March 31, 2020
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New Pinch

A crashing economy is the latest bugbear of this north Indian foodgrain bowl

New Pinch

After having been singed in the frying pan of politics, courtesy its recent electoral debacle in Punjab, the Shiromani Akali Dal-Bharatiya Janata Party state government is now being slow-roasted over the fire of economic mess. As a result, it is looking up to Montek Singh Ahluwalia and other noted fiscal management experts in Delhi to pull it out from the worst ever fiscal distortions which have battered the economy of Punjab. This foodgrain bowl now leads the country not in per capita income but in per capita debt with the total debt of the state government growing rapidly from Rs 24,022 crore since the end of 1997-98 financial year.

The implications of the current crisis are rather grave. Chief minister Parkash Badal's unending sessions with experts, bureaucrats and colleagues to pull the state out of the red are yet to yield a redemptive formula.

Instead of pressing for a rollback of the recently hiked diesel price, the sad-bjp government in the state has doubled the sales tax on this important agricultural input to the dismay of farmers who have shown the the door to the alliance candidates in the recent Lok Sabha elections.

Upward revision in bus fares, reduction in subsidies, enhancement of transport-related taxes and duties on goods carriage, tourist buses, personal vehicles and rationalisation of nominal mutation fee, court fee, registration fee and copying fee are all on the cards, besides enforcement of a "no nonsense" policy for sales tax collection. In 1995-96, the sales tax collections, instead of growing, came down by 1.02 per cent whereas the Gross State Domestic Product (gsdp) increased by Rs 4,000 crore.

The question, however, is: what brought Punjab to its present state of crisis? Experts point to a slow-down in infrastructure investment, excessive dependence on direct investment for capital formation, heavy subsidies, decline in growth of tax and non-tax revenues, abolition of important local taxes, proliferation of manpower and centralisation of administrative controls at the state level to the fiscal detriment of local bodies. This has led to a steady decline in cash balance with receipts and payments suffering from a gaping mismatch.

Expenditure on salaries and allowances has risen eight times from Rs 441 crore in 1984-85 to Rs 3,654 crore in 1998-99. Expenditure on salaries and pensions as a percentage of revenue expenditure has grown from an average of 50 per cent in 1984-90 period to 56 per cent in 1990-95 and 62 per cent in the 1995-99 time-span.

The expenditure on police has risen 15.5 times from Rs 55 crore in 1984-85 to Rs 850 crore in 1998-99. This is really surprising considering that normalcy returned to Punjab more than six years ago. The state's rate of sales tax growth has also been lowest among all the northern states. Against 21.06 per cent rate of growth in sales tax in Delhi in 1995-96, the growth in Punjab was 1.8 per cent which increased to 3.9 in 1996-97, compared to 31.05 per cent in neighbouring Haryana. In 1997-98, it improved a little to 9.6 per cent against 17.28 per cent recorded by Himachal Pradesh.

In 1997-98, the per capita debt in Punjab was Rs 10,070 and per capita income was Rs 19,032. On March 31, 1998, its outstanding public debt was a whopping Rs 24,022.81 crore, 45 per cent of its gsdp.

Between '85 and '97, the number of class I and II posts in state departments grew by 3,912. Interestingly, the state now has 34 officers of the rank of chief secretary and financial commissioner against seven in 1984. Besides, the state pay commission report put an additional liability of Rs 1,000 crore in 1998-99.

Subsidies are also a bane for the state. Though in explicit terms they account for only 1.73 per cent, the implicit subsidies are estimated to stand at Rs 2,702.86 crore. Besides, the losses of state-sponsored cooperative sugar mills were to the tune of Rs 232 crore. And this is not an isolated instance. The performance of public sector undertakings of Punjab in '97 were generally dismal and none managed to return the annual 4 per cent equity.

And now with the state government tightening the noose, Markfed, the biggest cooperative of Asia, had to pledge its six-storeyed building to raise money to pay its annual equity. The psus, as a whole, have incurred losses to the tune of Rs 600 crore per annum. Therefore, the instructions: make operations viable or wind up.

However, the more things change, the more they worsen. After introduction of austerity measures, expenses on petrol, electricity, water and rent, which used to cost the state Rs 110 crore per month in 1996-97 have gone up to Rs 145 crore per month, about an annual 10 per cent increase.

Resentment among psu employees has been triggered off by the directive that nobody should be paid perks like house rent allowance over and above Punjab government rates. Special increments have also been curtailed. These undertakings have also been ordered not to maintain more than two vehicles.

The imbalances created during the past 20 years, officials feel, need to be straightened out now. The oversized bureaucracy and the police are areas which cannot be abruptly touched. Though the state government had some of the Central loans waived-during I.K. Gujral's tenure as prime minister-a lot still needs to be done to put the economy back on the rails.

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