Fund-starved Punjab scraps Rs 3/unit power subsidy, increases VAT on fuel

The cash-strapped Punjab Government today dealt a double blow to consumers by withdrawing the subsidy on power and increasing the value added tax (VAT) on fuel in a bid to ramp up its revenue receipts.

11,00,000 electricity consumers hit

Rs 3 per unit power subsidy for domestic consumers having up to 7 kW of load withdrawn; 11L consumers stand to pay additional ~3,000 if they consume 1,000 units in billing cycle

Farmers to be given agri policy draft

Punjab has agreed to send its 1,600-page Draft Agriculture Policy to the BKU (Ekta-Ugrahan) and Punjab Khet Mazdoor Union leaders by September 30. It will also bring in a one-time settlement policy for loans taken by farmers from Cooperative Bank. The offers were made by a delegation, led by CM Mann, to 10 union leaders at a meeting in Chandigarh.

The AAP Cabinet, at a meeting chaired by Chief Minister Bhagwant Mann, decided to withdraw Rs 3 per unit subsidy — including surcharge and electricity duty — on power for domestic consumers having up to 7 kW of load. It further increased VAT on petrol and diesel, which would now cost Rs 0.61 and Rs 0.92 per litre more, respectively.

This comes as the government cleared the salaries of its employees after a delay of four to five days this month as it was forced to divert funds to service its debt. The withdrawal of power subsidy, announced by the previous Charanjit Singh Channi-led Congress government, would allow the state to save an additional Rs 1,800 crore to Rs 2,000 crore each year.

Nearly 11 lakh consumers were getting this subsidy apart from the monthly 300 units of free power, announced by the AAP government.They would now end up paying an additional Rs 3,000 in case they consume 1,000 units.

Of the total 78 lakh domestic connections in the state, nearly 75 lakh had load of up to 7 kW. Of these, 85 per cent (64 lakh) were getting ‘zero’ bill because of the 300 units of free power, leaving nearly 11 lakh domestic consumers whose consumption exceeded 600 units in a billing cycle.

Finance Minister Harpal Cheema clarified the Cabinet had done away with dual subsidy, and that all domestic consumers would continue to get the 300 units of free power every month. Experts said it would not only encourage conservation of power, but also move consumers towards generation of solar power. A notification on the withdrawal of subsidy was issued later in the evening.

The hike in fuel prices would help the state increase its base tax rate by Rs 500 crore to Rs 600 crore annually. Earlier, VAT on a litre of diesel was Rs 10.02, which had been hiked to Rs 10.94, while that of petrol had gone up from Rs 14.32 to Rs 14.93 a litre. This is the second hike by the AAP government since June last year.

Petroleum dealers opposed the move saying it would make the fuel costliest in Punjab as compared to its neighbouring states and Chandigarh, thus diverting the sales to there.

The notice for convening the Cabinet meeting was issued late last evening without mentioning the agenda.

In the past one month, the AAP government has increased the circle rate for registration of property and increased the motor vehicles tax on two and four-wheelers.

The state has to pay around Rs 4,500 crore towards the salary and pension bill each month. For this fiscal, the government has projected an expenditure of Rs 54,967.74 crore to pay salaries and pensions. This is 52.88 per cent of the projected revenue receipts for 2024-25.

In the first four months of the ongoing fiscal, the government has borrowed Rs 13,094.34 crore and nearly half of this — Rs 64,56.77 crore — is going towards paying the interest on loans. Yesterday, Comptroller and Auditor General of India in its report for 2022-23 — the first year of the AAP government — had highlighted how fiscal stress in the state was rising.

The Cabinet also discussed the draft Agriculture Policy, especially in the light of the fast-depleting groundwater level in the state. It decided to bring a new education policy to upskill students and expand the ‘One-Time Settlement Scheme’ for VAT defaulters.