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Punjab's Economy plunging downhill
Vulgar display of wealth and depressing faces of Punjab’s
economy
Harjap Singh Aujla
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It is about time for
Punjab to get out of its financial quagmire. We are transferring
our own liabilities to the unborn generations, which is not
right. |
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 Punjab’s economy presents two distinct
faces, which are not in conformity with each other. On one hand, the
economy of the present Punjab Government presents a very bleak and
grim spectacle. On the other hand, the economy of the people that
live within the state, due to the accumulation of black and white
wealth, presents an extremely rosy scenario.
A large segment of the
inhabitants of today’s materialistic Punjab is vibrant, upbeat and
exhibits extraordinary flamboyance. Just look at the weddings in
some of the rich families of the state, there are hundreds of dishes
served to the guests. Most of the food goes waste. The left overs of
food are not served to the poor. This is not without the existence
of actual hidden or declared wealth to support such tendencies. No
where in this World, such a show of wealth can go on without the
backing of actual resources.
The state government due to its own actions of omission and
commission is surprisingly reeling under a colossal debt of at least
61000 crores of rupees. This meter of debt is running at breakneck
speed, showing no signs of slowing down. The successive
democratically elected governments, instead of worrying about the
symptoms of a grim fiscal crisis and trying to reverse this suicidal
trend, are acting like spectators completely unperturbed and naïve
to the aggravating economic crisis. As a one year or two year event,
small budgetary deficits can be totally understandable, but
persisting with unashamed accruing of heavy debts year after year
amounts to an unacceptable fiscal behavior in any society.
As far as the people of Punjab are
concerned, they on an average are spending more money on consumer
items than their counterparts in the rest of India. Where as, an
average household in rest of India is spending between 50 and 55% of
their monthly income on consumer items, in Punjab the spendthrift
people are spending in access of 60%. The figures for Jalandhar are
still higher about 80%. That means that in real terms, the Punjabis
earn more income than what they disclose or for which they are
paying taxes to the state government.
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The Punjab
Government’s finances are in a mess. At the same time there is
plenty of legitimate and illegitimate wealth with its
politicians, bureaucrats and the influential people. The Punjab
Government does not have the will power to tax its favored
creamy layer and the wealthy people want to keep extending the
span of their tax holidays as long and wide as they can
stretch. |
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Compared to the Punjab Government, the
central government is extracting a higher share of taxes from the
well to do Punjabis. The tax collection records of the central
government’s two chief commissionerates of income tax at Ludhiana
and Amritsar is more impressive that that of Punjab’s VAT collection
officials. The central government is tough in collecting its dues
and Punjab is unfortunately not.
If the Punjab government earns less
money, or it does not have the will to collect more revenue, in such
a case it should be prepared to slash its expenditures too. That is
what the successive elected governments have been unprepared to do.
Every day new development schemes are launched, without having a
look at the availability of funds. Some of the works don’t proceed
beyond the stage of laying of the foundation stones, others are
stopped at the foundation level. Some other works remain half built.
Abandoning unfinished projects has the worst effect on the economy
of the state. Such unfinished projects are neither useful to the
public, nor they generate any revenue for the expending authority.
Punjab of today suffers from non
existence of a well meaning tax policy. We have hardly a significant
house tax or property tax. Tax collection regime is quite bad in
urban areas, but in rural areas no one rich or not so rich pays any
tax at all to the state government. Water supply charges are much
less than the cost of providing potable water to the people in rural
and urban Punjab alike. Very few people pay sewer tax in Punjab.
Sewerage systems are the most expensive civic amenities to build in
older built up areas, but there is hardly any realization of tax
revenue from the already laid sewerage lines in any city pf Punjab.
 Octroi
duty, first introduced by the British, has been one of the oldest
civic body taxes in urban Punjab. For more than half a century this
tax has been a major source of revenue for Punjab’s municipal
governments. But a few years ago, with one stroke of pen, the
Shiromani Akali Dal led Punjab Government abolished it entirely.
Again, as a non thinking regime, this big step was taken without
making any arrangement to compensate the municipal bodies for their
losses.
After coming to power in 2007, the
present government abolished the stamp duty on transfer of land
within the family members. This move may have become very popular
with the landed aristocracy, but it resulted in annual revenue loss
worth hundreds of crores of rupees.
Auction of liquor vends is one of the
biggest sources of Punjab state’s income. Since consumption of
liquor is increasing every year in the land of the ten gurus and a
host of holy peers and faqirs, there should be a proportionate
increase in liquor revenue for the state. But the government adopted
a policy of allotting the liquor vends by drawing of lots rather
than by conducting nationally advertised open auctions. This policy
of allotting the liquor vends after draw of lots has resulted in
loss of revenue worth hundreds of crores.
The cinema industry in Punjab was
experiencing financial strain and they wanted some kind of tax
relief. Instead of reducing the entertainment tax gradually to 75%
or 50%, the Punjab Government abolished it totally.
Everybody knows that a lot of money was
spent to build the irrigation canals in the state. These canals at
one time used to be the backbone of Punjab’s lifeline agrarian
economy. We all know that a substantial amount of money is required
each year to maintain the canal system, but the Punjab Government,
in order to please the influential landlord lobby, abolished
irrigation charges altogether.
Often the present leadership of Punjab,
during the course of joint center state meetings, has been pleading
for transferring its powers of taxation to the states Everyone, who
has the knowledge of the working of Punjab Government, should laugh
at such pleadings. A state which has squandered its own legitimate
sources of revenue by offering freebees to its well to do population
on the eve of every election, where is the guarantee that the same
government will not squander away the newly transferred power of
taxation. As long as the center is collecting the taxes, Punjab is
getting its share based on the formula of sharing of federally
collected taxes. The Punjab’s fiscal situation will be a lot worse,
if the present leadership or a similar one in future collects the
centrally collected taxes.
Punjab’s public sector transport
undertakings, the Punjab Roadways and the Pepsu Road Transport
Corporation have being losing money, some due to the strong arm
tactics of some influential private transporters and some due to
misplaced fiscal policies of the present government. The government
should have taken cost cutting and corruption reducing steps to make
these bodies profitable. But it has recently taken steps to further
increase the mounting losses. Recently a lot of air-conditioned
buses have been inducted into the fleets of both these undertakings,
but the fare for the air-conditioned coaches has been fixed only 10%
higher than the economy class fare. Every one knows that the cost of
running an air-conditioned bus is much higher than that of an
ordinary coach. Just have a look at how much higher fare the Indian
Railways are charging from the travelers in the air-conditioned
category. The air-conditioned bus fares in Punjab should be at least
doubled in comparison to the ordinary class.
Punjab Government has thousands of acres
of agricultural land, which is under the possession of some peasants
and some big landlords. Now the government wants to give ownership
rights of this land to the tillers and the big landlords. But the
government wants to charge only a nominal fee from the poor and the
rich alike. Punjab should first see if this land can be sold at
market rates for SEZs or other mega projects, after that the land
should be mutated in the name of tillers by charging marginally
lower prices than the market rate.
The practice of laying foundation stones
and opening ceremony stones is also proving very expensive.
Considering one day’s gross salary of the all the police personnel
and other civil servants that accompany the chief minister or the
deputy chief minister, the one day cost of the vehicles in the
cavalcade, the cost of consumed petrol, these costs often exceed the
total cost of the project.
In advanced countries, the foundation
stones are restricted to only a few nationally important projects.
In Punjab some projects with beautifully carved stones in place do
not see the light of the day due to shortage of funds and some
projects fall prey to the official policies of vendetta after change
of governments. Generally the priorities of the new government are
not the same as those of its predecessors. Because of this the money
spent on abandoned projects is wasted. In the western countries most
projects are allowed to be completed.
The U.S. Federal Government gives
financial aid to the states for expensive infrastructure projects
such as highways, dams and bridges, No foundation stone is laid for
projects even worth millions of dollars. Only one painted metal
board is displayed at an appropriate place, which mentions the
amount of federal assistance and the state’s share. The name of the
governor is written on the board along with the name of concerned
commissioner and director of the executing division. No other name
finds mention on the board. The project once started is continued
until it is commissioned.
In America, the state governments are
mandated to have balanced budgets. If during one particular year
some extra money has been spent, in the next year it will spend that
many less dollars. This makes the states more responsible. There is
no scope for populist freebees in American state administrations.
If during the eight year long Presidency
of Ronald Reagan, America ran a record fiscal deficit, then during
the last year of the eight year long Presidency of Bill Clinton, the
Reagan generated fiscal deficit was completely wiped out and
America’s federal budget showed a small surplus.
Coming back to Punjab, what the present
Government is experiencing at the macro level, the Punjab State
Electricity Board is experiencing at a slightly smaller level. On
paper, the Punjab State Electricity Board is an autonomous board to
run the affairs of electric power generation and supply in the
state, but in actuality its chairman and the other members are
completely under the control of the Punjab Government. As a truly
autonomous body, the power board should be allowed to determine what
price per unit it has to charge from its customers to stay
profitable. But the low rates are being dictated by the Punjab
Government. The Punjab Government also forces the electricity board
to supply long hours of free power to certain groups which the
government wants to help for electoral gains. For the healthy growth
of the electricity board, the annual profit should be at least 5%
and preferably 10%. Such a profit can be used as the down payment to
obtain loans from the lending agencies for augmenting generation for
future. But by giving free electricity and under priced power supply
worth 3000 to 4000 crores of rupees a year, the board is left with a
huge yearly negative cash flow.
By now there is a loan of 13000 crores
of rupees on the Punjab State Electricity Board. Such a massive debt
makes it impossible for the state board to arrange financing for
meeting the costs of additional power generation, distribution and
maintenance of the infrastructure. That is one of the main reasons
why Punjab Government wants to get additional electricity generated
from private companies. But these companies are not charity
organizations. They have to meet their costs, earn some bonus and
fringe benefits for the stake holder biggies and set aside some
dividend for their share holders. That is why in spite of recently
concluded agreements, it will be impossible to obtain electricity
from the private companies at rates less than rupees 3 per unit. If
coerced to reduce rates, these companies will declare bankruptcy and
abandon the projects.
The financial vows of the Punjab State
Electricity Board are much deeper than what meets the eye. The
Punjab State Electricity Regulatory Commission has the authority to
direct the state government to compensate the electricity board for
the amount it loses as a result of distribution of free power. On
paper that is true, but in actual scenario the Punjab Government
invariably fails to release this requisite amount in total. In order
to make some money on the side, the board resorts to selling its
surplus power during the winter months, when the demand within the
state is low. Let us face the fact that the total electric power
available from all domestic sources in Punjab, ranges between 6000
and 7000 megawatts. During the winter months, when there is no
demand from the air-conditioners and the tube-wells also do not run
crazy like they do during the paddy season, the statewide demand
falls below 6000 megawatts.
That means that during the winter
months, Punjab should not suffer from any power cuts. But
surprisingly long hours of power cuts are still being enforced under
the present regime. By cutting power supply to its own bill paying
consumers, the board ends up saving some electricity, which it sells
at higher prices to other states. In the process the board earns
some money on the side. Ethically this is an unacceptable practice,
but the government allows it because it can not compensate the board
for the free power it is giving to some vote-banks. It was expected
that when the parliamentary elections were to be held in April – May
of 2009, efforts will be made to make sure that there is no shortage
of electricity in the state. That prophecy came out to be true.
Power was purchased at higher rates at that time to keep the voter
in good mood. The ruling party knows it better than the others that
at the time of the elections, any power shortage will hurt the
prospects of the candidates of the ruling party.
Under orders from the central
government, most of the states have bifurcated or trifurcated their
electricity boards. As a result, most states now have separate
companies for generating, distributing and selling power. But the
PSEB is on life support system. It has to be brought back to a
reasonably good health before its assets can be divided. Punjab will
need between 13000 and 21000 crores of rupees to bring its power
board to sound health. From where such an amount will come is a
matter of guess?
The Punjab Government’s finances are in
a mess. At the same time there is plenty of legitimate and
illegitimate wealth with its politicians, bureaucrats and the
influential people. The Punjab Government does not have the will
power to tax its favored creamy layer and the wealthy people want to
keep extending the span of their tax holidays as long and wide as
they can stretch.
It is about time for Punjab to get out
of its financial quagmire. We are transferring our own liabilities
to the unborn generations, which is not right.
7
October 2009
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