Thursday, Feb 02, 2023

‘Punjab not in favour of debt moratorium’: FM Cheema shoots down economists’ pitch

Following Punjab economists' letter to Centre, Mann govt says it would end up paying more interest in case of moratorium

Punjab Finance Minister Harpal Cheema said the state government was not on the same page with the economists over their maratorium demand. (File)

Two days after three noted economists from Punjab wrote to Union Finance Minister Nirmala Sitharaman seeking a moratorium on the border state’s debt for seven years, the Bhagwant Mann-led Aam Aadmi Party (AAP) government Tuesday asserted that the state was not in favour of such a moratorium.

In their letter to Sitharaman, the economists also advocated a special economic package for Punjab in the upcoming Union Budget for 2023-24 to revive the momentum of the state’s development, listing several reasons to justify it.

Punjab Finance Minister Harpal Cheema however said the state government was not on the same page with the economists over their maratorium demand. Speaking to The Indian Express, Cheema said they did not want a moratorium on the state’s debt as the government would end up paying more interest on it.

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

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The Punjab FM said if the government borrows from the international market, it also becomes challenging when the exchange rate of dollar vis-a-vis rupee rises. “Hence, moratorium becomes a bad idea in that case too,” he said.

“Moratoria look good theoretically but one who knows the ground realities would never seek one. Governments are never in favour of such moratoria. They want to pay off the principal amount as soon as possible,” Cheema claimed.

As regards the question of the special economic package, he said the Punjab government has taken up the matter with the Union FM and sought a special package for the state’s border districts.


In their joint letter to Sitharaman, Prof Lakhwinder Singh, Prof Sukhwinder Singh and Prof Kesar Singh Bhangoo – associated with the forum, Economists for Public Interest – called for a special package for Punjab as it is a strategic state both in terms of food and national security.

They suggested that as a first step a moratorium on Punjab’s debt may be granted at least for seven years, which would enable the state leverage its interest payment. Calling for the revival and rejuvenation of the Punjab economy, they demanded that the Union government in its budget should grant the state the annual investment deficiency package of Rs 20,000 crore for 2023-24 and subsequently till the grant of moratorium on debt ends. This would build the momentum of development process and will crowd in private investment, especially of a Punjabi diaspora, they said. This would also induce the diaspora to send a higher level of remittances that has remained “handy to ease balance of payment difficulties of the country”. It will also provide the “right kind of signals” to the foreign investors to invest in Punjab, which could turn out to be a “win-win situation” for the state as well as the Indian economy, they added.

In their letter, the economists also said that according to the Reserve Bank of India (RBI), Punjab has accumulated a debt of Rs 3,05,126.3 crore (Rs 2,82,865 crore outstanding liabilities plus Rs 22261.3 crore outstanding guarantees) in 2021-22, which stands at 53.3 per cent of the Gross State Domestic Product (GSDP) by the end of March 2022. The state’s annual interest liability turns out to be Rs 20315.5 crore in 2021-22, which is 45 per cent of its total tax revenue in 2021-22. Due to non-sustainability of the debt, the Thirteenth Finance Commission of India has put Punjab in the category of “debt stressed” states and recommended a financial package that was never realised, they stated, adding that Punjab has now transitioned from “debt stressed” to a “debt trapped” state, which has generated a crowding out effect on private investment. Consequently, this has resulted into the state’s slow growth and the “distorted structure” of its economy, they added.


When contacted for his reaction to FM Cheema’s statements, Prof Kesar Singh Bhangoo told the Express: “That means they do not know what moratorium is. It does not mean that interest will mount – interest just stops. It is like a meter that will stop for seven years. Punjab has two major issues staring it in the face. First is to get rid of debt and then to spend money on development. But this is not possible for Punjab,” adding “That is why we have sought a moratorium and also a financial package. Also, Punjab is not an ordinary state. We are filling the granaries. We should get financial help. They (Centre) should help.”

First published on: 06-12-2022 at 18:01 IST
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