"ADB and the government of India today signed a USD 200 million loan (agreement) to help India's Punjab state improve a weak fiscal situation that is undermining growth, investment and socio-economic development," ADB said in a release today.
With large committed expenditure, Punjab has borrowed heavily recently to fulfil its spending need that created a vicious cycle of debt and deficit, ADB said, adding untargeted power subsidies are adversely affecting environmental sustainability in the state by exerting pressure on water resources.
"Untargeted public expenditure including various transfer payments has left Punjab in a financial bind which is weighing on public investment and the delivery of public services," said M Teresa Kho, Country Director, ADB India Resident Mission.
The loan is expected to give Punjab necessary support to improve its fiscal management, rationalise spending and introduce new revenue measures.
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The loan will be released in three tranches with first amount set at USD 50 million.
ADB is also providing a technical assistance grant of USD 400,000 to raise fiscal management skills of key institutions overseeing reforms in the state.
The programme will run for about two and a half years with an expected completion date of June 2017, ADB said.