Financial stress: Let's face the hard facts
There are two ways to describe opinionated views. One is to dub them wrong or hold them right, and other is to consider them as alternative viewpoints. No worthwhile policy can be framed based on only one line of thought. Effective policies based on field realities can be sifted out only through considering alternatives and different viewpoints. SS Johl writes.punjab Updated: Oct 02, 2013 09:34 IST
There are two ways to describe opinionated views. One is to dub them wrong or hold them right, and other is to consider them as alternative viewpoints. No worthwhile policy can be framed based on only one line of thought. Effective policies based on field realities can be sifted out only through considering alternatives and different viewpoints. Economics is nothing more than a search for commonsense optimal solutions of the economic problems faced by society within the parameters of available limited resources and achievable multiple socio-economic and politico-cultural objectives. There are quite a number of serious professionals engaged in this search as well as howlers too claiming expertise among all categories of individuals, including economists and journalists.
While the serious critics serve as eyes and ears for the policymakers, the howlers often do more harm than good to their masters. Politicians and their chosen advisers who are often rendered colour-blind are made to see only one side of the coin. Yet, high-pitch verbose crossfire does not serve any useful purpose. Facts are facts. None of the grandiloquent jargons can hide the naked facts of financial stress on the state.
Genesis of problem
The problem of financial stress on state exchequers in the first place, not only in Punjab, but almost in all the states as well as the Centre, started with partial implementation of recommendations of the Pay Commission of 1996, ignoring the very crucial recommendation of reducing the strength of government employees by one third.
Subsequent pay commissions also recommended exponential increases in salaries that in turn increased pension liabilities in not only the public sector, but also in semi-government and even autonomous organisations financed by the government. Some states such as West Bengal, Kerala and Punjab slipped into the red zone deeper, to a large extent because of their own vote-bank policies. The central government vote-bank policy of announcement of another pay commission before due date in view of the forthcoming parliamentary elections is going to be another sharp nail in the coffins of the economies of the Centre as well as states.
Public memory is short and is invariably taken advantage of by the political howlers. The sprawling rural roads infrastructure was developed way back by the S Lachhman Singh government. None of the governments of any hue after that have been able even to properly maintain this sprawling network. National highways in all the states are developed and maintained from the states' share in the national infrastructure development fund earmarked for the purpose. Yet the ruling politicians appropriate the credit to themselves with impunity.
As an example, the ruling party prior to the last state assembly elections inaugurated the four-lane road linking GT road with Ludhiana-Ferozepur road. Two years on, this road is far from complete. Before the previous assembly elections, the same political dispensation at that time had announced that the state would be made power surplus in three years. Yet, seven years on, power shortage is so acute that in this summer industries had to be closed three days a week and unscheduled cuts both in industrial and domestic sectors were a rule rather than exception.
Nowhere the farm sector got the promised eight-hour regular power supply during the growth period of kharif crops. Further, almost all major development projects in the cities are in a limbo. Sprawling infrastructure being adumbrated so loudly amounts to no less than misleading the public. Salaries and pensions are delayed for months and arrears are not being paid. Let us face the facts. Development never takes place through announcements with empty pockets.
Not so rosy
The financial situation in the state as presented by the finance minister to the finance commission does not support the rosy picture depicted by the ruling politicians and their advisers. The crucial facts are that salaries and wages alone account for 49.93% of the total revenue receipts of the state, pensions another 19.62%, interest 23.99% and subsidies 16.64%. These liabilities alone mount up to 110.18% of the total revenue receipts of the state. This means resorting to borrowings from the market to meet 10.18% excess of these revenue account liabilities alone. The result is that the state has direct debt liability of Rs 1,02,282 crore today. The sovereign guarantees given for the heavily losing state corporations are in addition. This direct debt liability was Rs 29,099 crore only in the year 2000-01. Since then the direct debt of the state has been increasing rapidly. Today, 90% of the state borrowings are used for debt servicing, leaving only 10% of the new borrowings that too are used up in meeting the revenue deficit.
The direct debt of the state today stands at 300% of the revenue receipts of the state and interest liability about 24% of the revenue receipts. No wonder the finance minister of the state has admitted that only 3.7% of the budget of the state is being used for investment on development projects. The state, inter alia, is begging for debt relief of Rs 21,149 crore from the Finance Commission along with a grant of Rs 3,000 crore for five years and 50% of the power subsidy provided by the state as vote-bank politics.
Fiscal deficit as percentage of GDP has been used for decades by the policymakers to justify the spendthrift and wasteful expenditure by their governments as if whole of the GDP belongs to government and debt can be easily retired out of it. It is no more than a spurious ratio being used for playing with the financial health of the state. Now the question is if the finances of the state are in good shape, why this low fiscal deficit/GDP ratio state is begging from a high fiscal/GDP ratio central government!
Admit the facts
There is a dire need to get out of the untenable denial mode and admit the dire facts that stare the state in the face and adopt corrective policies to put the state finances on a sound footing. It is unfortunate that the economist-haters are also using the same concepts like debt to SGDP ratio and fiscal deficit designed by economists to justify the financial delinquencies of their masters. One can understand the politicians resorting to such justification in a vitiated polity like ours, yet it is not expected of their learned advisers. The conscientious advisers are obligated to render rightful advice in the interest of the state even at the cost of being disliked by their political masters.