RBI report: Punjab's debt to GSDP ratio highest at 48%

Ruchika M Khanna

Chandigarh, September 24

In June 2022, when the Aam Aadmi Party government released its White Paper on state finances, it blamed the previous governments for the fiscal mess and observed, “The current debt indicators are probably the worst in the country, pushing it deeper into the debt trap”.

24% spent on electricity bill

• Ratio of interest payment to revenue receipts is 25.5% in first four months of this fiscal
• 24.2% revenue receipts have gone into power subsidy
• State’s borrowing limit cut by Rs 4,000 crore for 2023-24
• Only 3.6% of state’s revenue going into capital asset building
• Govt has repaid Rs 23,524 cr as interest on the loans

Almost 15 months later, the government faces the Opposition’s ire over the “phenomenal increase in the debt burden by Rs 50,000 crore in its 18-month rule” after this was mentioned in a letter sent by the Governor to the Chief Minister last week. The state’s debt to the Gross State Domestic Product ratio (GSDP) is the highest at 48 per cent, according to an RBI report on state finances.

Allegations against govt baseless

The debt servicing takes away a major portion of the state’s earnings. The allegations against the government are baseless as no state can deviate from the fiscal path designed under the Fiscal Responsibility and Budget Management Act. Senior Finance Dept functionary

While no major efforts seem to have been made to increase the state’s revenue in the past 18 months, except the increase in taxes on retail fuels and collectorate rate last year, the state’s subsidy burden has gone up substantially.

Between April 2022 and July 2023, the state’s power subsidy bill was Rs 27,552 crore. During this period, the state’s total revenue receipts were Rs 1,13,808.57 crore, which means that 24.20 per cent of what the state earned was spent on giving the power subsidy.

Undoubtedly, the AAP government has raised loans worth Rs 42,617 crore between April 2022 and July 2023, but the government has also repaid Rs 23,524 crore as interest on the loans that it has inherited from the previous governments.

The ratio of interest payment to the total revenue receipts should not be over 10 per cent. But in case of Punjab, this ratio is now 25.5 per cent between April and July 2023 and 20.6 per cent for the past 18 months.

When the government came to power, it had inherited a public debt of Rs 2.63 lakh crore. “The debt servicing takes away a major portion of the state’s earnings. However, the allegations being levelled now are baseless as no state can deviate from the fiscal path designed under the Fiscal Responsibility and Budget Management Act,” said a senior functionary in the state Finance Department. He also added that the previous Congress government had increased the state’s debt burden by Rs 1 lakh crore in the past five years.

Also, though initially the Centre had cut the state’s borrowing limit by Rs 18,000 crore as a consequence of the state switching back to the Old Pension Scheme, this cut has now been reduced to around Rs 4,000 crore.

A look at the state of finances shows that the expenditure on salaries in the first four months of this fiscal is higher than in the corresponding period last year, as is the pension bill and subsidy bill. Even as the revenue deficit is a high of Rs 10,754.83 crore between April and July this fiscal, the state has barely been able to spend money on capital asset creation, which is just Rs 918.76 crore. This just 3.6 per cent of the state’s revenue receipts.