The power subsidy bill of the state has risen to Rs 5,785 crore. The state’s revenue deficit, according to revised estimates, for the year 2012-13 was Rs 4,758 crore. The state’s outstanding debt was Rs 92,404 crore in 2012-13, and is expected to be Rs 1,01,959 crore by the end of this fiscal. With Punjab having failed to increase its tax to GSDP ratio by increasing its taxes, it will be an uphill task for the state to bring down its revenue deficit. This would mean that the state’s dependence on the market borrowings would increase, and since it has been a revenue deficit state for long now, the rate of interest Punjab pays for auctioning its state development loans, is very high, thus making the servicing of debt more expensive.
These were the views expressed by economists from across the state, during a workshop organised by the Economics Department of Punjab University, here today. The workshop was inaugurated by PU Vice Chancellor, Dr Arun K Grover. Since the Department of Economics has been engaged by the 14th Finance Commission to evaluate the state of finances of Punjab, with Dr Upinder Sawhney as its lead researcher, the workshop was conducted to elicit views of the academia on issues afflicting the state of finances of Punjab. Economists from the three state universities - Panjab University, Punjab Agricultural University and Punjabi University, deliberated on what had gone wrong in policy making and how it could be rectified, so as to bring the state’s economy back on rails. Dr Sawhney told The Tribune that the outcome of this workshop would be incorporated in the report to be submitted to the Finance Commission in September.
The economists, including Prof Tapas Sen from the National Institute of Public Finance and Policy, warned that the state has the second highest level of interest payments on its loans, after West Bengal. Punjab was now beginning to see the negative impact as its relative growth was below the national growth. Though these economists were of the view that farm subsidy doled out to farmers was unproductive as it had not helped increase production or increase the primary sector’s contribution to the GSDP (gross state domestic product), it cannot be immediately withdrawn as it would adversely impact the farm profits. Though there was consensus that the subsidy should be withdrawn from the large farmers (having over 10 hectares of land holding), who are the main beneficiaries of the power subsidy to agriculture, economists felt that a strategy needed to be adopted to do so gradually. Among other issues raised by the economists were the inequitable distribution of taxes between states and the Centre and the poor utilisation of centrally sponsored schemes in Punjab. These economists also felt that the Finance Commission should give a special package to Punjab, as its huge liabilities were mainly because of the security issues during the period of militancy.
Key issues
The state has the second highest level of interest payments on its loans
The power subsidy bill of the state has risen to Rs 5,785 crore
Subsidy doled out to farmers is unproductive as it had not helped increase production
Solutions
The state should reduce its expenditure on repayment of loans and servicing of debts,
Subsidy should be withdrawn from farmers having over 10 hectares of land
A special package be given to Punjab as it was hit by militancy
