Hell Has Five Rivers

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Magazine| Oct 22, 2007

punjab fiscal crisis

Hell Has Five Rivers

The sunshine state is staring at a debt trap

CHANDER SUTA DOGRA Diminishing Returns

• Punjab's outstanding debt is a staggering Rs 52,764 crore
• 76% of revenue receipts goes towards salaries, pensions, interest
• Annual subsidy bill: Rs 4,000 crore
• The Planning Commission says Punjab will be the slowest growing state in 2007-12. Projected growth: 5.9% against national average of 9%.
• Education sector in a shambles. Rural youth unemployable; few industries means fewer jobs.

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Punjab, in this shining new century, is not any more the land of milk and honey. And that other enduring image, the happy farmer singing on his tractor, is also somewhat dated. Going by state government figures, 30 per cent of the population is now BPL (below the poverty line) and surviving on subsidised wheat and dal. This is the latest in a string of subsidies the cash-strapped government has been forced to provide—as part of fulfilling its election promises. Add to this falling agricultural incomes, a huge salary bill, mounting farmer suicides, growing unemployment and outstanding debts of a staggering Rs 52,764 crore. Punjab has clearly lost its plot.

Which is why state finance minister Manpreet Badal had to do some tough talking when he presented the budget earlier this year. According to him, 76 per cent of the revenue receipts was being consumed by salaries, pensions and interest payments. "The situation is so grim that the state has no resources of its own for funding its annual plan," Badal told the assembly. The finance minister has now reiterated these concerns to Outlook (see interview).

The Planning Commission's projections for the Eleventh Plan reflects the state's poor financial health. Unless a miraculous turnaround happens, Punjab will be the slowest growing state in 2007-2012. Against an all-India growth of 9 per cent, it will grow at 5.9 per cent. This is much below the expected 9.8 per cent growth target for Jharkhand, Nagaland's 9.3 per cent or even neighbouring Haryana's 11 per cent. Punjab, which boasted the highest per capita income in 2000-01, is expected to slide to number seven at the end of the 11th Plan. During this period, Karnataka, Kerala, Tamil Nadu and Haryana will overtake Punjab. What has happened to the country's sunshine state?

Explains economist Dr Sucha Singh Gill: "Successive governments have failed to harness the gains of the green revolution, invest it in social development. The result is that at a time when agriculture is in decline in Punjab, our education and health systems too are in a shambles. If there are few jobs within the state, Punjabi youth are unfit for jobs in other states too because of the poor quality of education. There is also a growing exclusion of our rural students from university education. The entire problem is further compounded by massive subsidies in power, water and now wheat and dal...which just get political parties cheap publicity." Incidentally, growth rates for agriculture have slipped to less than 2 per cent this year, from 6.27 per cent in 2003-04.

A recent report by the state council for science and technology says the successes of the green revolution in Punjab are now history. To quote from the report: "In the past five years, production of foodgrains has increased by just 2 per cent and the state's population has grown by 8.6 per cent. Massive use of nitrogenous fertilisers has reduced the soil's fertility and led to widespread soil erosion. Intensive irrigation, especially from the over million tubewells, has depleted the water table to the extent that between 1993-03 it fell by 55 cms each year." The prognosis looks grim.

But mounting debt has not prevented Chief Minister Parkash Singh Badal from going ahead with the subsidised wheat and dal plan for 14 lakh BPL families.This will mean an additional Rs 1,200 crore burden on the state exchequer. As it is, the state's power subsidy bill is Rs 2,700 crore for the current year and the electricity board is in trouble because the state government has not been compensating it for the free power.

Any question on how he proposes to fund the growing subsidy bill is quick to anger the CM. His nephew and finance minister, Manpreet Badal, is more pragmatic and can see the danger of sinking deeper into the debt trap. "I feel humiliated at inter-state meetings to see relatively backward states making rapid strides compared to Punjab. If timely corrective steps are not taken, Punjabis will have to look for jobs in Haryana, Rajasthan, MP and Karnataka," he told Outlook. Is Badal Sr listening?