Punjab fails to squeeze fiscal deficit

Written by Charanjit Ahuja | Chandigarh | Updated: Jan 28 2011, 09:36am hrs
Notwithstanding the tall claims of economic growth by the Punjab government that says that the states economy was growing faster than the national economy, the Reserve Bank of India (RBI) data shows that the state had failed to compress its fiscal deficit to 3% of gross state domestic product (GSDP).

According to the central bank, the targets set under the Fiscal Responsibility and Budget Management Act (FRBM Act) require that by 2008-09 each state should have phased out the revenue deficit and squeeze its fiscal deficit to 3% of GSDP. However, Punjab govt falls well short of the prescribed norms.

The latest available information reveals that over the decade since 2000-01 on an average the annual revenue deficit and fiscal deficit as share of states GSDP worked out as 3.2% and 4.5%, respectively. The annual average revenue expenditure of the state as percentage of GSDP was 16.4% while the corresponding figure of revenues was 13.2%.

The key trends in revenues and expenditures that states own tax revenues as a percentage of its GSDP stands at 7% over the 10 years, which lags behind the states revenue expenditures (16.4%) by about 9.4% of GSDP.

The non-tax revenues lagged behind revenue expenditures by whopping 11.1 percentage points.

The states non-tax revenues work out to be 4.1% of its GSDP. Notably, contribution of dividends and profits that represent the return on the capital investment, has been insignificant over the last 10 years. The states share in central taxes is also found to be constant at about 1.1% of its GSDP.

The growing fiscal deficits over the years has led to steady accumulation of debt from Rs 30,763 crore to Rs. 67,721 crore between 2000-01 and 2009-10. Consequently, the share of interest payment in total expenditure on an average stood at 17.5% of total expenditure of the state.

DS Rawat, secretary-general, Assocham told FE that revenue growth in Punjab had failed to surpass the growth in revenue expenditure between 2000-01 and 2009-10 thus leading to revenue deficit. He said that he has sent a note to chief minister Parkash Singh Badal suggesting a seven pronged strategy for better management of public finances, reducing unproductive subsidies, to stop raising further debt especially for meeting the revenue expenditure and also divestment of loss making public enterprises.