Two years of AAP govt: Punjab’s revenue receipts looking up, fiscal concerns remain
The AAP government has focused on boosting revenue receipts through better compliance and plugging leakages. The state’s own tax revenue (OTR), which includes goods and services tax, excise, and stamp duty, has seen a 13.2% year-on-year increase in the financial year 2022-23
When the Aam Aadmi Party (AAP) stormed to power in Punjab in March 2022 with populist guarantees, its most immediate challenge was the grim state of finances.
It quickly brought out a white paper, tabled by finance minister Harpal Singh Cheema in the assembly, on state finances to highlight the fiscal mess it inherited and blamed profligacy of the previous governments, virtual collapse in capital investments, and non-realisation of potential tax and non-tax revenues for the situation. The corrective measures suggested included a serious relook into the expenditure commitments, revenue enhancement measures, and reduced reliance on debt.
The AAP government has focused on boosting revenue receipts through better compliance and plugging leakages. The state’s own tax revenue (OTR), which includes goods and services tax, excise, and stamp duty, has seen a 13.2% year-on-year increase in the financial year 2022-23, going to ₹42,243 crore from ₹37,327 crore in FY22, and is expected to be ₹5,1400 crore as per the revised estimates (RE) for the current fiscal. The annual growth rate of 13%, according to Cheema, is much higher than the compound annual growth rate of 8% during 2012-17 and 6% during 2017-22.
The OTR to GSDP ratio, which indicates the state’s ability to mobilise revenue, of Punjab is around the same as the national average of 7% of states, indicating room for better realisation. Similarly, non-tax revenue (NTR) is up 30%, rising to ₹6,232 crore in FY23 from ₹4,784 crore during the previous year. It is estimated to be ₹10,051 crore in 2023-24.
There are, however, concerns on the expenditure side, which jumped to ₹1.80 lakh crore from 2022-23 BE of ₹1.55 lakh crore. Then, revenue expenditure also increased from BE of ₹1.07 lakh crore to ₹1.13 lakh crore (actual), increasing the revenue deficit. Of this, 80% went into meeting committed expenditure on salaries, pensions, power subsidy, and interest payments. This year’s revised estimates indicate an effort to rein in expenditure, but the picture will be clear from the final accounts.
On the macroeconomic front, fiscal deficit (FD), as a percentage of GSDP, which rose to 5.04% in FY23, is still high at 4.12% as per 2023-24. While this has led to increased borrowing, the government hopes to bring FD down to 3.80 in financial year 2024-25. Rising debt – ₹3.74 lakh at the end of FY25 with debt to GSDP ratio of 46.60%, has led to high interest burden and drawn flak from the opposition. With bulk of the borrowings going into debt servicing, productive spends have been affected. Capital expenditure target has been reduced to ₹7,445 crore next year from 2023-24 BE of ₹10,354 crore.
However, Cheema, who while presenting his third budget on March 5 blamed legacy debt and unpaid liabilities of previous years for fiscal space erosion, is counting on a further uptick in revenue receipts and the steps initiated for fiscal consolidation to set things right and address people’s aspirations at the same time.
