Punjab’s Debt Crisis

October 5, 2023

Punjab, one of India’s prominent states, is grappling with a severe financial crisis, burdened by mounting debt and escalating interest payments. Chief Minister Mann has appealed for a debt repayment moratorium to alleviate the state’s financial woes. This article delves into Punjab’s dire financial situation, its roots, and potential solutions.

Alarming Debt Levels

Punjab’s debt stood at a staggering Rs 3.12 lakh crore at the end of the last fiscal year.
In the previous fiscal, the government paid Rs 15,946 crore as principal and Rs 20,100 crore as interest on the debt.
The current fiscal year estimates indicate a payment of Rs 16,626 crore as principal and Rs 22,000 crore as interest, consuming around 20% of the annual budget.

Escalating Debt Over Two Decades

Over the past two decades, Punjab’s debt has surged tenfold, exacerbated by successive governments.
In 2017, when the Congress government took office, the state inherited a debt legacy of Rs 2.08 lakh crore.
During the five years under Congress rule, the state’s debt swelled by an additional Rs 1 lakh crore.

Role of ‘Freebies’

Government-provided ‘freebies,’ particularly power subsidies, have been a significant contributor to the debt crisis.
Over 26 years, Punjab has allocated Rs 1.38 lakh crore in power subsidies, with the subsidy bill ballooning from Rs 604.57 crore in 1997-98 to over Rs 20,000 crore in recent years.
The current fiscal budget includes Rs 20,243.76 crore for power subsidy.

Roots in Insurgency Era

Punjab’s debt has historical roots tracing back to the insurgency era in the state.
Loans totaling Rs 5,800 crore were extended to Punjab between 1984 and 1994 for combating insurgency.
The state government has attributed a portion of its debt to these security-related expenses, contending that the Centre should share the burden.

Solutions and the Need for a Moratorium

Economists suggest implementing a moratorium on debt repayment as an initial step to alleviate Punjab’s interest payment burden.
A special financial package from the Centre is deemed essential for Punjab’s economic revival.
This economic rejuvenation is expected to attract private investments, particularly from the Punjabi diaspora, and spur development in the state.

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