Punjab’s Fiscal Scene: Gathering Clouds of Crisis?

State governments play an important role in economic activities in a federal setup like India. The critical role of state finances in the realignment and restoration of the macro balance in the economy is well recognized particularly in the context of economic restructuring. Punjab a predominantly agricultural economy has the highest per capita income in the past among all the major Indian states. It seems that it is becoming increasingly difficult to maintain the pace of growth that Punjab witnessed in the seventies and the eighties. There are several reasons for the faltering performance of the Punjab Economy in the post-reform period when other states of India began to perform better than before. The fiscal crisis is a manifestation of various political, economic, and administrative failures of the government during the period of militancy when the civil administration was non-functional, ineffective and non-accountable. No effort in the post –militancy period was made by the elected governments to put the economy back on the path of economic development; attributing the deteriorating fiscal situation of the nineties to the decade of political strife in the state was considered enough. Punjab has been under fiscal stress since 1984-85, when it became a revenue deficit state. Against this background an attempt has been made in this paper to analyze the fiscal profile of Punjab. The ratio of state’s own tax revenue to gross state domestic product in Punjab was 7.42 percent in 2014-15 which declined marginally to 7.27 percent in 2015-16. However, there has been a continuous increase over the last two years and the budgeted estimate for 2017-18 is estimated at 9.24 percent. The non-tax revenue of the state which was Rs 5253.97 crore in 2011-12 increased to Rs5783.91 crore in 2012-13 and there was a continuous decline till 2015-16. Further, this source of revenue was Rs 4915.88 crore in 2016-17(RE) and is budgeted at Rs. 2736.02 crore in 2017-18. The main sources of non-tax revenue in the state are Punjab Roadways, Guarantee fee, Lotteries and others. The committed expenditure accounted for more than 70 percent during the years 2011-12 to 2014-15. This percentage increased tremendously to 92.78 percent in 2015-16 .However, the Revised estimate 2016-17 and Budgeted Estimate of 2017-18 show somewhat a declining tendency. The State Government in view of its highly unbearable burden of committed expenditure requests the Fourteenth Finance Commission to make an objective and realistic assessment of State’s Revenue Expenditure liability trends, especially on account of its salaries, pensions and interest burden. A look at the total outstanding debt of the state reveals that the persistence of large and continuous fiscal debt over the years has lead to accumulation of staggering debt which was Rs 52923 crore in 2011-12 and it has risen to Rs 95670 crore for (BE) 2017-18, giving an increase 80.7 percent during this period. Faced with “burgeoning” debt, Punjab government is all set to seek debt relief through loan restructuring and change in criteria for devolution of funds to states from 15th Finance Commission in order to overcome financial challenges. Debt ridden Punjab Government has all along been seeking financial assistance and cooperation from the centre as a special package to bail out from the mounting debt. The state has to pursue the fiscal reform programme towards achieving fiscal balance and consolidation and generation of quality infrastructure and competitive environment. In order to achieve the desired goals, political will, administrative competence and good governance are necessary.