Punjab can borrow ₹12,000 cr more, but govt not enthused

CHANDIGARH: The Centre’s decision to raise borrowing limits for states from 3% to 5% of gross state domestic product (GSDP) for 2020-21 will allow the Punjab government a headroom of ₹12,000 crore in the current fiscal.

The state government had pegged its borrowing from the market at ₹18,827 crore during the current financial year and the enhancement in the limit under the Fiscal Responsibility and Budget Management (FRBM) Act will allow it access to extra funds to meet the shortfall in revenues due to the Covid-19 outbreak, according to senior officials.

While the state will be able to borrow additional ₹3,000, or say 0.5% of the enhanced FRBM limit, straightaway from the market, the rest is linked to reforms in four areas – universalisation of ‘one nation, one ration card’, ease of doing business, power distribution and achieving an increase in the revenues of the urban local bodies.

Of the enhanced borrowing limit, 1% — four tranches of 0.25% — is linked to clearly specified reform actions and a further 0.5% hike will be granted if milestones are achieved in at least three out of the four reform areas.

“The state (Punjab) has already integrated with the ‘one nation, one ration card’ system and is progressing well on ease of doing well and power distribution reforms. The public policy reforms-linked enhancement in the FRBM limit is per se a good step, but it is just additional borrowing limit without no relief or support in interest, and not a stimulus or grant. We were expecting more revenue deficit grant from the Centre as a stimulus to combat Covid-19,” said a senior official who did not want to be named.

The debt-stressed state government, whose tax revenues got severely hit due to the coronavirus-induced national lockdown, had requested the Centre to relax the borrowing limit from 3 per cent to 4 per cent of GSDP, but has been circumspect in market borrowings so far.

The state finance department has borrowed ₹2,600 crore by way of government securities in the first six weeks of the current financial year.

IS ALREADY AMONG THE MOST INDEBTED STATES WITH A DEBT-GROSS STATE DOMESTIC PRODUCT RATIO OF 40%

‘NO ONE KNOWS HOW THINGS WILL PAN OUT’

“There is a full year ahead and no one knows how things will pan out from here. The market borrowings will depend entirely on cash flows or debt repayment schedule,” he said.

Punjab is already among the most indebted states with a debt-gross state domestic product ratio of 40%.

At ₹2.29 lakh crore as on March 31, 2020, the rising debt is seen as one of the major causes of the state’s fiscal woes.

The state government had shelled out around ₹17,600 crore as interest payments during the previous fiscal.

These borrowings have been going into debt servicing or meeting day-to-day expenditure, and not in the creation of income-generating capital assets.

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