Punjab Finance Minister Harpal Singh Cheema on Tuesday shed light on a critical issue plaguing the state’s fiscal landscape — the significant toll taken by servicing legacy debt and settling old liabilities. The repercussions have been profound, with an estimated fiscal erosion of Rs 40,000 crore till now, a staggering sum that could have been channeled into capital infrastructure, development projects, and vital social welfare schemes.
The servicing of legacy debt and settling long standing liabilities, in fact, has the “draining” impact on Punjab's fiscal space. “From April 2022 to December 2023, the Government allocated a substantial Rs 30,370 crore for interest payments linked to legacy debts. Simultaneously, it actively repaid legacy debt, totaling approximately Rs 29,023 crore during the same period, inherited from the previous administrations,” said Cheema, after tabling the budget proposals for the years 2024-25 in the Vidhan Sabha.
Exuding confidence, Cheema maintained that the mounting debt burden of the state would decline, but it may take decades. “We have succeeded in bringing it down by four percent which is our government’s big achievement…It is a positive step,” he said.
The government’s “financial commitments” have eaten into the state’s fiscal space, creating an immediate and medium-term burden totaling around Rs 13,100 crore. The legacy liabilities encompass critical areas such as the Atta Dal scheme, power subsidy arrears, bail out packages for debt-ridden state entities, and payments of non-released shares of centrally-sponsored schemes.
A senior government official, who did not wish to be named, said that despite the challenges, AAP Government, from the fiscal year 2022-23 onwards, exhibited a proactive approach in addressing outstanding liabilities, successfully handling Rs 6,279 crore approximately in the said year alone. The sectors covered included PSIDC, Punjab Agro, Atta Dal scheme through PUNSUP, sugarcane payments, PUDA, Punjab State Agricultural Development Bank, power subsidy arrears, and unreleased shares of centrally sponsored schemes.
Looking ahead, in the fiscal years 2023-24 and 2024-25, an allocation of Rs 6,000 crore has been designated to clear previous outstanding liabilities, indicating a steadfast commitment to financial rectitude.
However, the financial challenges are compounded by the Central Government’s withholding of Rs 8,000 crore, earmarked for crucial sectors such as the National Health Mission (NHM), Rural Development Fund (RDF), Mandi Development Fund (MDF), and Special Assistance to State for Capital Investment. This delayed disbursement has indirectly impacted the state treasury, necessitating additional borrowing to bridge shortfalls and maintain uninterrupted development and services, said Cheema.
The official underscored that the fiscal erosion, a direct consequence of addressing legacy debt and liabilities, has reached an alarming Rs 40,000 crore. “This substantial sum, if retained, could have played a transformative role in allocating funds for capital infrastructure projects, comprehensive development initiatives, and essential social welfare schemes,” said the official.
