Audit can wait, the need is to fix Punjab’s political economy

would have touched ₹3 lakh crore. Even though books of the government understate the magnitude of public debt, the state tops all major states of the country in per capita debt burden and per capita debt servicing.

The government books don’t account for about a lakh crore of guaranteed or non-guaranteed loans its public sector undertakings are carrying on their books. The official figure also does not reckon deferred and unfunded liabilities adding up to several thousand crores. For example, arrears of power subsidy and liability arising out of fully implementing the recommendations of the 6th Punjab Pay Commission. All inclusive, Punjab’s debt to GSDP ratio may have already crossed 60%. One may hasten to add the state’s debt burden was compounded due to the UDAY scheme and funding the accumulated gap in cash credit limit. Therefore, as a first step, the government should assess the correct magnitude of public debt and put in place appropriate disclosure norms to remove fuzziness around this important metric of public finance.

How we got here

This is not a story of a year or five years or of a government or two. Over the past three decades, successive state governments have been living beyond their means, incurring ever-ascending ascending debts and deficits. Over this period, the state evolved into an extractive political economy and morphed from a ‘development state’ into a ‘security state’. Competitive populism and high carrying cost of the government have unsustainably expanded the expenditure base and sub-optimal exploitation of the resource potential has shrunk the resource pool of the state government, resulting in a precarious situation, it faces today. In this telling, the state’s fiscal suffers from a deep structural malaise. It will not go away either by waiting out or by seeking financial assistance from the central government. If this strategy has not worked over the last three decades, it is not going to work now. It calls for a directional change, for you cannot seek a new destination, while running in the same direction.

Utilisation of debt Development economists tell us that deficit funding may help accelerate the tempo of growth, provided it is used for creating productive assets or enhancing the human capital. Contrarily, the government of Punjab has been contracting huge loans, year after year, and has been using them for meeting an ever-increasing gap between its revenues and expenditure. At present, its entire gross borrowings are being used either to repay old loans or interest thereon. Most of the state’s revenues are spent on salaries, pensions, subsidies and day-today running of the government. Were it not for the central government evergreening its debt, the state government would have defaulted in debt servicing a long time ago. No wonder, the state, that was once known for the highest rate of growth and highest per capita income is now notorious for being the highest per capita debt and lowest per capita capital expenditure in the country.

From whom to recover After getting the public debt audited, the chief minister also promised to recover the misutilised amount. But from whom will the recovery be effected? From government employees and pensioners, from beneficiaries of freebies or lenders, as most of the outstanding debt has been utilised for salaries and pensions, subsidies and debt servicing. Therefore, auditing public debt and fixing responsibility for misutilisation is nothing but a red herring. The real issue is the economy and state finances that are virtually in an abyss.

The way forward

It is nobody’s case that such a deep economic and fiscal decline can be addressed in a short time and, that too, without the central government’s help in providing the breathing space. The government of Punjab should engage the services of a professional agency for drawing up a mediumterm restructuring programme for restoring the economic and fiscal health of the state and present it to the state legislature for approval. Once approved, its implementation may be continuously reviewed by a cabinet committee helmed by the chief minister. As it will involve sacrifice on the part of all stakeholders, such a plan should also be appropriately communicated and marketed to the public at large, being the ultimate stakeholder.

AUDITING PUBLIC DEBT AND FIXING RESPONSIBILITY FOR MISUTILISATION IS NOTHING BUT A RED HERRING. THE REAL ISSUE IS THE ECONOMY AND STATE FINANCES THAT ARE VIRTUALLY IN AN ABYSS