investment

The foregoing analysis underscores not only the state’s need for massive investments in various sectors, which is matched by its inability to finance the same, but also mirrors the persistent bad governance, it has suffered for more than a generation now.

Therefore, one could easily argue that, the state government has been sowing the wind and should, now, reap the whirlwind. But this would be a bloody argument. For, it would punish the people of Punjab for the acts of omission and commission of their governments.

Thus, the drift of this article’s argument is that Punjab definitely and direly needs a financial package to create necessary headroom to enable it to set its house in order and to invest in its future development. The details of the package and attending conditions with monitorable milestones could be jointly worked out by the two governments. But what will it take, on the part of the state government, to make a success of it, is far more vital than the package itself. Failing this, it would be yet another bailout to be periodically repeated, contingent upon unfolding political realities.

Long, hard road to recovery

Regarding the deep-rooted economic malaise the state is suffering from, the road to recovery is bound to be long, hard and narrow and also away from the competitive populism it has been long used to.

The following suggestions are going to certainly help.

Disclose the true picture of the state’s economy andit’s finances and acknowledge the deep economic decline.

Initiate a public debate on the subject and draw up a roadmap spanning over 10 years to restore fiscal balance and push the state’s growth trajectory above the national average.
Spell out what will it take to implement the roadmap and build political consensus on the measures to be adopted.
Put in place an independent monitoring mechanism and make mid-course corrections as and when required.
Vastly improve the quality of public expenditure by ruthlessly curbing waste, sloth and corruption.
Embrace best governance practices and create a dynamic idea bank.
Most importantly, restore the rule of law rather than the rule of the rulers.

To conclude, the state government should seek a financial package and not a packet. Such a package must incorporate a 10-year roadmap to restore the fiscal balance and to push the state’s growth trajectory at least above the national average, with monitorable milestones and an independent oversight by a professional body.

Writer's email:

(The writer is a former chief secretary of Punjab)

Tomorrow: Manpreet Singh Badal, former finance minister and People’s Party of Punjab president

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