Can Bhagwant Mann stop Punjab from going the Sri Lanka way?

Bhagwant Mann stares at a twin-headed monster: Resuscitating the state's debilitated public-sector enterprises and controlling the spiralling debt to keep the State machinery and his poll-fuelled populist schemes running.
Sai Manish reports.

His Cabinet and bride are finally in place. A powerful bureaucrat and a politician have already been snared in the anti-corruption net. Now it's time for Bhagwant Mann to consummate his chief ministership.

The few months that Mann has been at the helm in Punjab haven't been easy.

The road ahead looks even more perilous.

While floundering security, a burgeoning narco-economy, proliferating gang wars, and tensions caused by Sikh theological churning will be constant companions, Mann's primary concern will be resurrecting Punjab's flailing economy.

What has set the alarm bells ringing is the Reserve Bank of India's (RBI's) recent observation that Punjab is the most financially troubled state in the country and is most likely to head Sri Lanka's way.

The RBI report in June this year noted: 'Punjab is expected to remain in the worst position as its debt-GSDP ratio is projected to exceed 45 per cent in 2026-27, with further deterioration in its fiscal position.'

RBI estimates show that a plethora of freebies announced by Mann in his government's first Budget, including his poll promise of providing 300 units of free electricity to every household and giving Rs 1,000 a month to every woman in the state, are likely to shave off 45 per cent of the state's tax revenues, accounting for almost 3 per cent of its gross domestic product (GDP).

On this account, the damage to Punjab's finances is more severe than any of the nine other fiscally vulnerable states red-flagged by the RBI.

Mann stares at a twin-headed monster: Resuscitating the state's debilitated public-sector enterprises and controlling the spiralling debt to keep the State machinery and his poll-fuelled populist schemes running.

Both these problems are intertwined.

Punjab's 46 active State-owned enterprises have a staggering debt of over Rs 43,000 crore, half of which is guaranteed by the state.

The state government gets nothing as dividend from any of these enterprises. On the other hand, it has infused almost Rs 24,000 crore as equity over the years into them.

A recent white paper released by Punjab's finance ministry after Mann took office noted that in case these companies failed to repay their debt, the government would be obliged to do so.

The biggest challenge will be dealing with Punjab State Power Corporation, the State-run electricity company that accounts for almost half the debt of all State-owned enterprises.

Over the years Punjab has been cross-subsidising farmers with free electricity by charging domestic and commercial users more than most other states in the country.

The result is that the government itself owes this heavily indebted state electricity enterprise over Rs 7,000 crore.

With the free electricity scheme to be launched this year, there is already a considerable buzz with many enthusiastic households splitting their meters into two to get double the free power under the scheme.

With freebie-induced opportunism unfolding in the state, Mann faces an ominous task even as Arvind Kejriwal, on whose 'Delhi model' Punjab's free-power scheme is modelled, has decided to make the subsidy optional from October this year in Delhi.

The Mann government has also acknowledged the state finds itself in a 'classical debt trap', from which there is little escape until radical changes are made.

So vicious is Punjab's debt trap that in certain years the state has to dig into its own revenues, in addition to its annual borrowing, just to repay its old debts. Punjab's debt stands at over Rs 2.3 trillion and every year it borrows even more to keep the government running with little left from these fresh loans after servicing interest and principal repayments.

The Mann government in its assessment of the state's critical situation has put the blame on its predecessors. The white paper released in June noted: '... the previous government resorted to reckless spending during the fag end of its tenure. Since September 20, 2021, a total of Rs 9,047 crore worth of schemes/one-time settlements/waivers were announced by the previous government in a desperate attempt to consolidate the voters in the state and has put enormous burden on the already fiscally strained state treasury.'

Upinder Sawhney, professor of economics at Panjab University, said: "Expenditure compression is impossible in Punjab since health and education infrastructure are in bad shape and need a massive overhaul. The only way forward for the state is to plug tax leakages on sales of liquor and fuel. In addition, stamp duty evasion is rampant and corruption is endemic in all rungs of the government. Mann's freebies need to be targeted instead of being given to one and all."