The practice of the Centre doling out financial favours to political allies running state governments has been a norm for years. Both the Atal Bihari Vajpayee and Manmohan Singh regimes were compelled on many occasions to disregard fiscal prudence and indulge demanding allies owing to the weak coalitions they headed. No longer it seems. Union finance minister Arun Jaitley has taken an early, commendable step to buck this trend by sternly telling the Shiromani Akali Dal (SAD)-BJP government in Punjab, to get its finances in order. The Parkash Singh Badal government has been pushing for a generous financial package from the Centre and reportedly promised the public that the Narendra Modi government would be sending “truckloads of cash” to the state.
Mr Jaitley has instead — without committing himself to a package — written to the SAD government that it must rationalise its power subsidy, which is geared to keep farmers happy. He has also pointed out to Mr Badal that his government received substantial financial assistance during the UPA years, referring to `4,431 crore of central taxes that were devolved in 2013-14 in addition to other forms of assistance and loans.
This is exactly the sort of firm messaging that Mr Badal needs. The veteran leader has a shrewd acumen for winning elections but has not been able to translate that into sound economic policy. The state’s finances have been in dire straits for years owing to poor tax collection, high subsidies and huge commitments to salaries and pensions. Punjab has, as a result, been unable to make the key investments in infrastructure that other states have to take advantage of the services revolution. Power shortages are endemic while land prices are prohibitively high since agriculture remains a key component of the economy. This has caused a flight of capital to neighbouring states like Himachal Pradesh that offer attractive tax breaks and improved infrastructure. Punjab needs to make tough decisions to revive its economy. Mr Jaitley has done it a favour by focusing on the thorny issue of subsidies. By referring to instances of previous assistance, he has also obliquely raised pertinent questions about the Badal government’s handling of finances.