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The Hindu
2 days ago
- Business
- The Hindu
Punjab's rising debt raises concern amid claims of sound fiscal management
Even as the Punjab government asserts it is taking proactive steps to manage its debt obligations, economic experts have raised concern that the State is increasingly relying on additional loans, driven by 'competitive political populism', leading to a significant rise in debt liability. Earlier this month, Punjab Finance Minister Harpal Singh Cheema stated that the government would borrow ₹8,500 crore in the second quarter of the current financial year to meet redemption obligations of over ₹3,500 crore for 'legacy debt' incurred during the previous Shiromani Akali Dal–Bharatiya Janata Party and Congress governments. A recently published academic paper titled Walking with Punjab's Economy, authored by economist Ranjit Singh Ghuman, notes that steadily rising outstanding debt has pushed Punjab into a debt trap. The annual average increase in debt during the first three financial years of the Aam Aadmi Party (AAP) government (2022–23 to 2024–25) has been ₹33,721 crore. While Punjab's debt liability has shown a steady upward trend over the years, the past decade has seen a particularly sharp rise. The outstanding debt stood at ₹1,28,836 crore in 2015–16 and jumped to ₹1,82,526 crore in 2016–17, largely due to the conversion of ₹30,584 crore in Cash Credit Limit into long-term debt. The debt increased to ₹2,81,773 crore (48.24% of Gross State Domestic Product) in 2021–22, to ₹3,14,221 crore (46.68%) in 2022–23, ₹3,46,185 crore (46.66%) in 2023–24, and further to ₹3,82,935 crore (47.30%) in 2024–25. It is expected to rise to ₹4,17,136 crore (46.80%) by the end of 2025–26. The paper also notes an accelerating trend in average annual debt growth. In the 1980s, it rose by ₹609 crore annually; during 1990–91 to 2001–02, by ₹2,696 crore; and by ₹6,389 crore annually over the next five years. Between 2011–12 and 2021–22, the annual average increase was ₹19,867 crore. 'The annual average increase during the first three financial years of the AAP government (2022–23 to 2024–25) was ₹33,721 crore. During 2025–26, the budgeted increase would be ₹34,201 crore,' the paper states. Pointing out that interest payments accounted for 22.72% of the State's total revenue in 2022–23, and principal repayments took up another 18.37%, Prof. Ghuman, Professor of Eminence (Economics) at Guru Nanak Dev University, Amritsar, said that approximately 41% of total revenue went toward debt servicing. 'Nearly 23% of the revenue was consumed by power subsidy. Salaries, wages, and pensions accounted for about 57.51% (36.72% salaries and wages and 20.82% pensions and retirement benefits). These five heads together consumed nearly 122% of the total revenue, which is a matter of concern as revenue expenditure exceeds the total revenue,' he said. 'All this means the government is running the show by raising additional loans, leading to a high net addition to debt liability,' he added. In the same year, fiscal and revenue deficits were 5.04% and 3.87% of GSDP, respectively. According to Dr. Ghuman, this scenario stems from a mix of 'competitive political populism in the name of welfarism, under-mobilisation of financial resources, injudicious use of resources, pilferage in welfare schemes and over-centralisation of finances by the Union government.' He noted, 'One is not arguing against the welfare responsibilities of the State but only that its policies on freebies and subsidies should be more targeted and given only to the most deserving households.' The Finance Minister has maintained that Punjab's fiscal situation is stable, with the government taking steps to meet future obligations. Mr. Cheema recently said the State had invested ₹1,000 crore each in the Guarantee Redemption Fund (GRF) and the Consolidated Sinking Fund (CSF), the latter now exceeding ₹10,000 crore — up from ₹3,000 crore when the AAP government took office. Expressing concern over the rising debt, Dr. Lakhwinder Singh, visiting professor at the Institute for Human Development, New Delhi, said, 'There's no doubt that the debt situation in Punjab is serious. The average debt has been growing. The government is borrowing to repay the rate of interest and notably, the AAP government has taken the borrowing to the highest. The key problem in Punjab is that the State hardly has the resources to make a new capital investment; hence, the development has come to a near standstill.'
Time of India
09-07-2025
- Business
- Time of India
From food bowl to debt trap: Study flags Punjab's alarming economic decline
Chandigarh: Flagging the steady decline of Punjab's financial health over three decades —slipping from its Green Revolution-era status as India's top-performing state to a debt-ridden state-- a study has underlined that unless Punjab adopts a comprehensive, development-focused roadmap and overcomes political populism, it risks further economic marginalization. This is the key finding of a comprehensive analysis by economist Professor Ranjit Singh Ghuman of Guru Nanak Dev University, Amritsar. The study, "Walking with the Ups and Downs of Punjab Economy", provides an extensive overview of the state's economic trajectory since its reorganisation in 1966. It revealed that despite early agricultural success, Punjab's failure to diversify its economy—combined with low investment, industrial stagnation, and fiscal mismanagement—pushed the state into a "development ICU." Punjab's economic growth remained above the national average until the mid-1990s. However, it has consistently lagged since 1992. Between 2014–15 and 2022–23, Punjab registered an average annual growth rate of just 4.62% per annum, compared to the national average of 5.67% per annum. Its ranking among major Indian states fell to 19th in agriculture and 14th in non-agriculture growth. Once the top-ranking state in per capita income, Punjab dropped to the 10th position by 2022–23 among 18 major states in the country, overtaken by Gujarat, Karnataka, Telangana, and others. Agriculture, which contributed 57.3% of Punjab's GSDP in 1970–71, now accounts for only 23.22% as of 2022–23. Employment in the sector dropped to 24.6%, and yet Punjab still lacks a formal agricultural policy. The industrial sector showed a similar decline. Between 2007 and 2014, over 18,700 industrial units shut down, with Amritsar alone accounting for 43% of the closures. The study attributes this to outdated technology, lack of financial support, and a policy bias in favour of neighbouring hill states like Himachal Pradesh and Uttarakhand, which received central incentives. Punjab's Gross Domestic Capital Formation (GDCF) as a share of GSDP consistently remained below the national average since 1994–95. In 2022–23 alone, the state recorded an investment deficiency of Rs 84,923 crore. According to the NITI Aayog's 2025 assessment, Punjab ranks last among 18 major states on the Fiscal Health Index. Its outstanding debt surged to Rs 4.17 lakh crore, amounting to 46.8% of the projected GSDP for 2025–26. Alarmingly, over 41% of the state's revenue is spent on debt servicing, and 57.5% is consumed by salaries, pensions, and subsidies, leaving negligible room for developmental spending. Unemployment — especially among youth — is rising at a worrying pace. Over 75% of Punjabi farmers do not want their children to remain in agriculture, but there are no alternative job avenues. The industrial and services sectors have not been able to match the aspirations of the state's educated youth, pushing many towards migration abroad — often through illegal means. The study found that Punjab's employment index ranking fell from 13th in 2005 to 16th in 2022 among 21 states, while youth unemployment rose to 26.33%. Prof Ghuman recommended an urgent, multi-pronged strategy for Punjab's economic revival. This includes rationalising subsidies and freebies, enhancing tax compliance and revenue mobilisation, reviving industrial and agro-processing sectors, investing in human capital through education, health, and skill-building, leveraging trade opportunities through the Wagah-Attari border, formulating a state-level agricultural policy, and promoting crop diversification. BOX Growth Rate Period | GSDP | Investment Deficiency 1994-95 to 1998-99 | 2.14 | 1.91 1999-00 to 2003-04 | 1.46 | 3.50 2004-05 to 2010-11 | 3.12 | 6.89 2011-12 to 2022-23 | 2.14 | 0.76 1994-95 to 2022-23 | 4.57 | 7.94 (In %) MSID:: 122341125 413 |
