Punjab has turned from ‘debt-stressed’ to a ‘debt-trapped State’, needs urgent steps for revival of growth momentum, say economists

In a letter to Union Finance Minister, some economists pointed out that the Centre and State had been busy containing the militant movement and restoration of peace process in mid-1990s despite turmoil in Punjab in 1980s

As the preparations for the Union Budget- 2023-24 continues, noted economists from Punjab have urged the Union Finance Minister Nirmala Sitharaman to take urgent steps to revive the growth momentum in Punjab economy, as the State has transitioned over the years from being “debt-stressed” to “debt-trapped”.

In a joint letter to the Union Finance Minister, the economists associated with a forum—Economist for Public Interest, pointed out that Punjab witnessed a turmoil which disrupted the development process in the early 1980s, and both the Central as well as the State government had remained preoccupied to contain militant movement and restoration of peace process that happened towards the mid-1990s.

“The disruption was so massive that it destroyed developmental institutions, derailed the process of development despite three decades of peaceful governance by the elected governments, the revival could not happen. Punjab turned from a revenue surplus to revenue deficit state during the mid-eighties (a peak period of turmoil) and subsequently, borrowing was substituted for meeting the needs for committed expenditure. Over time, Punjab has fallen into a debt trap and consequently, the most dynamic instrument of development, that is, fiscal policy turned dysfunctional,” read the letter.

Prominent among those who signed the letter included—Dr. Lakhwinder Singh, visiting professor, Institute for Human Development- New Delhi, Dr. Sukhwinder Singh, consultant, Punjab Finance Commission- Chandigarh, Dr. Kesar Singh Bhangoo, former professor, Punjabi University- Patiala.

Mr. Lakhwinder Singh said “..it is high time that Punjab should be granted financial package in the budget (2023-24) of the Union government. As a first step, we suggest that moratorium on debt of Punjab may be granted at least for the next seven years. This will leverage the Punjab State of interest payment which is 45% of its own tax revenue for capital expenditure. For the revival and rejuvenation of Punjab economy, the Union government in its budget should grant an annual investment deficiency package of the order of ₹20,000 crore for the year 2023-24, and subsequently till the grant of moratorium on debt ends. This will build the momentum of development process and will crowd in private investment especially of a Punjabi diaspora...It will also provide right kind of signals to the foreign investors to invest in Punjab. This can turn out be a win-win situation both for Punjab economy as well as for the Indian economy.”

“Due to non-sustainability of the debt, the Thirteenth Finance Commission of India has put Punjab state in the category of debt stressed one and recommended a financial package that was never realized. Now Punjab has transitioned from a “debt stressed” state to a “debt trapped” state. This has generated a typical crowding out effect on private investment in Punjab. Consequently, this has resulted into a slow growth and distorted structure of the economy,” added the letter.