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Punjab's fiscal rot worse than it looks

Today, the Punjab government would present to the state legislature its budget for 2012-13. To say that the state's finances do not present a pretty picture would be a gross understatement. In fact, the government is stone-broke. KR Lakhanpal writes.

chandigarh Updated: Jun 20, 2012 16:28 IST

Today, the Punjab government would present to the state legislature its budget for 2012-13. To say that the state's finances do not present a pretty picture would be a gross understatement. In fact, the government is stone-broke.

What is more worrying is that it's even worse than it looks. This is because governments in our country are known for keeping ugly reality under wraps and disclose as little as possible. In a recent write-up on the subject in the London Economist, titled 'Book-cooking Guide', it is observed that, "Politicians have a huge leeway in drawing up and presenting their budgets."

Let's look at Punjab's picture in terms of some important fiscal indicators and their unidirectional and unabated movement into the negative trajectory.

Punjab's financial decline started in 1987-88, when it turned into a revenue-deficit state. Till 1986-87, it was a revenue-surplus state. At the root of the structural imbalance is a yawning gap between the state's revenue and its expenditure, which has now assumed menacing proportions. This is the result of the state government living beyond its means for almost 25 years. The gap has been filled by resorting to borrowings, culminating in a mountain of unsustainable debt. This vicious cycle of revenue-expenditure mismatch, to be filled up by ever-increasing borrowings, has now become self-propelling.

Even by its own books, Punjab's fiscal indicators are perhaps the most horrible of all states in the country. No wonder the state's financial bankruptcy has now started translating into its economic decline.

As per the latest estimates presented to the Planning Commission, while seeking approval to the state's Annual Plan 2012-13, the total revenue receipts for 2011-12 have been estimated at Rs 26,110 crore, while committed expenditure on salaries and wages, pensions, interest and power subsidy alone adds up to Rs 28,802 crore, leaving a gap of Rs 2,692 crore. Also committed are old age and other pensions at Rs 1,350 crore, Atta Dal subsidy of about Rs 500 crore, and pay arrears worth Rs 1,500 crore. Power subsidy is now hovering around Rs 6,000 crore. These will enlarge this gap by another around Rs 5,000 crore.

Thus, the government is required to make up a gap of Rs 20 crore every day on this count alone, before doing anything else. If all these items are factored in, revenue deficit is likely to be over Rs 9,000 crore and fiscal deficit of about Rs 13,000 crore during 2011-12, up from the budgeted Rs 3,379 crore and Rs 8,923 crore, respectively. Shrinking government revenues, because of the economic slowdown and ever-increasing committed expenditure and implementation of the new promises made during the January 30 assembly elections, would make things much worse for the government in the following years. The public debt is also likely to shoot up to Rs 90,000 crore from the estimated Rs 77,585 crore.

Now, let's look at the book-cooking part. The article in the Economist also lists the ways in which governments window-dress their budgets. The simplest ways are to push spending into the future (deferred liabilities); hidden borrowings through public sector undertakings (PSU's) overestimating receipts and underestimating expenditure, as no one asks about the actuals fast-forward the revenue by selling assets and rights to future cash flows and exaggerate receivables by making doubtful claims. One is struck by the similarity in the ways the books are dressed up by governments at home and abroad.

The state's books beg for a thorough clean-up before we can think of ways and means to come out of this deep hole. For this to happen, the incumbent government must bring out a White Paper on the true state of the state's finances, not by making fanciful projections in the budget-cum-revised-cum-latest estimates, but with reference to the actual accounts, which in a preliminary form, might already have been received from the Comptroller and Auditor General (CAG), and place the same in the Vidhan Sabha, along with a roadmap for course correction.

The onus of building a bi-partisan consensus over the corrective measures to be taken jointly falls on the ruling party and the Opposition. Failing this, the ensuing budget will be no more than a ritual. Sadly, it would be yet another missed opportunity for Punjab.

The writer, a former chief secretary, Punjab, can be contacted at

First Published: Jun 20, 2012 16:12 IST