Punjab is nearing a debt trap, with fresh borrowings, claim experts
By Satinder Bains
CHANDIGARH: Punjab, once hailed as India’s agricultural powerhouse, is now grappling with a full-blown debt trap, with total liabilities projected to cross ₹3.74 lakh crore in 2024–25, constituting over 45.4% of the Gross State Domestic Product (GSDP). This is well beyond the FRBM limit of 35%, making Punjab one of the most indebted states in the country.
While the state’s borrowing continues unabated, its key revenue-generating sectors—liquor, sand mining, and transport—have failed to keep pace. Revenue from excise (liquor) in 2024–25 is projected at ₹8, 200 crore, sand mining royalties at just ₹367 crore, and transport taxes at approximately ₹3, 000 crore—figures seen as disproportionately low compared to the state's needs and potential.
Chronic Revenue Deficit
The primary reason behind Punjab’s sustained borrowing lies in its chronic revenue deficit. The state continues to spend significantly more than it earns, especially on salaries, pensions, subsidies, and interest repayments. The revenue deficit for 2024–25 is estimated at ₹17, 865 crore.
While the state’s own tax revenue is projected at ₹56, 513 crore, a large portion of this amount is consumed by committed expenditures, leaving little room for development spending.
Escalating Subsidy Bill
Punjab’s populist subsidy regime has heavily burdened its finances. The state continues to provide free electricity to the agriculture sector, subsidized power for industries, and financial support for a host of social welfare schemes. Power subsidies alone are expected to cross ₹20, 833 crore in 2024–25, with agriculture accounting for over ₹9, 000 crore.
Combined with pension liabilities of ₹20, 691 crore and other welfare commitments, these subsidies significantly constrain fiscal flexibility.
Heavy Salary and Pension Expenditures
The state’s large and ageing government workforce has led to ballooning salary and pension obligations. In 2024–25, over ₹48, 000 crore is earmarked for salaries and pensions, consuming nearly 65 percent of the state's tax revenues. This leaves minimal fiscal space for capital investment or public service improvements.
Borrowing for Non-Productive Expenses
Punjab’s debt is not primarily directed towards productive infrastructure. Of the ₹47, 107 crore borrowing planned for 2024–25, only ₹11, 375 crore—around 24 percent—is allocated for capital expenditure. The remaining amount is expected to cover revenue expenditures such as salary payments, interest obligations, power subsidies, and support for loss-making public enterprises.
Slow Growth in Tax Revenue
The state’s tax base remains limited due to a lack of diversification in the economy. Punjab continues to rely heavily on agriculture, while industrial and services sector growth remains sluggish. Revenue from sectors such as liquor, sand mining, and transport is underutilized, often due to inefficiencies and corruption.
Despite efforts to improve collections under GST, excise, and property tax, the state has been unable to bridge its income-expenditure gap.
Risk of a Debt Trap
Economists warn that Punjab is nearing a debt trap, with fresh borrowings being used increasingly to repay old loans. Interest payments alone account for more than 20 percent of the state’s annual budget. If left unaddressed, this trend could lead to further credit downgrades, reduce investor confidence, and force spending cuts in critical sectors such as health, education, and infrastructure.
Punjab’s escalating debt reflects not just financial mismanagement but deeper structural weaknesses in governance and economic planning. Without urgent fiscal correction and a strategic shift in economic priorities, the state risks sacrificing long-term growth for short-term populism. A reset is not only necessary—it is overdue.