Economy that runs primarily on ‘jugaad’

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Old 04-Feb-2016
Post Economy that runs primarily on ‘jugaad’

The announcement of a new pay commission in Punjab is targeted at wooing the government employees and pensioners in the election year.
The move comes in spite of both Deputy Chief Minister Sukhbir Singh Badal and Finance Minister Parminder Singh Dhindsa ruing, on several occasions, how almost 65 per cent of the state’s total revenue receipts go into just paying salaries and pensions, leaving little room for undertaking development projects. They have both gone on record on how the salary structure of Punjab employees is the highest in the county.
In fact, “jugaad” best describes how the cash-strapped Punjab government, with a burgeoning debt burden and a sharp slowdown in revenue growth, is managing its finances — taking money flowing in one head for use in the other, often only to meet the committed liabilities.
With day-to-day fiscal management becoming difficult, the state treasury has stopped clearing bills of employees; withdrawals from Provident Fund is a near impossible task; and government departments that have exhausted sanctioned budgets are not getting any refurbishment, thus failing to even pay salaries.
The failure of the tax collection system too comes out clearly since any additional tax is being tagged along with power tariff bills. From cow cess to duty on agriculture, from octroi on power to recovering the water and sewerage charges (to be levied from March 1 along with power bills) — recovery with power bills seems to be the only recourse.
Interestingly, each power consumer in Punjab pays Rs 1.05-1.30 per unit (based on the category of consumer) as tax over and above the power tariff.
This year, after availing the state’s Ways and Means Advance limit of Rs 560 crore on several occasions, the state has remained in overdraft on four occasions — though each time the juggling of funds helped it clear the overdraft within the 14-day stipulated period.
With three quarters of this fiscal already over, the state’s fiscal indicators present a rather dismal picture with the growth coming down from over 6 per cent last year to 5. Against the targeted revenue growth rate of 18.46 per cent, mainly expected through buoyancy in collection of taxes, the increase in total revenue receipts is 10.87 per cent.
Punjab is also witnessing an unprecedented slow growth in its Value Added Tax collection, a flat growth in taxes from stamps and registration of properties, lower than targeted excise collections and a 24.03 per cent negative growth in its own non-tax revenue.
The growth in Value Added Tax is just 1.9 per cent (Rs 8,940 crore as against Rs 8,773.02 crore in the corresponding period last year). Other than the negative economic sentiment, the diversion of almost Rs 160 crore of VAT received for funding the Akali Dal's ambitious “Urban Rural Mission”, which they hope will help garner votes; another Rs 1,800 crore stuck up because of litigation; and Rs 170-crore loss on account of less wheat procurement in 2015; have all added to the slower VAT collections.
Healthy portrayal and the not-so-good condition
Punjab’s Finance Department likes to present a rosy picture of the state’s fiscal health by maintaining that the state government has never defaulted on the repayment of loans and how the debt to Gross State Domestic Product (GSDP) ratio was less than 32 per cent — as indicated in the fiscal consolidation roadmap laid out by the 13th Finance Commission.
“The roadmap clearly says that the fiscal deficit has to be less than 3 per cent and we have achieved this target with 2.97 per cent deficit. Similarly, the state’s debt should be less than 38.7 per cent of the GSDP in 2014-15 and though the debt now stands at Rs 1.24 lakh crore, it is 32.27 per cent of the GSDP. Next year, the debt will be 31.34 per cent of the GSDP,” Finance Minister Parminder Singh Dhindsa said at a press conference last month.
But the fact remains that because of slow revenue growth — a fact accepted by Dhindsa — the Finance Department is now asking the excise, transport and revenue departments to improve tax collections by plugging all loopholes. However, the department seems to have little say in the “sop drive” in election year.
In the past two months, the government has announced to launch a major recruitment drive to add over a lakh employees to its already teeming workforce; VAT relief to certain segments of industry and nearly Rs 570 crore for sugarcane farmers. Now, a new pay commission has been announced.

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