If the Aam Aadmi Party (AAP), which has won Punjab, resolves to replicate the national capital’s health and education model as it had promised before the elections, it has only two options. Under the leadership of comedian-turned-politician Bhagwant Singh Mann, the new government either sharply increases the state’s tax collection or drastically reduces the resources earmarked for other expenses.
Both are difficult. Punjab is highly indebted and heavily indebted. Its outstanding debt is about 46 per cent of the Gross State Domestic Product (GSDP) in 2021-22.
In terms of spending, there is little scope for intervention as the state’s allocation of resources to key areas such as rural development and infrastructure is already very low, and the new government is mulling over the current share of resources for agriculture and allied activities. Not likely to change. According to data from PRS Legislative Research, only the sector where the state is spending (11% in 21-2021-22) is significantly higher than the national average (6.3%).
Once the AAP’s massive electoral success in Punjab, winning 92 out of 117 seats, dies out and the party in power gets down to serious business, it will begin to face real challenges, mainly on the economic front. The new Bharatiya Janata Party (BJP) governments in Uttar Pradesh, Uttarakhand, Goa and Manipur will also go through some economic turmoil, but they will still be better off due to the sustainability factor as well as the presence of a friendly central government – which promises Makes dual-engined ones – ready to financially salvage them when needed.
To understand the potential economic priorities and challenges, let us pick the five big states, Uttar Pradesh and Punjab, where new governments are being set up. Suresh Kumar Khanna, a nine-time MLA and outgoing finance minister in the Yogi Adityanath government in Uttar Pradesh, told ET that they would continue with the same formula of spending more on infrastructure. “We will continue to build more and more roads and expressways. This will increase the demand for cement, steel etc., which in turn will strengthen our economy and create new jobs. Once people have more money in their pockets they will always spend more,” says Khanna, adding that UP’s new target is to become a $1 trillion economy, however, without specifying a time frame for it. In 2021-22, GSDP at current prices is estimated to be Rs 21.7 lakh crore or about $285 billion, less than a third of the target set by Khanna.
Uttar Pradesh has been spending more resources on infrastructure lately. In the current financial year, it allocated 8.2% of its total expenditure for roads and bridges alone, while only 1.6% was allocated by Punjab. According to an analysis by PRS Legislative Research, the average allocation by states in this category is 4.3 per cent, which means that UP spends much above average while Punjab spends much less.
Deepak Bagla, MD and CEO, Invest India, says that the continuation of the BJP government in UP will give a lot of comfort to global companies who want to invest in the state. “Global investors are looking to invest in the state’s defense corridor as well as the proposed global aviation hub near Jewar airport,” he says. Invest India is an investment promotion and facilitation arm of the Union Ministry of Commerce and Industry.
Oil prices are skyrocketing against the backdrop of the current macroeconomic situation, the Russo-Ukraine War, along with the implementation of liberal election promises – such as a monthly monetary benefit of Rs 1,000 to women over the age of 18 in Punjab Or two free LPG cylinders Holi and Diwali in UP would mean expansion of the spending budget of the new governments.
“The financial condition of Punjab is worse but I would say that all the new state governments will face economic challenges as they have to implement their election promises. Global crude oil prices are at an all-time high and states will not get additional GST (goods and services tax) compensation from July 1 this year,” says former Bihar deputy CM and finance minister Sushil Kumar Modi, who headed the empowered committee. also led. State finance ministers to implement GST
According to the GST (Compensation to States) Act, 2017, if the GST revenue in a state does not grow at the rate of 14% per annum, the Center is bound to compensate the shortfall by June 2022. However, the government has recently decided to expand the GST. Compensation till 2026, this window will be used only to pay off the loans taken by the states during the Covid-ravaged 2020 as well as the earlier dues. This effectively means that no additional grants will be given to the states, which will affect states like Punjab and Uttarakhand, as their dependence on GST compensation is high. “A significant part of Punjab’s guaranteed revenue was met by using compensation (37% in 2018-19), 47% in 2019-20 and 56% in 2020-21. After 2022, it will have to significantly increase its own revenue to achieve the level of guaranteed revenue it has achieved so far, says a PRS report titled “State of State Finances” published in November 2021.
During campaigning in Punjab, AAP chief and Delhi CM Arvind Kejriwal was repeatedly asked by journalists about the revenue sources as well as the possibility of levying new taxes to fulfill his promises to the voters. Kejriwal had a standard answer that earlier governments lacked intention, not resources, assuring that AAP would not burden the public with new taxes.
The road will not be easy for you in Punjab. For a long time, the government in Delhi has been at loggerheads with the Center on several issues – from the appointment of officers to controlling the Covid-19 pandemic. Now that Kejriwal has a declared national ambition ahead of the 2024 Lok Sabha elections and given that the AAP could also be a serious contender in the Gujarat elections later this year, it is likely that the BJP at the Center will create financial constraints for him.
Kejriwal, a former Revenue Service officer, may have been aware of his Achilles heel in Punjab: an empty treasury, high debt and his own tall promises of sealing the mandate.
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