Raise money from public to reduce debt, Economists to Punjab
A report by three professors of economy says that the government should also seek seven years moratorium on debt repayment to get time for resuscitation, besides other measures
CHANDIGARH Raising concerns over Punjab spending 92% of loans it is raising into servicing accumulated debts, economists suggest that the state government should start a debt relief fund (DRF) seeking voluntary contributions from the people to pull the state out of the red.
In a letter to the government, the three economists have also suggested that the government should seek to set up a commission for suggesting Punjab’s fiscal improvement and also seek seven years moratorium on debt repayment to get time for resuscitation.
In a report based on research ‘Fiscal Policy Under Siege: Strategy for Making Punjab Debt Free’, compiled on Saturday, a team of three economists -- Lakhwinder Singh, a visiting professor, Institute for Human Development (IHD), New Delhi; Sukhwinder Singh former professor and consultant to Punjab Finance Commission, Chandigarh, and Kesar Singh Bhangoo, former Professor, Economics department, Punjabi University, asked the state government to take support of other political parties in the state and push for a debt relief package from the Centre.
Explaining the scenario of Punjab’s double debt trap, the economists brought on record that as per the three-year average, the state government has borrowed ₹35,201.87 crore annually. To service accumulated debt, it makes interest payments ₹18,209.8 crore plus repayment of principal ₹14,257.98 crore amounting to ₹32,467.78 crore.
“The net availability of the borrowed funds turns out to be ₹2,734.09 crore, which is just 7.8% of the total borrowings and the remaining 92.2% gets exhausted into servicing the accumulated debt,” said the report, adding that the fiscal policy of the state government has turned dysfunctional. It lacks the resources (capacity) to make a new capital investment, and the Reserve Bank of India (RBI) statistics say Punjab’s borrowing from various sources is 53.3% of the Gross State Domestic Product (GSDP).
“If we include the pending liabilities, non-guarantee loans and expected borrowings of the current fiscal year (2022-23) by the Punjab government, the total accumulated debt at the end of March 2023 will be exceeding ₹3.80 lakh crore and comparing it with other states, Punjab state has highest debt-GSDP ratio,” the report highlights.
This current scenario began in 1984-85 when the state witnessed a revenue deficit for the first time and the governments since then have borrowed beyond the means and added to the accumulation of debt and the present (Bhagwant Mann government of the Aam Aadmi Party) government is following the suit, adds the report.
The present government incurred a revenue deficit of ₹15,348.55 crore in the first nine months in the government, against its own revenue deficit target of ₹12,553.80 crore for the year 2022-23.
“Punjab government should set up a commission to find out viable options to reduce the debt burden to at least one half; set up a debt relief fund (DRF) issuing an appeal to all the citizens to voluntarily contribute making a provision for tax exemption and fund be utilized for reducing debt burden; the government can float bonds to raise funds and develop a consensus with the among all the political parties to push for a debt relief package with the Centre,” the economists suggested.
Furthermore, it is suggested that the Punjab government can seek a moratorium on debt which will stop the debt payment and halt interest charged on the accumulated debt. “It is our opinion that multiple options suggested need to be worked out in fine detail and placed before the public to build a favourable opinion for converting it into policy actions,” said Lakhwinder Singh.