The Prime Minister during a meeting with the state Chief Minister Prakash Singh Badal here said, "recovery of the loan will stop with immediate effect," the release said.
Modialities for executing the decision will be worked out immediately, Gujral told Badal, adding "Punjab will not pay this loan."
The Prime Minister told the officials of the Union and state governments, who were present at the meeting, the Punjab had fought the nation's battle in a proxy war waged by ahostile negighbour and there was no question of the state bearing the financial burden for the same, the release said.
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Badal had earlier requested the Prime Minister to waive off the Rs 8,500 crore loan advanced to the state during its fight against terrorism saying that the state "is the defence bulworker of the country".
The Prime Minister also cleared construction of a full fledged international airport at Amritsar with cargo facilities.