The Centre on Wednesday asked Punjab government to contain its rising expenditure, especially on free power, to bring the "deteriorating" fiscal position on the right track.
However, Punjab demanded a moratorium on the payment of small savings borrowings of about Rs 23,000 crore for five years in a bid to ease the "poor" fiscal situation of the state.
"The Centre has told us to bring down the expenditure on power subsidy, atta-dal scheme, losses of power utility," Punjab finance secretary Satish Chandra told PTI on Wednesday.
Union expenditure secretary Sumit Bose held a meeting with senior officials of Punjab finance department in Delhi on Wednesday to discuss the fiscal situation of the state.
The Centre had constituted a committee headed by the expenditure secretary to suggest how the fiscal situation of Punjab, West Bengal and Kerala could be improved.
The 13th finance commission had declared these three states as debt stressed states with their fiscal position turning bad.
Punjab has been facing a staggering debt to the tune of Rs 77,585 crore with over 70% revenue receipts being spent on payment of salaries, pension and debt servicing.
The state has been borrowing heavily for spending on development expenditure as fiscal sops like free power to farmers and subsidised atta-dal scheme has been draining the state's resources.
However, Chandra said that the expenditure secretary has found income generation of the state satisfactory.
The Punjab finance secretary said that the state government has demanded that the Centre should put a moratorium on the payment of principal and interest on small saving loans for five years.
"We have small saving borrowing of about Rs 23,000 crore and we want that a moratorium should be given on it," Chandra said.