High indebted Punjab, Himachal may breach BE of fiscal deficit in FY24

Punjab had over 40% debt as a proportion of GSDP in 2019-20 too, while Himachal Pradesh had 39.1%

Two states -- Punjab and Himachal Pradesh -- which went to Assembly polls last year figured in the list of those which projected their debt to cross 40 per cent of their respective gross state domestic product (GSDP) at the end of 2022-23 (revised estimates) and 2023-24 (budget estimates). 

The two states saw a change in guard, with the Aam Aadmi Party (AAP) replacing the Congress in Punjab, and Congress ousting the Bharatiya Janata Party (BJP) in Himachal Pradesh, backed by their electoral promises.

The states have been facing high debt of over 40 per cent since the Covid-hit year of 2020-21. Punjab had over 40 per cent debt as a proportion of GSDP in 2019-20 too, while Himachal had less than 40 per cent -- 39.1 per cent. 

Since 2020-21, the fiscal deficit of these two states has been high, and they are resorting to high debt. 

While the Reserve Bank of India (RBI) assessed the debt and fiscal deficit of the states in terms of the revised estimates (RE) for 2022-23 and the Budget Estimates (BE) for 2023-24, now fiscal deficit data for 2022-23 and the first seven months of 2023-24 has also come in.

While Punjab managed to contain its fiscal deficit at 4.6 per cent of GSDP during 2022-23 compared to 5.2 per cent it pegged in the revised estimates, it was quite higher than 3.8 per cent in the Budget Estimates for the year. Himachal had a quite elevated fiscal deficit at 6.1 per cent of its GSDP during the year, though lower than 6.4 per cent projected in RE. It was way higher than 5 per cent pegged in BE of the year.

For the current financial year, Punjab had pegged its fiscal deficit at 5 per cent, while Himachal pegged it at 4.6 per cent.

However, Punjab's fiscal deficit touched 58.81 per cent of BE in the first seven months. This implied that the deficit may exceed five per cent of GSDP in the current financial year. Last year, at this point in time, the state's fiscal deficit had hit 58.49 per cent of BE, and the deficit ballooned higher than BE, as cited above. 

Himachal's fiscal deficit touched 60.58 per cent of BE by October this year, which also implied that the gap between expenditures and revenues may be more than 4.6 per cent of GSDP for the current financial year. The state had faced a much higher fiscal deficit compared to BE -- at 65.95 per cent -- during the first seven months of 2022-23, and the deficit crossed six per cent for the entire year, higher than BE, as cited above.

It is very much clear that Punjab and Himachal Pradesh may both see their fiscal deficit above BE in the current financial year, which would impact their debt-GSDP ratio. Punjab has already pegged this ratio at 47.6 per cent of GSDP for the year, a bit higher than 47 per cent (RE) during 2022-23. Himachal has projected its debt to be a bit lower at 44.2 per cent in the current financial year than 44.3 per cent during the previous financial year (RE).

The two states have seen such a high fiscal deficit despite the fact that the two governments have yet to implement all poll promises.

The Mann government in Punjab has implemented some of the poll promises by AAP, such as 300 units of free power to the households, free power to farmers, etc. However, it is yet to implement providing Rs 1,000 to every woman aged over 18 years per month and reverting to the old pension system (OPS).

Similarly, the Congress government has implemented three of its ten promises. The promises met or being introduced included reverting to OPS, start-up scheme for youth and teaching English in every primary school.

Besides these three schemes, the Congress had promised Rs 1,500 monthly allowance to every woman aged 18-59 years, 300 units of free electricity, five lakh jobs, giving gardeners right to decide price of fruits, free treatment from mobile clinics in every village, purchase of ten litres of milk daily from cow and buffalo farmers and purchase of cow dung at Rs two per kg. These are yet to be introduced.