Finance commission rejects Punjab’s case for debt relief

  • Pawan Sharma, Hindustan Times, Chandigarh
  • Updated: Feb 28, 2015 08:56 IST

Dashing Punjab’s hopes for a “special debt-relief package” from the Centre, the 14th finance commission has rejected the border state’s much-argued case of being a debt-stressed one — a development that has dealt a blow to the SAD-BJP coalition government that had been desperately seeking a major financial relief from the Narendra Modi government.

While the commission declined Punjab’s case for a financial bailout despite its “higher outstanding debt”, the central panel included Kerala and West Bengal — the two other states identified as debt-stressed — with 11 states of the North East and hill states that have been recommended for a considerable compensation, top government sources said.

Punjab was pinning hopes on a debt-relief package as the Congress-led UPA had constituted a committee under the chairmanship of the union secretary (expenditure) to explore ways to assist Punjab along with Kerala and West Bengal in getting out of their fiscal distress as the three states had been identified as debt-stressed.

Power subsidy weakened case

Alarmed by the recommendations, chief minister Parkash Singh Badal and his deputy Sukhbir Singh Badal met finance minister Arun Jaitley and took up the matter. Sukhbir reportedly told Jaitley that Punjab could not be left out from the bailout package and that state should be adequately compensated for exploiting its resources to ensure food security of the country.

The Centre has also reportedly taken the plea that Punjab’s case for debt-relief package was weakened by the fact that the state was giving substantive power subsidy to the farm sector.

“The top political leadership has taken up this matter with Jaitley with the force it deserved. We have been left out, while Kerala and West Bengal have been compensated. The commission has taken the plea that Punjab is not a debt-stressed state as its revenue growth is high. The government is again going to flag this issue with the Centre,” a top political functionary of the ruling Akali Dal told Hindustan Times.

Why penalise fiscal management?

When the finance commission panel led by Dr YY Reddy visited Punjab a year ago, the Parkash Singh Badal government had pleaded that the state was in a “kind of vicious cycle of debt” where it was “borrowing to service debt obligations”.

But the commission, which made recommendations for 2015-20 regarding distribution of taxes between the Centre and the states, has removed Punjab from the debt-stressed bracket on the ground that the agrarian state is on the path of becoming a revenue-surplus one, Punjab’s top political and official sources said. Also, the commission has held that “any debt relief to debt-stressed states” could be construed as penalising the states that were prudent in fiscal management.

“We have also considered the scope and feasibility of debt relief, keeping in view the nature of outstanding debt obligations of states. In view of this, we find that the scope for rescheduling debt is very limited, compared to the past when previous commissions undertook such exercises,” the commission stated in its voluminous report submitted to the Centre.

While seeking a financial package, the state government had told the commission that servicing outstanding small savings loans of Rs 21,149 crore as on March 31, 2013, was beyond its capacity. “Therefore, the commission is requested to recommend debt relief grant of Rs 21,149 crore for 2015-20 to take care of the servicing of outstanding small savings loans,” Punjab had demanded.

Besides, the state government had requested the commission to “waive the outstanding central government debt to the extent of Rs 3,364 crore,” pleading that the commission can proportionately reduce the revenue deficit grant if it provides relief to the state by way of “providing debt relief grant”.

Referring to the 12th finance commission recommendation, the state government had pleaded that the commission had then defined states as debt-stressed when the interest payment/revenue receipts ratio was higher than 20%. “On this basis, Punjab is undoubtedly debt-stressed which requires special relief package,” Punjab had said.

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