SOS! This Desperate Suggestion For Punjab’s Debt Problem Only Highlights Its Severity

Punjab’s economic situation is going from bad to worse with each passing quarter.

Beyond the obvious law and order issues, lack of investments, flight of the private sector, stagnant growth in the services sector, and subsidy-dependent agri-ecosystem, the state has a mountain of debt.

Punjab’s liabilities, as a percentage of its GSDP, stand at 48-odd per cent, one of the highest in India. 

The situation is so grim that three professors from Punjabi University, Patiala, have written to the state government to set up a debt-relief fund in order to crowdfund money.

The professors asked the government to request citizens to deposit money, voluntarily, in the debt relief fund. While absurd, the suggestion does highlight the desperation of the state government. 

The economists from Punjabi University, factoring in the pending liabilities, non-guarantee loans, and upcoming borrowings have estimated the state’s debt to be around Rs 3.8 lakh crore.

Hoping for the philanthropic instinct of the Punjabi population to take over, the economists remarked that it may ease the debt burden of the state. 

A House On Fire

For almost a decade now, Punjab’s borrowings have exceeded its revenue potential. To make matters worse, the newly elected AAP government in March 2022 promised an array of freebies, before requesting the Centre for a generous aid of Rs 50,000 crore per year for the next two years. 

In September 2022, the state government was unable to pay the employees’ salaries on time, resulting in protests.

Employees were quick to cite the expenditure on advertisements by the government while being left in a limbo. Governor Banwarilal Purohit, in a recent letter to the Chief Minister Bhagwant Mann highlighted the same issue. 

In his letter, Purohit questioned the advert spend outside the state. The governor also raised concerns against the presence of outsiders in official meetings, and questioned the need and selection criteria for sending teachers to Singapore for training.

Mann, however, chose to snub the governor, stating that the government was not answerable to the governor. 

Punjab’s economic trajectory makes for an interesting case study.

In less than two years, it has gone from proclaiming itself as the food basket of India, to whining for minimum support price (MSP) for its farmers, to requesting aid and moratorium on its loans from the centre, to now, exploring the idea of crowdfunding to ease its debt problem. 

Punjab’s economic problem is multifaceted. The capital investment by the state has been going down. Industries have been exiting the state for Haryana, Himachal Pradesh, and Uttar Pradesh, denting the economic prospects.

The farmers, one of the key economic drivers of the state, are latching on to the subsidies without paying any taxes, even with large landholdings and significant annual revenue.

The smaller farmers are being hammered by the informal lenders. For this very reason, centre’s decision to transfer MSP directly to the bank accounts was met with protests in March 2021. 

In Punjab, traditionally, the middlemen or the arhtiyas, facilitate the trade between the farmers and the agencies at the mandis. However, under the APMC system, the payment in Punjab used to go to the middlemen and not the farmers. The middlemen, who also receive their commission within the payment, then pass on the payments to the farmers. 

Thus, there was no way for the government to ensure that the farmers are indeed getting the entire MSP. Two, for farmers who were dependent on the middlemen for informal credit, the payment was made after the middlemen deduct their interest on the loan given to the farmer. 

Often, the interest on these informal loans was very high, leaving the farmer with barely enough income, further intensifying the debt cycle. Many smaller farmers in Punjab have thus lost their lands to the bigger farmers. A study in 2018 concluded that of the 9,000 farmers who committed suicide in the state, more than 88 per cent were debt ridden. 

Punjab’s debt and economic situation could further worsen in the coming years, given the imminent ecological crisis.

Continuing their dependence on the MSP, the farmers of Punjab, for almost six decades now, have focussed on the the cultivation of wheat and paddy, the latter being water-intensive. Various measures, across years, to aid crop diversification on the ground have failed. 

In Punjab, groundwater extraction for irrigation alone exceeds 90 per cent, more than any other state in India. Barring Rajasthan, the most over-exploited blocks in terms of groundwater are located in Punjab. Of the 138 assessed blocks in Punjab, stated in the Dynamic Groundwater Resources Assessment of India – 2017 report, 109 are over-exploited. 

The total annual groundwater recharge of the state was assessed as 23.93 bcm (billion cubic metres), annual extractable groundwater resource as 21.59 bcm. Still, the annual groundwater extraction was at 35.78 bcm, putting the extraction at 166 per cent, highest for any state in India. Even for Rajasthan, it’s less than 140 per cent.

Put simply, the state is running out of water too. While inflated use of pesticides has corrupted the once fertile soil, the depletion of groundwater levels is increasing the cost of cultivation for the farmers.

It in this context that one must estimate the opportunity cost of the three farm laws that were protested against by the farmers in Singhu. More than the private sector needing Punjab, it was the state that needed them.

Punjab, today, across sectors, needs the private sector money. The state treasury needs more revenue, more taxes, and more taxpayers. Industrial hubs like Ludhiana, once a key hotspot, are now losing business to neighbouring states.

Even the service sector in Mohali has failed to take off, even after more than a decade. Barring the investments by the Centre, there is little investment on infrastructure by the state.

While the supporters of the AAP may want to mock the governor for his concerns when it comes to state spending, the truth is that the government has a very narrow window at its disposal to get the fiscal affairs in order.

For the mandate they had, AAP could have gone for some brave policy measures, but even they chose to go for the theatrics. 

Punjab, today, is at a tipping point. The proud citizens may want to chant ‘no farmers no food’, but in their delusion, it is their state sinking further into bankruptcy each day.