Punjab Budget 2023-24: Three suggested Pillars-Fiscal Prudence, Growth and Jobs- BS Ghuman
Prof BS Ghuman, Former Vice Chancellor,Punjabi University, Patiala / March 4,2023
The budget is not merely a document containing details of revenue and expenditures of the Government. It is one of the most effective economic policy instruments for steering economy in a particular direction. Earlier, planning was also a platform to workout economic priorities. After the 12th Five Year Plan, however, India bid farewell to planning and the void thus created is to be filled by the budget by articulating economic priorities of the Government while mobilizing resources and spending the same on competing programmes.
Punjab Government no doubt made many promises during elections, but prioritization is essential in the view of resource constraints. In the coming budget, it is suggested that the Finance Minister (FM)may consider three priorities, namely, improving fiscal health, restoring lost economic glory, and creating jobs.
As regards fiscal health three vitals, namely, public debt, revenue deficit and fiscal deficit play pivotal role in fiscal prudence.
The Government normally resorts to public borrowing when its expenditure exceeds the revenue. Punjab has excessively used this mode of financing. Public debt in Punjab during 2021-22 was 49.1 percent of State income – highest in the country. This needs to be regulated immediately, failing which the state would entail high risk of entering into debt trap and also adversely affecting the state’s credit rating. The FMmay consider presenting a roadmap to regulate public debt. In the ensuing budget, it should be frozen at 49.1 percent -the actual level of 2021-22. In the medium run, the public debt should be brought down to 40 percent. However, in the long run, that is, by 2047, it should not exceed 32.5% of the State income – an ideal benchmark. It is an achievable target as during 2014-15, Punjab had outstanding debt 31.64 percent of state income.
Revenue deficit needs immediate attention in Punjab budget. Revenue deficit means government falling short of funds to function on day-to-day basis. It is defined as the difference between revenue expenditure and revenue receipts. In Punjab this deficit was 3.16 percent of state income in 2021-22. It should be brought down to zero -the target fixed by the 13th Finance Commission which was to be achieved by 2014-15.
Fiscal deficit is most important parameter of fiscal prudence. It refers to excess of overall expenditure over receipts. In Punjab, the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 has prescribed a limit for fiscal deficit not to exceed 3% of state income. The fiscal deficit in Punjab, however, was 4.8 percent in 2021-22. The FM should take initiatives to contain fiscal deficit to 3% of the State income. Regulating both the deficits will improve the credit rating of the state and also increase the capital expenditure (-capex). This in turn would enhance productive capacity of the economy and would stimulate economic development. In 2021-22 capex was as low as 6.39 % of total expenditure. The FM should consider to increase this to 10 percent of total expenditure in the forthcoming budget; 15 percent in the medium run and 25 percent by 2047.
What are the options available to the FM to bring these fiscal fundamentals within the prescribed limits? Two immediate options include – mobilizing more resources and containing expenditure.
The historical behaviour of revenue receipts suggests that between 2017-18 and 2021 -22 on an average the revenue realised (accounts) was 18 percent short of revenue targeted (budgetary estimates) in the budgets .In case of state’s own tax revenue and non-tax revenue the short fall respectively was 17 percent and 29 percent of the targets .These large differences between targets and achievements suggest to the FM a wide scope for mobilising more resources by formulating a stringent revenue compliance strategy for improving collection of revenue as targeted in the budget. The performance regarding revenue raising should be reviewed threadbare on quarterly basis by the FM. The FM should also levy fresh taxes and revise upward the rates of existing taxes. There is also a need to harness the potential of non-tax revenue by enhancing users’ charges, restructuring and merging public enterprises, disinvestment and asset monetisation.
Time series data suggests the same pattern in case of budgetary expenditure. On an average the actual total expenditure was 17 percent lower than the budgetary targets between 2017-18 and 2021-22. Capital expenditure suffered the most by being 42 percent lower than the budgetary targets. These wide gaps between expenditure planned and incurred can help the FM to contain expenditure. The cost-effective strategies for efficient use of resources should also be introduced in the budget.
In brief all these measures would help to bring down public debt, revenue and fiscal deficits in the state.
Punjab experienced a rate of growth of 5.8 percent per annum during 2005-06 to 2021-22 which was lower than all India growth (6.5 percent).For restoring economic glory of Punjab, the economy should grow at a pace of 7 percent and 10 percent respectively in the short and long run. The FM’s each initiative in revenue raising and allocating resources should take these targets in view. For taking economy on higher growth trajectory the FM should step up capex, incentivise farm-centric rural industrialisation, and digital technology and knowledge-based industries including services.
Joblessness though is a universal phenomenon, but widespread unemployment in Punjab is a serious problem. In January 2023 Punjab had 6.8 percent rate of unemployment. According to one estimate Punjab has around 25 lakh unemployed persons. In addition, the agriculture sector has disguised unemployment. Unemployment is likely to increase further due to automation and increasing use of smart technologies like artificial intelligence. The forthcoming budget is an appropriate opportunity to generate employment. The FM should provide economic stimulus in the budget to the sector like education, which prepare youth for employment; and the sectors which generate decent jobs like farm -centric rural industrialization, micro, small & medium enterprises (MSMEs), service sectors and start-ups.
(The views expressed are personal)
