Economic Crisis of Punjab

Allocation of resources between the Centre and the States has always assumed importance not

only from economic point of view but from the political point of view as well. It would not be

exorbitant to state that politicians and political planners show more interest in this subject than

the academicians and researchers. In the General Elections, 2014, this has been used as a

political tool by the non – Congress State Governments to castigate the UPA Government at the

Centre with the hope that this will have a psychological impact on the voters in their favour and

secondly, their misdeeds on the development front can be steamed up by the so called

“negligence of the Centre” phenomenon. But the fact is that there are clear cut guidelines

defining the financial relations between the Centre and the States. It also needs to be understood

that inter-governmental transfers from the centre to the states takes place through three channels:

statutory and other transfers mandated by the Finance Commission, formula-based transfers for

State Plan Schemes through the Planning Commission, and other discretionary transfers by the

Planning Commission/ various central Ministries. State governments also have an important role

in economic activities in a federal setup like India.

The present state of Punjab is a classic case of mismanaged economy. The SAD – BJP

Government which has been ruling Punjab since 2007 has literally destroyed the economic fabric

of the State and has put economic reforms and financial reforms at backburner. Reforms at the

centre paves the way for sub-national reforms but this has not happened with Punjab, primarily

because of lack of political will and vision. Revenue deficit of the state has been increasing

implying lower availability of funds for developmental/capital works. Mismanagement of

economy is in the genes of the SAD- BJP Government. It may be recalled that revenue deficit

had increased sharply to 4.83 percent in 1998- 99 when Badal government was in power. The

debt of the state government, which was 36.38 percent as a proportion of GSDP in end-March

1991 rose to 40.66 percent of GSDP in end-March 2001, which was highly unsustainable.

It is evident from an overview of state finances in Punjab that the fiscal scenario of the State in

the recent past has been rather dismal. The state has been continuously facing fiscal crisis and is

heavily dependent on borrowed funds for meeting its general governance needs and development

obligations, since the SAD – BJP Government came to power.

The fiscal stress on the state government has resulted in eroding its capacity to implement

national programmes and even to take advantage of funds available from the Government of

India and other national and international agencies. The state has been heavily relying upon

central assistance and debt to augment its resources. Even in this state of the economy, the state

government also stands guarantees indiscriminately and without assessing the repayment

capability of the organisation for loans raised by PSUs and other state institutions. In the event of

inability of the organisation to repay the loan and interest thereon, the guarantee can be invoked

and the state has to bear the burden of the loan. Since the PSUs in Punjab are sinking into a debt

trap, it is almost certain that the liability of loans generated will devolve upon the State

government in the near future.

The change of government in the state in February 2002 and the subsequent announcement of the

various budgetary and fiscal reforms provided an opportunity for fiscal consolidation. Realising

the gravity of the financial crises, the then Congress government had brought out a White Paper

on the State’s Finances in March, 2002. The budget for the year 2002-03 focused on certain

fiscal reforms including corrective measures for restoration of financial health of the state. The

government committed itself to correcting institutional factors leading to economic and financial

distortions. The most important and recent step in this direction has been the enactment of Fiscal

Responsibility and Budget Management Act (FRBMA) in May 2003. But what had happened to

the implementation of this landmark Act by the SAD – BJP government is known to every one.

The Akali – BJP Government should have understood that economic solutions should not

superimposed by political considerations.

The SAD – BJP Government has leveled serious allegations of negligence by the Centre so far as

allocation of funds is concerned. Even though it is a political tool far from the reality, it needs to

be clarified for the sake policy transparency. The devolution of funds from Central Government

to States determined by Finance Commission appointed by Central Government is based on the

following formula: population 25%, income distance 50%, area 10%, tax efforts 7.5% and fiscal

discipline 7.5%. It needs to be understood that Punjab is an agrarian state with the advantage of

relatively lower population below poverty line compared to other General Category states as per

the Comptroller and Auditor General. It also has relatively higher literacy, life expectancy at

birth and lower infant mortality compared to the all-India average. The achievements of the State

Government on population control, revenue generation from tax and fiscal discipline are

appallingly poor. This has put Punjab in a disadvantageous position to get the maximum

allocation from the Centre on the basis of the pre-defined formula.

Notwithstanding this, the Congress led UPA Government at the Centre has provided sufficient

grants to Punjab for its progress and development. If the result is lacking, it is because of non-

utilization of the Central grants by the State Government in result oriented and productive

manner. During UPA 1, the Congress led Central Government had given unprecedented funds to

Punjab, even after the SAD – BJP Government had come to power. Congress had increased

central funds to Punjab by Rs. 10000 crore during this period which was 69 per cent more than

what the NDA Government had given during its tenure. Unfortunately, the SAD – BJP

Government failed the people of Punjab by failing to use funds provided to it by the Centre and

mired with corruption. It should be noted that the Central Government has been transferring a

sizeable quantum of funds directly to the State Implementing Agencies for the implementation of

various schemes/programmes in social and economic sectors recognized as critical. These funds

are not routed through the State Budget/State Treasury System. During 2009-10 the Central

Government had directly transferred an additional amount of 1162 crore to state implementing

agencies.

The allegations of the Chief Minister have been belied by the statistical data available with his

own Government. Data obtained through RTI on the schemes like MNREGA, Indira Awas

Yojna, Swaran Jayanti Gram Sswarozgar Yojna (SGSY), National Rural Livelihood Mission

(NRLM) and National Social Assistance Programme (NSAP) totally contradicted the Goebbelian

propaganda being resorted to by the Punjab Government. The central allocation under these

schemes in 2007-8 was 52.64 crore while the total expenditure was Rs. 92.49 crore. These

figures were 102.29 crore and Rs.155.61 crore in 2008-9, 114.04 crore and Rs. 298.11 crore in

2009-10, Rs. 135.85 crore and Rs. 302.10 crore in 2010-11, Rs. 128.66 crore and Rs. 277.67

crore in 2011- 12, Rs. 150.31 crore and Rs. 211.77 crore in 2012-13 and Rs. 176.99 crore and Rs.

250.55 crore respectively for 2013-14. Under the National Rural Health Mission, as against the

allocation of Rs. 246.78 crore in 2010-11, the release was Rs. 252. 81 crore. As against the

allocation of 311.62 crore in 2012-13, the centre had released Rs. 319.76 crore. The unspent

amount of Rs. 65 crore was released by the centre under Rashtriya Krishi Vikas Yojna in 2012-

13. Last year also, about Rs. 90 crore remained unutilized. Similarly, total amount under the

Indira Gandhi Matritva Yojna for two years ending 2012-13 had remained unutilized. A sum of

Rs. 62.65 crore for housing again remained unutilized. In the irrigation sector, as many as 11

schemes could not utilize Rs. 111.33 crore till March 31, 2013 and as a result of this, the centre

stopped the release of another Rs. 221.85 crore. The expenditure on salaries in 2009-10 was 43%

of the revenue expenditure, exceeding the norm of 35% envisaged by the Twelfth Finance

Commission. At the Official level, the resources for the Annual Plan for 2013-14 had been

assessed at Rs 16,005 crore which included the central assistance of about Rs 1883.86 crore. In

addition, the Planning Commission had agreed to provide grant for One Time Additional Central

Assistance for projects of Rs 120 crore as 30% grant which allows the projects worth Rs 400

crore.

Taking all these resources into account, the Annual Plan size for Punjab for Annual Plan 2013-14

had been fixed at Rs. 16,125 crore. This included the flagship programmes like National Social

Assistance Programme (NSAP), including Annapurna (Rs. 67.40 crore), the Backward Region

Grant Fund (BRGF) (Rs. 22.91 crore), Accelerated Irrigation Benefit Programme (AIBP) (Rs.

550.00 crore), Jawaharlal Nehru National Urban Renewal Mission (JNNURM) (Rs. 400.00

crore) and Rashtriya Krishi Vikas Yojana (RKVY) (Rs. 350.00 crore). On the utilization front, a

study sponsored by the Planning Commission and conducted by the National Institute for Public

Finance and Policy (NIPFP) has revealed that during 2008 – 09, the Punjab Government could

only utilize 72.88 per cent of the MNREAGA funds against the national average of 83.99.

Similarly, during 2009 – 10, the utilization of Pradhan Mantri Gram Sadak Yojana (PMGSY)

funds was 93 per cent, in case of Indira Awaas Yojana (IAY) in 2008 – 09, it was 71 per cent.

Therefore, there is total failure on the part of the State government to utilize the central

assistance and the claims of Badal Government that Punjab has been getting step motherly

treatment from the UPA government has been belied.

Further, the Central Government has provided grants and assistance to the Punjab Government

for various welfare measures. These inter-alia include Central Sector Scheme of ‘Rajiv Gandhi National Fellowship’ for providing Scholarships to Scheduled Caste students to pursue programmes in Higher Education and Babu Jagjivan Ram Chhatrawas Yojana, a scheme for the

construction of hostel for SC students. A new IIT has been set up in Ropar, Punjab with central

assistance. In 2007-08 an amount of Rs. 45.25 crore and in 2008-09 an amount of Rs. 4.75 crore

has been provided to the State under the Rashtriya Arogya Nidhi (RAN) for financial assistance

to patients, living below poverty line who is suffering from major life threatening diseases. In

September 2013, an amount of Rs. 7 crore 90 lakh 50 thousand was sanctioned by the Union

Ministry of Labour and Employment for setting up of Institute for Training of Trainers (ITOT) at

Lalru. On the same date, Rs. 3 crore 44 lakh was sanctioned for infrastructure development in the

ITOT. In August 2013 Rs. 112.25 crore was provided to the Government of Punjab as first

installment of Additional Central Assistance under the sub-scheme of the Rashtriya Krishi Vikas

Yojana (RKVY). An amount of Rs. 3818.13 lakh has peen provided to the State Government by

the Centre between 2007-08 and 2013-14. Rs. 51 crore 36 lakh was provided in August 2013 for

Mid Day meal programme in the schools for the year 2013 – 14. Before that, Rs, 5 crore 75 lakh

had been provided in August, 2011 for the Integrated Child Development Programme in the

State. Funds have also been provided for ecological restoration and afforestation in the State.

Ludhiana City Bus Service was started with 100 per cent central assistance under the Jawaharlal

Nehru National Urban Renewal Mission.

Under National Rural Health Mission (NEHM), grants of Rs. 12,000 crore were either left

unspent or diverted for other purposes…as many 100 hospitals were to be upgraded but that was not done, no new hospital staff was recruited whereas poor patients were suffering while private

hospitals were mushrooming. A sum of Rs. 50 crore were given by the Centre for providing free

medicines but state hospitals still lacked such medicines. In December, 2013, the central

government has sanctioned a grant of Rs. 165 crore for two cancer hospitals to provide a better

and cheaper medical facilities to the people of Punjab. The Union Ministry of Tourism had given

its nod to the proposal for development and upgrading of infrastructure at Sukhna Lake as a

tourist destination and had sanctioned Central financial assistance of Rs.273.31 lakh. As recently

as in February, 2014, the Centre sanctioned a special package of Rs 2,246 crore to address acute

water-logging problem in the south-west districts of Punjab like Faridkot, Ferozepur, Muktsar

and Bathinda. The integrated project was sanctioned following a report submitted by a high-level

expert group of Planning Commission.

It is for the Badal Government to enlighten the people of Punjab how much they had get during

the NDA regime under these developmental and welfare heads of expenditure. UPA under a

scheme has given crores of rupees to the sulking industry in the state so that entrepreneurs invest

money here but the Akalis never implemented the Central scheme. Lack of vision, corruption

and ego of the present Punjab Government is responsible for the sad state of economy in the

State. It was ironic that Union Minister for Rural development Shri Jairam Ramesh had to write

thrice to the Punjab government to avail of the grants for the construction of link roads under the

Pradhan Mantri Gram Sadak Yojna. Despite three personal reminders from the Union Minister,

the Badal government failed to provide the list of roads to be covered under this scheme.

Punjab’s entitlement is to get central assistance for upgradation of 1345 kms of rural roads under

this scheme which the state government has utterly failed to identify. The whims and fancies of

the Badal Government have further ruined the economy of the State.

The Centre-funded 108 ambulance service is run under the National Rural Health Mission

(NRHM). The state government, which hardly has funds to pay its employees, has taken in-

principle decision to run all 240 such ambulances on its own, with Badal’s photo on it. Earlier also between June, 2000 to December, 2001, immediately before the assembly elections in

Punjab, the then Chief Minister started visiting various places for meeting the general public and

disbursing funds to people under the name Sangat Darshan Programme. No separate

budget/funds were provided by the State government for the programme. As reported by CAG,

money was mainly withdrawn from Chief Minister’s Relief Fund and other development funds of the state. Contrary to the acts governing the funds, all administrative and financial powers

were entrusted to the Chief Minister. Evidently, public money was unauthorisedly drawn and

disbursed without approval of norms/procedures by the government.

Therefore, the Badals can go to any extent to promote their interests even risking the life and

livelihood of the people of the State. The Punjab State Government is responsible for the welfare

of its people, but is ignoring the plight of Punjabi farmers. The State Government does not

acknowledge the issue of farmer suicides in Punjab. Villagers fear seeking help from State

officials since they are often accused of causing the suicide, which is a crime under the Indian

Penal Code. Therefore, it is fair to argue that such State Government mismanagement at the least

fails to prevent suicides.

To sum up, central negligence towards Punjab is a construction by the Opposition, far from the

reality. Punjab government is getting all the grants under the formula which is applicable to the

states but the irony is that the money received from the centre is being diverted to meet the

whims and fancies of the Badal family. The UPA I as well as the UPA – II have provided

sufficient funds for the prosperity and welfare of Punjab but the sad state of the economy is

because of the mismanagement, corruption, favouritism and lack of application of mind by the

SAD – BJP Government. The present State Government is shedding crocodile tears in the name

of negligence of the Centre only to divert attention of the people from the real issues of farmers’ suicide, drugs menace, poverty, unemployment and lack of infrastructure. The Government has

done nothing to improve the employment scenario of the State, driving the youth towards drugs.

The problem of drugs in Punjab is basically a problem of the demand and the state drug control

department and its official machinery are exclusive affairs of the state government.

The state has to pursue the fiscal reform programme towards achieving fiscal balance and

consolidation and generation of quality infrastructure and competitive environment. But the

success of the entire reform programme depends on how far the government is able to resist the

temptation for populist measures. If the government continues to succumb to the populist

political pressure, the fiscal crisis in Punjab will only deepen. The allegation of central

negligence is not going to solve the State’s problems.

* The author is a Lawyer and National Spokesperson of the Indian National Congress.