Punjab bites the bullet

ACUTE fiscal stress has compelled the ruling AAP to bite the bullet in Punjab. It has withdrawn the previous Congress government’s decision to provide power subsidy of Rs 3 per unit to domestic consumers having a connected load of up to 7 kW (kilowatt). The value-added tax (VAT) on petrol and diesel has been increased, making both dearer in a state where fuel prices are already on the higher side. The cash-strapped government is expecting that the twin moves will lead to savings/earnings in the range of Rs 2,000-2,500 crore per year; however, it will have to be prepared for a backlash from lakhs of affected people.

This is a desperate attempt by the government, which is nearing the half-way mark of its tenure, to give fiscal prudence a chance. Subsidies have been bleeding the state exchequer dry for more than two decades. Successive governments have banked on them to woo farmers and other categories of consumers. According to the State Finances Audit Report of the Comptroller and Auditor General (CAG) of India, tabled in the Assembly earlier this week, power subsidy constituted the lion’s share (68-99 per cent) of the total subsidies in the state between 2018 and 2023. Over the years, several experts, including former deputy chairman of Planning Commission Montek Singh Ahluwalia, have recommended rationalisation of power subsidy to improve Punjab’s fiscal health. However, the political leadership has been reluctant to take the plunge due to electoral considerations.

It is hoped that AAP will stay the course, which is a tough one but a must to help the state make an economic turnaround. Constantly living beyond one’s means is a recipe for disaster, with the CAG red-flagging a ‘continuous mismatch’ between receipts and expenditure. Commendably, the Congress government in neighbouring Himachal Pradesh has shown the way by insisting on financial discipline. The sustainability of scaling down or withdrawing populist measures will be put to the test in both states.