Finance Commission

Posted On: 30 JAN 2019 4:34PM by PIB Delhi

The 15^th Finance Commission headed by Sh. N.K. Singh today had a detailed meeting with the State Government Punjab headed by the Chief Minister of Punjab Captain Amrinder Singh. The meeting was also addressed by the State Finance Minister Shri Manpreet Singh Badal.

The Commission was informed that:

• Punjab constitutes 1.53% of total area of the country
• The State has 2.33% of the total population of the country with an urbanisation rate of 37.48%.
• Sex ratio of the State is 895 as per Census 2011 as compared to 943 at All India level.
• Population density of Punjab is very high as against the national average and has grown consistently since 1951, though at a slower pace than the latter. Population density of the State is 551 as compared to the national average of 382.
• Though comprising of 2.33% of total population of the country, the state’s share in inter-se devolution was 1.577.
• States contribution to National GDP has been around 2.8-3.1% in the past 5 years (2011-12 to 2016-17)
• Share of Primary, Secondary and Tertiary sector is 29.2, 24.6 and 46.2% in 2016-17.
• Per capita Income of ₹ 128890 (Rank 13th) in 2016-17 as compared to India’s average of ₹ 103870.

The Commission was also informed that:

• Punjab is the first State to achieve 100% rural electrification, 100% rural connectivity through all-weather roads, mandi linkages of rural areas and now 24X7 rural water supply.
• The state has one of the lowest Transmission & Distribution Losses (T&D) in the country 13.6% in 2017-18 down from 16.95% in 2013-14.
• State has 100% road connectivity and with a road density of 133 per square kilometer, the State is ranked 2nd in the country.
• The State has made significant development in reducing the poverty, thereby showing its commitment towards SDG 1. The state has a poverty ratio of 8.3 in 2011-12 declining from 20.9 in 2004-05 (Population below Poverty Line Tendulkar Methodology.
• The memorandum submitted by the State has given a balanced picture of both equity and efficiency indicators. The State has proposed various indicators for performance measurement like in the areas of renewable energy, efficiency in Public Finance Management through IT initiative, Sewerage System in villages, efficient water resource management and solar powered street lights.
• The State ranks 2nd as per the Health Index 2018, prepared by the NITI Aayog in collaboration with the Ministry of Health and Family Welfare &the World Bank.

The Commission was concerned to note about the State’s Rising Outstanding Debt to GSDP Ratio, Declining Tax Revenues, Challenges for the State Finances, Debt Trap Situation, Agriculture Distress & Groundwater Depletion and other issues.

• The state is exhibiting a rising trend in its Outstanding Debt to GSDP no’s. The Debt to GSDP ratio has increased from 30.99% in 2012-13 to 42.61% in 2016-17.
• High interest payments coupled with the historical legacy of accumulated debt, which further got augmented due to the additional debt burden on the back of UDAY Scheme (of approx. ₹ 15628 cr.) and takeover of the legacy Cash Credit Limit (CCL) gap (of approxRs. 31000 cr.) into long term loan
• Double Digit Debt growth rate of government of Punjab for the past years violating the norms of fiscal prudence.

• As understood from the Principal Accountant General (PAG), Punjab and during the internal deliberations in the Commission, the State has been exhibiting lower growth rate of own tax revenue since 2013-14. This has also led to lower buoyancies of own tax w.r.t to GSDP in the recent years. The buoyancy has declined significantly over a period of five years from 1.70 in 2012-13 to 0.96 in 2017-18.
• The projections submitted by the state government to XV FC also indicates that the State is projecting its own tax revenues to grow at a mere trend growth rate of 4.13% during 2020-25.
• As state’s own resources contributes is a significant contributor (around 70%) to the total revenue receipts of the State, this trend is disturbing and would not augur well for the state’s fiscal health.
• The implementation of the Pay Commission is expected to lead to significant growth in expenditure on Salaries & Wages and put additional burden on the already strained financial resources of the State, constraining its fiscal space further.
• Committed expenditure comprising Salary, Interest payment, Pension and Subsidies constitutes more than 90% of the Total Revenue Receipts of the State.
• Punjab Interest Payments/Total Revenue Receipts in 2016-17 is 24.30%, which is highest among general category states.
• State is in a situation where its gross borrowings are not even enough to meet its expenditure on repayment of principal and interest payment, leaving little scope for the State to spend on developmental works.
• As per UDAY improvement barometer (June 2018), the State has achieved 100 % progress in Rural Feeder Audit. However, the state’s performance is not satisfactory and is way below the targets for parameters like Rural Feeder Audit, DT Metering Urban and DT Metering Rural. Health Outcomes.

Regarding the third tier the Commission noted that only 13 functions out of 29 envisaged in the Eleventh Schedule of the Constitution have been devolved to PRIs. According to Pr. AG Punjab, following are the issues pertaining to accounting of PRI and ULB:

• Accounts from the year 2011-12 to 2017-18 are in arrears.
• In case of PRI’s as there is no process of consolidation of PRIs accounts at different levels (village accounts to block level to district and finally to state level).
• Similarly, no provision of consolidation of accounts exists in the accounting manual prescribed for ULBs.
• Accounting system based on Model Accounting System (MAS) and National Municipal Accounting Manual (NMAM) for PRIs and ULBs respectively are yet to be followed.
• Examiner, Local Fund and Accounts (ELFA) being a statutory auditor is responsible to certify the accounts of PRIs and ULBs, but this is yet to be initiated.

On the issue of Agriculture Distress& Groundwater Depletion the Commission noted that:

• Wheat and paddy cover 83 per cent of the cultivable area of the State.
• The State has the highest percentage of net irrigated area to net cropped area of 99% (71% groundwater and 28% surface water) and highest irrigation intensity of 204% in India.
• With only 1.53% of India’s geographical area state produced 17.42% of the country’s wheat and 11.30% of the rice in 2015-16 and contributed 29% (P) rice and 46.4% (P) wheat to the Central Pool in 2016-17.
• The state has provided subsidies for power, water, fertilizer (now the second largest subsidy), seeds, credit, exemption agricultural income from income taxes, and assured MSP has further deteriorated the groundwater situation.
• Being a pioneer in Green Revolution, Punjab has lost most of its earlier agricultural dynamism. Between 1971-72 and 1985-86, agricultural growth was 5.7% percent compared to the All-India number of 2.3 percent. Since 2005-06, its average agricultural growth has declined to 1.6% compared to India’s 3.5%
• Consequently, overall dynamism has suffered as its overall growth has slipped from being substantially above the Indian average to well below. Punjab has slipped from being the richest large state (excluding special category states) in 1984 to 4^th in 2004-05 and finally at 13^th rank in 2016-17.
• The state is showing a decline in the crop diversification index from 0.710 in 1994-95 to 0.682 in 2005-06 and further declining to 0.658 in 2014-15.
• According to Central Ground Water Board (2017), the state has the second highest discharge of ground water through irrigation (34.05 bcm) and the estimated ground water availability for future irrigation use is negative.
• There is a need to diversify into high value crops and horticulture crops for which Government has taken several measures. Crops Diversification Programme is being implemented by the Government in original green revolution states viz. Punjab, Haryana and in Western UP to diversify paddy area towards less water requiring crops like oilseeds, pulses, coarse cereal, agro forestry.

 Some special demands from the State include:

• Special package of ₹ 12,000 crore for water cycle management in cities and villages.
• Special package of 1,000 crore for stubble burning.
• Special package of ₹ 1900 crore for providing revival to debt stressed farmers.
• Special onetime infrastructure development package of ₹ 500 crores for improving border area.
• Special recommendation to address the issue of disaster relief along the lines SDRF to address the issue of crop damages.
• Special debt relief package to improve fiscal performance.
• 2694 crore in lieu of payment for security loan during militancy period (1980-95).
• Waiving of CCL or division

The Commission was happy to receive the Agenda of the Punjab Government. It has promised to look into all the issues raised by the State in a fair and just manner. Both Central and State Governments are equal applicants before the Commission. “All the issues, concerns and challenges raised by the Punjab Government will receive the Commission’s serious consideration over the coming months”. The Chairman concluded saying that a “Prosperous India” was not possible without a “Prosperous Punjab”.

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MC