Times are tough, time government got tough
After 5 years of struggling in dire straits, the SAD-BJP government has a fresh start
Unless it takes some hard decisions, the state will continue to be a dole economy.
The need is to stop giving people a false sense of being looked after, and charge where needed
Ruchika M. Khanna, Tribune News Service
Unpaid bills, salaries and arrears of state government employees; a huge debt burden of Rs 78,000 crore; and sops in the SAD poll manifesto that threaten to take away an additional Rs 10,000 crore each year. All this, from the empty coffers of Punjab.
This is what stares the re-elected SAD- BJP government in the face as it readies to once again take over the reins of the state.
However, perhaps, this time round, the alliance leadership seems to be conscious of how debt-stressed Punjab is. They have been quite vocal about the need for finding an effective Finance Minister for the state. After all, whosoever handles the portfolio, will be under tremendous pressure — not just to mobilise additional resources for the cash-strapped state, but also to steer it towards the path of fiscal consolidation and setting right the dismal account books.
Punjab is like an ill-managed household. It spends almost Rs 3,300 crore more than it earns in a year. Its debt is double its earnings, and yet it continues to dole out new sops. While many present employees have not receive their salaries, the unemployed are being offered an allowance of Rs 1,000 per month; free education for girls up to college level; enhanced widow pension; free laptops to students and Wi-Fi connectivity.
These promises made in the SAD manifesto with empty coffers will cost the state an additional Rs 10,000 crore per annum. And that too without a road map for increasing the total earnings.
As the critical exercise of forming the government kicks off, a debate is on among the general public on what immediate financial issues need to be addressed by the new government. There is anxiety over the impoverished exchequer burdened with unpaid bills of Rs 2,000 crore. With excise collections now reaching a plateau, how will the state manage its rising expenditure?
The huge debt liability, servicing of debt and the freebies announced will only increase the massive revenue deficit of Punjab, which is among the highest in the country. The salary and pension bill, along with debt servicing, will amount to more than 74 per cent of the state’s revenue receipts, exceeding the norm of 35 per cent laid by the Finance Commission.
Undoubtedly, the new government will have to start immediately on the course to fiscal reforms. Imposing certain new state taxes, ensuring better tax compliance by plugging evasion, and controlling the non-plan and administrative expenditure will be key. After all, Punjab cannot afford to miss the bus on reforms, and has to demonstrate fiscal resurgence.
Talking to a number of experts and economists, The Tribune found the goal for Punjab has to be curtailing its expenditure and improving its tax-to-Gross State Domestic Product (GSDP) ratio. The ratio today is 6.5 per cent (and 9 per cent if you add the Central taxes), which is the lowest among states. Most states have a tax-GSDP ratio of 9.5 per cent. If not higher, the state will have to bring this ratio at least on a par with the other fast-growing states such as Gujarat, Maharashtra and Tamil Nadu.
With the state having one of the highest per capita incomes, the tax-GSDP ratio, too, should be higher. By raising this ratio, the state could generate an additional 20 per cent in taxes. In order to raise this bar, the government should expand its house tax net, increase water and sewerage charges; impose re-registration of vehicles that are over 10 years old; besides ensuring that abiana (user charges for canal water) is collected.
With a huge subsidy bill of Rs 5,000 crore — including Rs 4,600 crore of power subsidy alone — the new government will also have to relook at the concessions it has extended to various categories and rationalise the benefits.
Experts suggest that the SAD-BJP government in its second avatar should also ensure better tax compliance and stop VAT and excise evasion, which alone could add upwards of Rs 3,000 crore to the state’s kitty.
The new government also needs to make its urban local bodies economically self-sufficient, i.e., generate their own sources of revenue. This will free the 10 per cent of VAT collections, which is currently going to the civic bodies, for other development activities.
There is a need also to make the State Planning Board more effective, to ensure judicious expenditure by the government.
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