Abstract
Punjab presents an odd combination of a relatively high-income state with a state level public finance that has been under stress for a long time. This paper looks at the trends in broad fiscal aggregates and a limited amount of disaggregated information to establish the pattern and locate the causes of the persistent stress. It examines fiscal balances, both the receipts and the expenditures side, the link between fiscal balances and indebtedness on the one hand, and between the stock of debt and revenue expenditures through the interest liabilities on the other. To establish a context, it also assesses the fiscal performance of Punjab in relation to other major states of India. It concludes with policy imperatives that have implications for not only the fiscal balances of the state, but also for the development of the real economy of Punjab that has begun to show signs of a slowdown.
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- 1.
It may be noted that Table 18.1 is based on data that are not comparable for any state over time, because the basic data are taken from different series with varying base years.
- 2.
The causation runs the other way round also: there are studies on growth and its impact on the size of the public sector beginning with the well-known ‘Wagner’s law’. However, it is entirely likely that lags would be involved in the causation running from public expenditures to growth, which may not be the case for the converse causation. In the Indian context, a casual regression with panel data for 16 selected states covering the period 2001–02 to 2010–11 indicates per capita public expenditures rising with per capita GSDP, but with a decreasing slope. The estimated regression is: PCPUBEXP = −848.34 + 0.2434467(PCGSDP) − 0.0000009(PCGSDP2), with the nominal values of the variables considered. Both the explanatory variables are statistically significant. This result accords well with the expectation that the share of the public sector in state GSDP will fall as per capita GSDP rises.
- 3.
It is of interest to note that according to several empirical studies, the composition of public expenditure matters; results generally indicate a higher impact of revenue (current) expenditures on growth compared to the negligible or even negative impact of capital expenditures. Even so, researchers are unwilling to draw the implication that infrastructure does not matter, because it flies in the face of a priori reasoning. In all probability, the insignificance of capital expenditures is a result of (a) too little capital expenditures to show any impact and (b) non-consideration of appropriate lags in the posited relationship.
- 4.
For a comparative analysis of trends in fiscal aggregates, see Sen and Dash (2013).
- 5.
The Finance Commission prescribed level of fiscal deficit during the period 2010–2013 was 3.5 % of GSDP, and the state kept the actuals below that level. The prescribed level for the next two years is 3 % of GSDP.
- 6.
The annual publication of Reserve Bank of India on state finances for 2013–14 shows the revenue expenditure to GSDP ratio to be persistently high compared to all other high-income and middle-income states on an average during the periods 2004–08, 2008–10 (only West Bengal has a higher ratio), and 2010–13 (only Goa and Karnataka have higher ratios) (Table IV.4.10 A, p. 45). This could be possibly because of greater vote-catching populist expenditures in Punjab compared to other states, something noted in several earlier studies.
- 7.
Because of the accounting practice that credits the revenue receipts with all receipts from state lotteries in gross terms rather than net (with all outgo for the same included in revenue expenditures) of expenditures, and with gross numbers being quite large, changes in policy regarding state-run lottery can cause large shifts in trends when only revenue receipts or revenue expenditures are considered.
- 8.
The non-tax revenue figure for 2012–13 also reflects a large one-time credit relating to unclaimed deposits, making it non-representative.
- 9.
The estimated cross-section regression for the averages of 1999–2002 is:
Tax/GSDP = 4.91 + 0.0000378(PCNSDP); R 2 = 0.2808.
(2.42)
For the latter period of 2010–13, the estimated regression is:
Tax/GSDP = 6.55 + 0.0000165(PCNSDP); R 2 = 0.0758.
(1.11)
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Sen, T.K. (2016). Public Finances and Development: The Case of Punjab. In: Singh, L., Singh, N. (eds) Economic Transformation of a Developing Economy. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-10-0197-0_18
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