What delayed salaries reveal about Punjab government’s strained finances

How significant is the salary bill in Punjab?

Punjab spends about Rs 30,115 crore annually on salaries, averaging over Rs 3,200 crore per month. This is a committed expenditure, leaving limited room for discretionary spending.

In the past, too, salaries have comprised a major component of government spending. According to the State Finances Audit Report for 2023-24, interest payments, salaries and pensions together accounted for 65% of revenue expenditure in 2023-24 (second year of Aam Aadmi Party rule under Chief Minister Bhagwant Mann), down slightly from 69% in 2019-20 (during former Chief Minister Amarinder Singh’s Congress government).

Despite the reduction, this category still dominated the state’s spending profile. The commitments increased from Rs 52,544 crore in 2019-20 to Rs 76,388 crore in 2023-24, growing at a compound annual rate of 9.78%.

Commitments will also increase in the near future. Just this week, the Punjab and Haryana High Court ordered the government to clear pending dearness allowance dues by June 30, holding that dearness allowance (DA) and dearness relief (DR) are not discretionary benefits but enforceable entitlements, part of salary and pension structures.

This is expected to impose an additional burden of around Rs 15,000 crore. The government has already paid earlier instalments, but further payouts will add to fiscal pressure.

Is Punjab’s debt a major concern?

Yes. Punjab’s total debt has crossed Rs 4 lakh crore and is projected to rise further to about Rs 4.47 lakh crore in the next financial year.

Another concern is that a substantial portion of the state’s revenue is now committed to debt servicing, or repayments of past borrowings. The government is expected to pay Rs 28,755 crore in interest and Rs 13,725 crore towards repayment in the coming year, limiting its ability to spend on sectors such as health, education and infrastructure. The per capita debt has also risen to about Rs 1.04 lakh.

The 2023-34 audit had also flagged potential risks to fiscal sustainability in the coming years. Although the fiscal deficit of 4.45% of Gross State Domestic Product remained within the 4.60% ceiling prescribed under the Fiscal Responsibility and Budget Management (FRBM) framework, the revenue deficit exceeded the targeted level, reaching 3.79% against the target of 3.52%.

Fiscal deficit is the gap between the government’s total expenditure and revenue, representing its total borrowings. On the other hand, revenue deficit is the difference between the government’s sources of revenue expenditure (salary payments, debt) and revenue receipts (tax and non-tax revenue). It represents an increase in borrowings without corresponding asset formation.

What role do subsidies and welfare schemes play?

Punjab’s subsidy bill stands at Rs 26,612 crore. Major components include free power in the agricultural state, monthly payouts to women, free ration, pilgrimage schemes and free bus travel. Free and subsidised electricity alone accounts for Rs 15,500 crore.

Other states, such as Maharashtra, Tamil Nadu and Madhya Pradesh, have also introduced cash transfers to women in recent years as part of poll promises, which comprise a significant share of their subsidy outgo.

In fact, the subsidy burden in Punjab exceeds the state’s revenue deficit, which is estimated at Rs 21,955 crore. As a result, several economists have flagged concerns over the fact that a large part of government expenditure is financed through borrowings. They have noted that rising debt, coupled with high subsidies, reflects structural fiscal stress and could affect long-term economic stability.

The government maintains that the debt is largely inherited and that it has improved revenue collection, citing some recent gains in sectors such as excise.