Punjab chief minister Bhagwant Mann just lately tweeted, “We will have public debt of the state audited so as to ascertain if it has been misused, fix responsibility and make recovery from those responsible.” The competition of this write-up is that such an audit will serve little function with out ascertaining the magnitude of public debt; the explanations for its assuming the present proportions, the way it’s been utilized and from whom to make the restoration.

No audit is required to reply these questions. What is required is the flexibility to learn the writing on the wall and muster the political will to take corrective steps. In truth, the just lately submitted report of the sixth finance fee has two chapters coping with the state financial system and funds, which have exhaustively handled the issue of debt sustainability. Hopefully, by now the state authorities would have obtained the report from the Punjab governor and can be processing the identical for presenting it to the state legislature as required by Article 243 of the Constitution. Without disclosing the suggestions made by the state finance fee, we are going to attempt to reply among the necessary questions arising out of the CM’s tweet.

Public debt of the state recorded an exponential enhance from 83,099 crore in 2011-12 to a whopping 2,58,011 crore on the finish of 2020-21, a rise of 211% over 10 years, spelling into an annual common enhance of over 21%, in opposition to an annual common progress of 13.6% within the nominal gross state home product (GSDP) . By the top of 2021-22, the state’s public debt would have touched 3 lakh crore. Even although books of the federal government understate the magnitude of public debt, the state tops all main states of the nation in per capita debt burden and per capita debt servicing.

The authorities books do not account for a few lakh crore of assured or non-guaranteed loans its public sector undertakings are carrying on their books. The official determine additionally doesn’t reckon deferred and unfunded liabilities including as much as a number of thousand crores. For instance, arrears of energy subsidy and legal responsibility arising out of absolutely implementing the suggestions of the sixth Punjab Pay Commission. All inclusive, Punjab’s debt to GSDP ratio might have already crossed 60%. One might hasten so as to add the state’s debt burden was compounded as a result of UDAY scheme and funding the accrued hole in money credit score restrict. Therefore, as a primary step, the federal government ought to assess the right magnitude of public debt and put in place acceptable disclosure norms to take away fuzziness round this necessary metric of public finance.

How we bought right here

This shouldn’t be a narrative of a yr or 5 years or of a authorities or two. Over the previous three many years, successive state governments have been dwelling past their means, incurring ever-ascending ascending money owed and deficits. Over this era, the state developed into an extractive political financial system and morphed from a ‘growth state’ right into a ‘safety state’. Competitive populism and excessive carrying value of the federal government have unsustainably expanded the expenditure base and sub-optimal exploitation of the useful resource potential has shrunk the useful resource pool of the state authorities, leading to a precarious state of affairs, it faces as we speak. In this telling, the state’s fiscal suffers from a deep structural malaise. It is not going to go away both by ready out or by looking for monetary help from the central authorities. If this technique has not labored during the last three many years, it isn’t going to work now. It requires a directional change, for you can not search a brand new vacation spot, whereas working in the identical route.

Utilization of debt

Development economists inform us that deficit funding might assist speed up the tempo of progress, supplied it’s used for creating productive property or enhancing the human capital. Contrarily, the federal government of Punjab has been contracting enormous loans, yr after yr, and has been utilizing them for assembly an ever-increasing hole between its revenues and expenditure. At current, its whole gross borrowings are getting used both to repay previous loans or curiosity thereon. Most of the state’s revenues are spent on salaries, pensions, subsidies and day-to-day working of the federal government. Were it not for the central authorities ever-greening its debt, the state authorities would have defaulted in debt servicing a very long time in the past. No surprise, the state, that was as soon as identified for the very best charge of progress and highest per capita earnings is now infamous for being the very best per capita debt and lowest per capita capital expenditure within the nation.

From whom to get well

After getting the general public debt audited, the chief minister additionally promised to get well the misutilised quantity. But from whom will the restoration be effected? From authorities staff and pensioners, from beneficiaries of freebies or lenders, as many of the excellent debt has been utilized for salaries and pensions, subsidies and debt servicing. Therefore, auditing public debt and fixing duty for misutilisation is nothing however a pink herring. The actual subject is the financial system and state funds which might be just about in an abyss.

the way in which ahead

It is no person’s case that such a deep financial and financial decline might be addressed in a short while and, that too, with out the central authorities’s assist in offering the respiratory area. The authorities of Punjab ought to interact the providers of knowledgeable company for drawing up a medium-term restructuring program for restoring the financial and financial well being of the state and current it to the state legislature for approval. Once accepted, its implementation could also be repeatedly reviewed by a cupboard committee helmed by the chief minister. As it’ll contain sacrifice on the a part of all stakeholders, such a plan must also be appropriately communicated and marketed to the general public at giant, being the final word stakeholder.

krlakhanpal@gmail.com

The author is Punjab Finance Commission chairman and a former chief secretary of the state. Views expressed are private