Successive govts to blame for fiscal mess | punjab | Hindustan Times
Today in New Delhi, India
Sep 25, 2017-Monday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Successive govts to blame for fiscal mess

In recent weeks, we have been witness to a cacophonous debate in the print media over the state of Punjab's economy and finances. The ball was set rolling by the state government by holding a press conference on September 9 with a view to dispel the "wrong" perception about Punjab being financially bankrupt, debt-ridden and in the negative growth trajectory. KR Lakhanpal writes.

punjab Updated: Oct 05, 2013 10:32 IST
KR Lakhanpal

In recent weeks, we have been witness to a cacophonous debate in the print media over the state of Punjab's economy and finances. The ball was set rolling by the state government by holding a press conference on September 9 with a view to dispel the "wrong" perception about Punjab being financially bankrupt, debt-ridden and in the negative growth trajectory.


By presenting a maze of statistical data, albeit without a reference point and torn out of context, the government wished to nail the "lie" and assure the people that Punjab has a throbbing economy and is in the pink of financial health. This is nothing short of statistical voodoo. The government is free to delude itself into such a belief, but in the process, has also spawned some outlandish sermons on development economics. These include insulating the state's development from its empty treasury, "a poor government can create a rich state", "productive utilisation of debt is always not bad", and "no business, no state and no country grows without debt."

Ground reality

This flight of fancy ran aground only after a few days, when the government presented its case for a generous financial help to the 14th Finance Commission during the latter's visit to Chandigarh. The government's memorandum to the commission, inter alia, incorporates that:

1) The state's economy has stagnated in the past decade, which demands substantial public investment to move towards a high growth path.

2) Although Punjab has been able to reduce the debt-to-GSDP (gross state domestic product) ratio and interest-to-revenue receipt ratio in the past decade, these remain higher than safe threshold limits.

3) Committed expenditure constitutes a significant chunk of the total expenditure. High committed expenditure leaves insufficient funds for the creation of capital assets.

4) Debt sustainability concerns are still alive in Punjab. Nearly 90% of the fresh borrowings are used for servicing the old accumulated debt, leaving only 10% for development.

How does the utopia sold out to the media and the dystopia presented to the Finance Commission gel with each other could perhaps be a subject of an independent write-up. However, Punjab's economy and finances are worse than what they appear to be. The state has fallen off the high growth path and is now bracketed with the lowest growing states of the country. It has ceased to be the highest per-capita income state and now sits at the bottom half of the league table of states. Going by the projection made in the 12thFive-Year Plan, this trend is unlikely to reverse in the foreseeable future, given the fact that the country itself is in the midst of an economic slowdown.

Tip of the iceberg

The financial mess, as seen from the books, is only the tip of the iceberg. Successive governments have made rampant use of the art of book-cooking by fast-forwarding receipts, deferring liabilities, creating unfunded liabilities, raising off-budget loans and diversion and misuse of funds. In this context, it will be erroneous to measure the state's fiscal health in terms of debt-GDP (gross domestic product), fiscal deficit-GDP or revenue deficit-GDP ratios, for the state's GDP has no bearing either on its debt servicing or budget balancing capabilities.

These are just ploys deployed by the government's apologists to rationalise the mountains of debts and deficits accumulated by the government. It is estimated that if all above hidden liabilities are accounted for, the gap between the present value of future liabilities and the present revenues of the Punjab government would at least be Rs 25,000 crore. Bridging this gap requires either to raise all taxes by 60% or slash expenditure across the board by 50%. It's virtually an impossible task for any government.

Govt-made problems

Faced with a steep economic decline and a deep financial mess, if the incumbent governments of Punjab have attributed it to the prolonged period of terrorism, locational disadvantage, long and hostile border, adverse terms of trade for agriculture and outright discrimination against the state by the Centre, the Opposition has always held the incumbent government solely responsible for the same. The truth is far from it, and that is, for the past 30 years, governments of all hues are responsible for Punjab's current predicament. We cannot change our geography or geology.

Else, how do you explain Punjab being the fastest growing and the highest per-capita income state for two-and-a-half decades in the run-up to the mid-1990s, despite suffering from the same disadvantages? Punjab's earlier rise and current decline are not providentially ordained. The growth period was preceded by the state's pursuit of big ideas. To name a few, the Chandigarh capital project, Bhakra Dam, consolidation of holdings, Punjab Agricultural University, rural road connectivity and total electrification. During the past 30 years, the state has seen no such big idea that measures on this scale. Instead, partisan, populist and no-holds-barred politics have been on the ascendancy. Therefore, the state's current economic and financial plight is man-, nay, government-made and the solution to this also lies there.
In this context, one is reminded of Britain's former prime minister Margaret Thatcher, who, for her election campaign of 1979, challenged the conventional wisdom about the UK and famously said, "Britain was a great country which seem(ed) to have lost its way." And so seems Punjab.