Punjab govt seeks moratorium on repayment of debt, 10 months after rejecting economists’ proposal

In December last year, Punjab Finance Minister Harpal Cheema rejected the idea of a moratorium on repayment of debt after a group of economists from Punjab had written to Union Finance Minister Nirmala Sitharaman to help the debt-ridden state by way of moratorium.

Professor Lakhwinder Singh, Professor Sukhwinder Singh, and Professor Kesar Singh Bhangoo had written a letter to Union Finance Minister Nirmala Sitharaman seeking a moratorium of seven years and a special package.

But Cheema had then said that they did not want a moratorium on the debt as the government would end up paying more interest on the debt.

“We do not want any moratorium. If you talk to any financial experts, they will tell you that moratoriums are a bad idea. If there is a moratorium for seven years, that means that we will not pay back the principal amount for seven years. And after seven years, we will end up paying more interest. This will only delay paying off our liabilities,” Cheema had said.

Prof Bhangoo told the Indian Express Tuesday, “This (moratorium) is what we had advised them. We had written to the government and had even met Cheema in February. We had advised him the same. But the demand was not made. If the government is now demanding a moratorium, it is a welcome step.”

In their letter to Sitharaman, the economists said, “According to Reserve Bank of India (RBI), Punjab state has accumulated debt of the order of Rs 3,05,126.3 crore (Rs 2,82,865 crore outstanding liabilities + Rs 2,22,61.3 crore outstanding Guarantees) in 2021-22. This comes out to be 53.3 per cent of the Gross State Domestic Product (GSDP) at the end of March 2022. The annual interest liability turns out to be Rs 20,315.5 crore in 2021-22, which is 45 per cent of the total own tax revenue of the state government in 2021-22.

“Due to the non-sustainability of the debt, the Thirteenth Finance Commission of India has put Punjab state in the category of Debt Stressed… and recommended a financial package that was never realised. Now Punjab has transitioned from a ‘debt stressed’ state to a ‘debt trapped’ state. This has generated a typical crowding-out effect on private investment in Punjab. Consequently, this has resulted in a slow growth and distorted structure of the economy.”

Cheema was not available for comments Tuesday.