Punjab govt claims these steps will boost the state’s annual income by Rs 2,400 to Rs 3,000 crore.

The Punjab government's efforts to ease the financial burden on the state's people with subsidies are becoming costly. The state is in a situation where the income is far lower than the expenditure. To manage this, the government has been forced to increase VAT on petrol and diesel and halting electricity subsidies for connections with a load of 7 kW. In addition, diesel price hikes have led to an increase in bus fares by 23 paise per kilometer.

The government claims these steps will boost the state’s annual income by Rs 2,400 to Rs 3,000 crore. However, the state already carries a debt burden of Rs 3.27 lakh crore and continues to borrow more just to meet loan repayments. While this debt was inherited, the government has not shown the ability to slow its growth. As a result, drastic economic steps became necessary, though the rapid implementation of these changes has understandably upset the public.

Electricity for agriculture has been free in Punjab since 1997, and the state was one of the first to introduce this benefit. Similarly, the practice of not charging for canal water also started in Punjab. The financial loss from providing free electricity to the agricultural sector was offset by increasing electricity tariffs in other sectors. As a result, Punjab now ranks among the states with the most expensive electricity. In the months leading up to the last assembly elections, former Chief Minister Charanjit Singh Channi reduced electricity rates for domestic and industrial sectors, further increasing the state’s subsidy burden.

Subsidies for connections with a 7 kW load were part of Channi’s decision. These kinds of concessions inevitably increased the state's subsidy obligations. After coming to power, the Bhagwant Mann government quickly fulfilled its promise of providing 300 units of free electricity per month, in addition to maintaining previous subsidies. This has pushed the subsidy bill to dangerous levels, resulting in a ripple effect across the state's finances. The government is now struggling to pay employee salaries and pensions on time.

The state had hoped to receive Rs 6,700 crore in Rural Development Fund (RDF) dues from the central government, but this expectation seems unlikely to be fulfilled anytime soon, with the matter now in the Supreme Court. RDF is paid by the Centre for the procurement of food grains, and while Punjab’s rate stands at 3% per quintal, Haryana and other states charge only 1%. The Centre remains firm in its refusal to grant Punjab any concessions. This delay in funds is not only straining Punjab’s finances but is also hampering rural development.

The primary revenue sources for state governments include GST, VAT on petrol and diesel, and excise (liquor taxes). Other income sources depend on the state's geographic location and industrial/business potential. Punjab's economy is still largely dominated by agriculture, which has reached a stagnant phase. New industries have been slow to develop, and the limited number of investors are unable to spark the growth of allied industries. Major business houses in Punjab are increasingly choosing to invest in southern India, where the availability of barren lands, and lower import-export costs make it more appealing.

While opening road trade with Pakistan may bring some benefit to Punjab, it would be limited to a few billion rupees. Much of the trade between India and Pakistan already flows through the United Arab Emirates, which has been India’s fourth-largest trading partner for the last five years, due to this indirect Indo-Pak trade.

In this challenging economic environment, while the Bhagwant Mann government’s tough decisions may reassure economists that it is taking steps to stabilize the economy, the common man continues to bear the brunt of these measures, facing increasing costs and limited relief.