Punjab to lose Rs 4,800 crore every year as Finance Commission ends Revenue Deficit Grant

Economist Kesar Singh Bhangu said that it was "a huge loss". "Punjab already has a debt of Rs 4 lakh crore, and will have to mobilise more resources to make up for this loss".

2 min readFeb 2, 2026 02:09 PM IST

Economists warn the move will tighten finances of the debt-burdened state despite a marginal rise in tax devolution.

The 16th Finance Commission has stopped the Revenue Deficit Grant for Punjab, potentially costing the state Rs 24,000 crore over five years. (File Photo)

In the election year, when the Aam Aadmi Party (AAP)-led government is scrapping the barrel to pay Rs 1,000 per month to women voters, the 16th Finance Commission Sunday stopped the Revenue Deficit Grant (RDG), tightening the state’s purse strings further as it could lose Rs 4800 crore per year.

The 16th Finance Commission report was tabled in Parliament Sunday.

The termination of RDG for Punjab, which is fiscally stressed, could cost the state up to Rs 24,000 crore over the five-year award period. RDGs are allocated as a stabilising fiscal support to cushion states with persistent revenue shortfalls.

“This is a huge loss. Punjab already has a debt of Rs 4 lakh crore, and will have to mobilise more resources to make up for this loss. This also amounts to weakening of the federal structure. The Centre should help the cash-strapped states, which were hoping that the Centre would help out,” said Kesar Singh Bhangu, a noted economist.

The Finance Commission retained the overall state’s share in the divisible pool of Central taxes at 41 per cent, in line with the previous award period, and introduced new parameters, including a GDP contribution factor, in the horizontal devolution formula for allocating tax devolution among states.

“Punjab, a state grappling with high committed expenditure on salaries, pensions and subsidies, was among the largest beneficiaries of RDGs under the 15th FC. The stopping of this grant would certainly affect the state,” said Bhangu.

In a partial upside, however, the Finance Commission slightly increased Punjab’s share of tax devolution to 1.996 per cent, up from 1.807 per cent under the previous commission. This move will yield an estimated Rs 1,500 crore in additional funds over the award period. The Commission has also earmarked grants totalling approximately Rs 19,623 crore for rural and urban local bodies and disaster management.

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Punjab Finance Minister Harpal Singh Cheema said Monday the state’s expectations of meaningful revenue support were unmet. He pointed out that stringent norms for disaster relief funds could potentially reduce actual disbursements.

A major share of Punjab’s revenue is absorbed by subsidies, salaries, and pensions.

Kanchan Vasdev

Kanchan Vasdev is a Senior Assistant Editor in The Indian Express’ Punjab bureau. She is a highly experienced journalist with 22 years of expertise covering high-stakes politics, governance, and social issues in Northern India. Professional Background Role: Primary reporter covering the Punjab Chief Minister’s Office (CMO), government policies, and the Aam Aadmi Party (AAP) leadership in the state. Experience: She previously worked with The Tribune and has played a key role in launching various city editions. Special Projects: Abandoned Brides: Authored a monograph on brides abandoned by NRIs as part of the Prabha Dutt Memorial Fellowship. Environment: Worked as a Centre for Science and Environment (CSE) fellow, focusing on the pollution levels in the Satluj river. Recent Notable Articles (Late 2025) Her recent reporting focuses on the legislative strategies and political maneuvers of the Bhagwant Mann-led Punjab government: 1. Legislative & Governance Standoffs "Punjab govt advances special Assembly session to pass resolution against VB-G RAM G Bill" (Dec 20, 2025): Reporting on the state's move to block the Centre's "Viksit Bharat" mission, which the state claims will undermine MGNREGA. "Punjab govt doubles down on special sessions, sixth in January" (Dec 19, 2025): Detailing the AAP government's use of special sessions as a legislative tool amid tensions with the Governor. "Punjab asks 'VIP teachers' working near Chandigarh to go back to border districts" (Dec 16, 2025): Reporting on CM Mann's move to end the practice of influential teachers avoiding postings in remote areas. 2. Political Analysis & Rural Polls "Punjab rural polls: Why Akalis are likened to dinosaurs in Punjab" (Dec 19, 2025): Analyzing CM Bhagwant Mann's rhetoric against the Shiromani Akali Dal (SAD) following local body elections. "AAP claims win in 78% Punjab zila parishads as counting continues" (Dec 18, 2025): Breaking down the results of the 2025 rural elections. "Rahul Gandhi and Sidhu alike, says Bhagwant Mann" (Dec 13, 2025): Covering the CM's critique of the Congress leadership. 3. Law Enforcement & Bureaucracy "Suspended Punjab IPS officer Ravjot Kaur Grewal awaits reinstatement" (Dec 10, 2025): Investigative reporting on the bureaucratic red tape involving the Election Commission and the state government. "Punjab declines to give parole to Amritpal Singh" (Nov 27, 2025): Detailing the state government's refusal to grant parole to the radical preacher and sitting MP. 4. Welfare & Economy "Punjab government's plan to add more freebies to 'atta-dal' scheme hits funds roadblock" (Dec 4, 2024): An analysis of the fiscal challenges facing the state's flagship food security program. "Mann leads Punjab delegation to Japan and South Korea for investor outreach" (Dec 2, 2025). Signature Beat Kanchan Vasdev is known for her insider access to Punjab's political executive. Her writing provides deep insights into how state policies are formulated and the friction points between the state government and central authorities. Her dual expertise in environment and law allows her to report on complex issues like the "Farmhouse Policy" (Dec 18, 2025) and river pollution with a unique policy-oriented lens. X (Twitter): @kanchan99 ... Read More

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