Can Manpreet Badal Bring Back Punjab’s Acche Din?

It’s been little more than a year since the Congress party under the leadership of Captain Amarinder Singh rode to power in Punjab with a thumping majority, trouncing the Akalis who had been ruling the state since 2007. By winning a second consecutive term in 2012, Shiromani Akali Dal (SAD) surprised electoral pundits as Punjab’s populace isn’t known to be merciful to incumbents. During the 2017 campaign, the opposition put the menace of drug use in Punjab front and centre, blaming it not merely on the misgovernance of Akalis but alleging their active involvement in exacerbating it. But as soon as the election got over, so did the drug problem - at least that’s the post poll coverage of the issue in the media indicates.

Either the drug problem was too easy to solve or it was exaggerated, but the fact is highly complex issues don’t get resolved overnight. We have to look no further than Punjab’s financial situation to support our case. It’s in dire straits. And it will take years and a lot of political will to salvage it. The only person who raised the issue relentlessly during the campaign is Manpreet Singh Badal, the current Finance Minister. Not just in the campaign, Badal has been talking about the need for Punjab to course correct on fiscal discipline for over a decade now. That’s what his priority was during his first stint as Punjab’s finance minister from 2007 to 2010. But the father son Badal duo wanted to win election again and Manpreet’s fiscal prudence was coming in the way of their populism. Manpreet lost his job. Badals won. Punjab lost.

First, Punjab’s declining economic growth was a cause of concern. It used to be among the fastest growing states in the country, but has become a laggard now. It’s gross state domestic product (GSDP) growth rate has plummeted from a high of 10.18 per cent as against the national average of 9.57 per cent in 2006-07 to 5.93 per cent as against the national average of 7.10 per cent in 2016-17. States like Bihar, Madhya Pradesh and even neighbouring Haryana have posted much higher growth rates than Punjab in the last 10 years. In per capita income, Punjab has lost the top slot and now stands at seventh position.

Third, the state government faced liquidity crunch on 269 days in 2016-17 financial year which shows the terrible fiscal health of Punjab. Out of these 269 days, the state was under ways and means advances (WMA) for 165 days and under overdraft for 104 days. The Reserve Bank of India (RBI) being the banker to state governments provides financial cushion of a certain amount (Rs 925 crore in the case of Punjab) to them to meet financial obligations whenever they are short on cash. The central bank charges interest rate equal to repo rate for such advances. Once even this amount is exhausted by the state government, its treasury goes into overdraft, where a higher interest rate than repo rate is charged by the RBI for each day. But Punjab’s fiscal health was so bad that even these two options didn’t suffice and the central bank had to stop honouring Punjab government’s cheques last year - a massive embarrassment for the proud people of the state.

Sixth, Punjab’s capital expenditure to revenue expenditure ratio, which was never great to start with, had also become worse in the last decade. Revenue expenditure as share of total expenditure increased from 88 per cent in 2006-07 to 92 per cent in 2016-17, leaving very little room for the much needed public investment in building capital assets that would spur growth. The neighbouring Haryana fares much better with revenue to capital expenditure ratio of 74:26 (2018-19-BE)

Ninth, the history of previous year budgets show the state government in poor light. Year after year, the government has been unable to put out realistic figures and one finds mismatch in revenue estimates and expenditure figures. Since 2007-08, Punjab’s treasury has fallen short of revenue estimates by as much as 10 to 18 per cent. In 2016-17, budget estimates put revenue receipts at Rs 50,181 crore while the actual figure was Rs 4,773 crore short. Similarly, capital expenditure in budget estimates is shown way higher than what it actually turns out to be.

Apart from these obviously problematic trends, the white paper alleges that the previous Akali government abused various entities under its ownership to indiscriminately raise loans ‘by mortgaging their future revenues or by hypothecating immovable properties at their disposal’ details of which are shown in the table below.

These loans ‘provided a handy window to fund the populist programs of the then ruling dispensation’, noted the white paper, and called for a special audit ‘to ascertain as to whether the loans so raised have been properly accounted for and their utilisation is in accord with the statutory mandate of these entities and is in keeping with the principles of financial propriety and prudence.’

Hence, given the way finances of the state were managed, the paper said that financial position as ‘reflected in its various budgetary documents cannot be taken on its face value’. For 2016-17, the paper presents the results of a truing up exercise that was carried out and mismatch is indeed troubling, to say the least, as shown in the figure below.

So what is Manpreet Badal doing? If 2018-19 budget estimates are any indication, he intends to put Punjab on the path of fiscal prudence.

The above trends, if they hold, portend well for Punjab.