One year of Capt govt | Bitter reality bites Punjab after sweet pill of promises

state of finance: Lofty talk, empty coffers, and no easy way out of fiscal morass the govt inherited; FM says Punjab to be revenue-surplus state in 4 years, but things have not been easy so far
Chandigarh : Manpreet Singh Badal got his start in the government from the finance ministry. He handled the portfolio for three-and-a-half years during the previous SAD-BJP government. When Manpreet was made finance minister in the Congress government, many were hopeful that he would put things right quickly. He raised expectations by promising to make Punjab a revenue-surplus state in four years. But things have not been easy in the first year.
The state finances continue to be a matter of serious concern with not many markers of improvement despite some steps to cut costs. Burdened by rising liabilities, the state government is struggling to pay on time its employees, who hit the streets last month for salary and dearness allowance arrears. There is also growing pressure to keep its cash-guzzling poll promises such as farm debt waiver, unemployment allowance, smartphones, cheap power, et al.
In its first budget, the regime led by Capt Amarinder Singh gave estimates of revenue (both own tax and non-tax inflows) and expenditure, but the numbers are nowhere close to targets on most counts at the end of the first three quarters (April-December) of the current fiscal. Against an estimated revenue of Rs 60,079 crore in the budget estimates for 2017-18, the actual number stood at Rs 33,990 crore on December 31.
Punjab, which is among few states such as Delhi, Maharastra, Haryana and Karnataka that get 60% or more of their revenue receipts from own taxes, set an ambitious target of 32% increase in its own tax revenue in budget estimates for 2017-18 over the revised estimates of the previous fiscal. The actual growth is well below that. The state reported an average tax growth of 11% in the 10-year-period from 2005 to 2015. If it ends the year by getting anywhere close to the targeted tax growth rate for the current year, it should be more than content.
The government also expected the goods and services tax (GST) to bail it out, describing it as a game-changer; but appears to have changed its view. With 52% of its revenue going into payment of salary and pension, and the power subsidy bill and interest payments rising continuously, there is little fiscal space for capital expenditure on income-generating assets.
Amarinder said the government is taking a two-pronged approach. “We are working on toning up the tax administration. The excise policy is being reworked. We have also segregated the excise and taxation departments to ensure better and more streamlined, professional tax management. As a result, the tax revenue went up by 20% till December 2017. Concurrently, efforts are being made for better and more prudent expenditure management, though this remains a huge challenge due to the government’s high committed liabilities on account of debt repayment, interest, salaries and pensions,” he added.
STRUCTURAL MALAISE PERSISTS
That the Congress government inherited an almost empty state treasury is no secret. A white paper released by the government had painted a grim picture of Punjab being a state in the tight grip of a debt trap, with its finances in a free fall due to unproductive borrowings and lack of fiscal prudence.
“Gap between revenue and expenditure has been widening. Besides running a high-cost administrative set-up and giving a plethora of freebies, successive governments have not made much effort to raise non-tax revenues and check revenue leakages,” said an expert who has studied the state finances closely for many years, adding, “Add to this, a mountain of debt taken to run day-to-day affairs due to which the state’s revenue deficit is almost 70% of its fiscal deficit. And it is a recipe for disaster.”
The government has set up a cabinet sub-committee headed by the chief minister in November last to regularly review the fiscal condition. It has shut down the “financially unviable” Bathinda thermal power plant and 1,600-odd Sewa Kendras to cut costs. At the same time, it needs to take hard decisions quickly to raise revenues and curb leakages.