Cultivating fiscal pain PDF Print E-mail
Saturday, 12 December 2015 00:00
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Santosh's edit

Nearly 9% of Punjab budget on power subsidies alone


For a state that boasts of the country’s top entrepreneurial talent—the owners of top Indian firms like Hero and Bharti Airtel are from Punjab—and has been the country’s granary for decades, having its finances in tatters comes as a rude shock. Things are so bad, a Times of India (ToI) report says the government is reduced to raising funds by mortgaging its jails and widow homes—that, in turn, will only make its fiscal situation worse since the higher debt will need to be serviced. The ToI report says that the Gandhi Vanita Ashram for widows in Jalandhar and the state jails at Bathinda, Amritsar and Goindwal are among the dozen official parcels of real estate which have been mortgaged to raise R2,100 crore of loans. Over 17% of the state’s revenue expenditure in FY15 was budgeted for paying interest on loans as compared to a figure of 11% for all non-special category states—the number for industrial states like Karnataka is 8.8% and 11.6% for Tamil Nadu. While Punjab boasts of its fiscal deficit being within the 3% limit set by the Finance Commission, what’s more important is the state ran a budgeted revenue deficit of 1.2% in FY15 versus, in the case of Gujarat, a surplus of 0.8% of GDP. Naturally, then, Punjab’s development expenditure in FY15 was budgeted at a low 8.9% of GDP versus 13% for all non-special category states.

Punjab’s problem, in a nutshell, is that it has not graduated from the jugaad and basic farming that looked attractive several decades ago. As a result, it does not have the industrial base to collect taxes, nor has it been able to diversify its agriculture to a more modern, value-added business which could yield high taxes. Which is why its tax base, already low in comparison to other states, has been falling, from 7.9% of its state GDP in FY13, this fell to a budgeted 7.8% in FY15—to put this in perspective, the budgeted numbers were 9.3% in FY14 but ended up at 8.3%. Industrial states like Tamil Nadu have tax revenues of 9.4% and Karnataka 10.2%. Punjab’s own non-tax-revenue was budgeted at a mere 0.8% of state GDP in FY15 versus 1.4% for all non-special category states.

Apart from not being able to diversify its once-famed agricultural base to more value-added produce, Punjab is now reduced to heavily subsidising its farmers by not charging for either water or electricity—while dramatic over-use of water has led to a situation in which very large parts of the state has soil which is too saline to cultivate, the state’s power subsidy for farmers is likely to be around 9% of this year’s budget—while it spent R4,778 crore for free power in FY15, the number is expected to go up to R5,484 crore in FY16; amazingly, in the last budget, the finance minister said he would reduce power tariffs for the allied farming sector from R7.75 per unit to R4.57. While the state needs to reduce this expenditure to get back in the black, doing so will mean farmers will be in the red.


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