Wednesday, 28 September, 2022
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Hospitals without doctors, power cuts: In Punjab’s ‘messed-up’ finances, AAP’s big budget test

Punjab's finances the biggest challenge facing the AAP govt about to table its first budget. ‘Increasing revenue without imposing new taxes’ priority, says finance minister Cheema.

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New Delhi: In the second half of 2021, Punjab witnessed its worst dengue outbreak in recent years. By October-end, Muktsar district had already recorded over 1,000 cases and two deaths, recalled a state health department official. However, not a single dengue patient was admitted in any of the government’s healthcare facilities in the district. The reason — none of these facilities had a specialist who could see dengue patients, the official said.

For years now, Punjab has been reeling under a severe shortage of doctors, and state-run hospitals hardly have specialists such as gynaecologists, neurosurgeons, eye surgeons, radiologists and paediatricians, the official further said. This shortage often forces people to turn to the private sector, which is expensive, compelling many to take loans each time someone in the family falls seriously ill. “Those who fail to do so often resort to self-treatment at home,” he added.

Government officials, political functionaries and experts ThePrint spoke to said the root of the problem appears to be the poor state of Punjab’s finances — the biggest challenge before the months-old, Bhagwant Mann-led Aam Aadmi Party (AAP) government, which will table its first budget Monday. Punjab is among India’s most fiscally-stressed states, according to a study conducted by the Reserve Bank of India.

The problem is not limited to the state’s health sector and affects almost all aspects of governance — education, power, transport, water, policing, public works and rural development, among others — which perennially suffer from underfunding. 

The outcome of this: schools with shortage of teachers, long power cuts, lack of access to water supply, unfinished infrastructure projects, and so on.

When the AAP came to power in Punjab on 10 March, the state had a total debt of Rs 2.82 lakh crore, according to government records. And according to the government’s own estimates, said senior officials, it is likely to shoot up to Rs 3.15 lakh crore by the end of the 2023-24 financial year.

When the Congress came to power in 2017, taking over from the previous Shiromani Akali Dal (SAD) government, the total debt stood at Rs 1.82 lakh crore — an indication of how Punjab is in a perennial cycle of debt.

At 53 per cent in 2021-22, Punjab has the worst debt-to-Gross Domestic Product ratio among all states in India.

With an estimated population of around 3 crore, Punjab’s per-capita debt comes to Rs 94,000.

Punjab Finance Minister Harpal Singh Cheema told ThePrint: “Punjab’s state of finances is a big challenge currently because previous governments did not formulate concrete policies for development of the state due to their vested interests, which led to the state slipping into debts worth thousands of crores.” 

“The AAP government is working tirelessly to bail the state out of the grave financial crisis,” he added. 

Cheema further said that his government’s priority at this point is to “increase revenue without imposing new taxes”. 

“In two months of governance, we have seen that there is immense room for collections to increase, especially in the sectors of transport, power, mining and excise,” he said.

According to R.S. Ghuman, former head of the economics department of Patiala’s Punjabi University, the state is in a “debt trap”. 

“New debts are almost entirely being used by the state for settling old debts and interest,” Ghuman told ThePrint.

For the year 2019-20, Punjab’s actual debt servicing, which includes principal repayment as well as interest payment, was Rs 57,141 crore, according to budget records. The same year, Punjab’s actual borrowings were Rs 54,766 crore.

The debt situation is evidently causing significant stress at a time when the state faces a major imbalance between revenues and expenses.


Also Read: Cheaper booze, more revenue — Why Punjab’s new excise policy is a ‘Balle-Balle’ move for state


More spending, slipping revenues

According to the 2021-22 budget of the Punjab government, the state’s actual total expenditure for 2019-20 — which includes revenue expenditure, capital expenditure and repayment of loans — was around Rs 1.34 lakh crore. 

The actual total receipt for the same period, excluding borrowings, stood at Rs 77,645 crore. The evident shortfall was managed by borrowings worth Rs 54,776 crore, according to the budget document of 2021-22.

The state struggles to meet even routine expenses, such as salaries every now and then, and that is why it has to borrow money, said a senior civil servant serving in the state’s finance department, adding, “And then it has to borrow more money to settle the old debts.”

According to actual expenditure figures for 2019-20, Punjab paid total salaries to the tune of Rs 24,683 crore. In the same financial year, actual collective spending on salaries, pensions and interest on borrowings accounted for 70 per cent of Punjab’s revenue expenditure, budget documents showed.

But revenues are on a decline.

For 2019-20, the state recorded actual revenue receipt of Rs 61,575 crore, down from Rs 62,269 crore in 2018-19, the budget documents showed.

Around 85 per cent of it went into payment of salaries, pension and interest on borrowings, according to actual expenditure figures for 2019-20.

Elaborating on the state’s crumbling revenues, a former Punjab-based civil servant said that while significant exemptions were introduced in property, house and several other taxes over the past two decades, the state went on increasing subsidies, such as bringing all farmers under full subsidy net for power consumption.

At the same time, each successive government — the Akalis, Congress and now the AAP – cautiously refrained from imposing new taxes.

An analysis of the state’s basic revenue heads, in terms of actual collections for the financial years 2018-19 and 2019-20, throws more light on the crumbling revenue structure.

In these two years, Punjab’s Goods and Service Tax (GST) collections dropped by around 4 per cent, Value Added Tax (VAT) collections by around 20.5 per cent, excise by 4.3 per cent and stamp duty collections by 1.7 per cent. Only taxes collected on vehicle registration witnessed an increase of around 7 per cent, budget documents showed.

“There are loopholes and pilferages in the current system and there is also the problem of tax evasion — especially in sectors such as trade, transport, property and excise. We are doing our best to plug the gaps,” Cheema said.

The poor state of financial affairs in Punjab leads to underfunding that affects almost all aspects of public life and governance.

“All crucial sectors in the state are victims of underfunding,” said Ghuman. “That is why government hospitals do not have specialists, government schools do not have teachers for specific subjects, the state is suffering power cuts, you often see infrastructure projects stuck midway, and so on.”


Also Read: Why Punjab, Bihar, Rajasthan, Andhra, UP must learn from Sri Lanka, cut debt and freebies


Priority sectors worst hit

K.R. Lakhanpal, Punjab’s former chief secretary and current chairperson of the state’s Finance Commission, told ThePrint: “Punjab is a classic example of messed up priorities. Every time there is a fund crunch, priority sectors such as health, education and power are the first targets. It is the common man who suffers. Politicians and bureaucrats do not have to face the heat and, hence, there are no reforms.”

According to actual expenditure figures recorded over the last three budgets, Punjab on an average spends around Rs 3,170 crore on health every year — and the insufficient allocation, said senior government officials, leads to people being forced to shell out more from their own pockets on healthcare.

According to the National Health Accounts estimates for 2017-18 released last year, the Punjab government incurs per-capita health expenditure of Rs 1,086 — much lower than Haryana (Rs 1,428), Himachal Pradesh (Rs 3,177), Rajasthan (Rs 1,369) and several other states.

On the other hand, Punjab’s per-capita out-of-pocket health expenditure was recorded at Rs 2,935 — much higher than Haryana (Rs 2,181), Rajasthan (Rs 1,688), Uttar Pradesh (Rs 2,393) and many other states.

Many Punjab government schools have often been criticised for lack of infrastructure and a dearth of teachers. Ahead of the March state assembly polls, AAP chief Arvind Kejriwal himself acknowledged this, saying, “Government schools in Punjab are in bad shape.”

During conversations with people across the state’s districts, it was difficult to find someone who disagreed.

Punjab’s school education department records showed that the state has 28,568 schools, of which roughly two-thirds are government-run, while the rest come under private, unaided, associated and other categories. As of last year, around 30 lakh students were attending government schools in Punjab.

Shortage of staff and infrastructure even forced several schools in the state to run in double shifts.

“The state has around 13,000 primary schools, of which nearly one-third are run single-handedly by one teacher. Around 15 per cent of these schools do not have teachers for specific subjects. It is not good for a state like Punjab which has a very high school dropout ratio,” said a senior officer in the state’s school education department, who wished to not be named. 

“Of the people who send their children to private schools, a large number take loans to pay fees,” the official added.

Meanwhile, several districts of Punjab have been witnessing frequent and long power cuts. A senior official in the power department said the state is facing a power deficit of roughly 2,000 MW, the reason being a coal shortage which, to a large extent, is also caused by Punjab’s poor state of finances.

The Punjab State Power Corporation Limited (PSPCL) was unable to make timely payments for purchase of coal because the state government has not paid around Rs 11,500 crore to the corporation — on account of subsidy bills and arrears from various departments, said the senior power official.

For the financial year 2021-22, the state’s total power subsidy bill was Rs 10,668 crore, according to government records. Of this, Rs 7,180 crore went towards subsidies to farmers, who do not have to pay power bills.

When AAP came to power in Punjab in March, it faced total dues of Rs 12,600 crore towards the cash-strapped PSPCL, including around Rs 9,000 crore in pending power subsidy payments.

With the AAP’s newly implemented scheme to give 300 units of free electricity to every household, the subsidy bill will further scale up.

The way forward

“If Punjab has to pull itself out of the debt situation, it has to go for hard budget options such as subsidy and revenue rationalisation,” said Finance Commission Chairman Lakhanpal.

According to Prof. Ghuman, quoted earlier, Punjab has to limit its subsidies to the most marginalised instead of announcing freebies for all, which, he said, is the “current trend”.

He further said: “According to my estimates, Punjab has the potential to mobilise additional revenue to the tune of Rs 28,500 crore at this point, collectively in the fields of excise, GST, stamp and registration fee, mining, property tax, professional tax, checking power theft, transport and cable, and checking pilferages in social welfare schemes.”  

Officials in the state finance department, however, said that at this point, the state does not plan to make major tweaks to existing subsidies, but revenue rationalisation is on the cards.

(Edited by Gitanjali Das)


Also Read: Debt-ridden economy, angry youth seeking well-paying jobs — AAP faces tough trek in Punjab


 

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