Punjab bleeding itself to stay afloat

Punjab bleeding itself to stay afloat
Published on Tuesday, August 25, 2009 by Azaad

Punjab: Deprived of cash flow and faced with a huge subsidy bill, the cash-strapped Punjab government has virtually been selling off over Rs 400 crore of its government securities each month this year, in order to stay afloat.

Since January 2009, the Punjab government has raised Rs 3,458 crore by getting its state development loans (SDL) auctioned through the Reserve Bank of India (RBI). This is not all; Punjab plans to raise Rs 5,000 crore through selling its SDL during this financial year.

In this fiscal alone (since April 2009) Punjab has auctioned its state development loans worth Rs 1,743 crore. With the state government facing additional liability on account of the implementation of recommendations of the Fifth Pay Commission from this month onwards, the state will be raising Rs 500 crore through yet another auction of its SDL by the RBI on August 25.

In spite of the limited resources to raise money, Punjab has a huge annual subsidy bill of Rs 4,500 crore. With the power subsidy bill going up to an astounding Rs 3,142 crore (up from Rs 2,602 crore last year), and no signs of an increase in its revenue, the state is relying heavily on these SDLs to raise money.

Other than the power subsidy, the state government also subsidises the Local Bodies Department for octroi, sewerage and house tax, besides subsidising its populist ‘atta-dal’ scheme. While the government spending is on the rise, revenue growth is barely over 5 per cent for this year.

Talking to The Tribune, Punjab Finance Minister, Manpreet Badal, agreed that the huge subsidy bill of the state was responsible for such heavy borrowings. “Though we are within our prescribed borrowing limit of 3.5 per cent of the gross state domestic product (GSDP), the fact is that we will need more money this year as the power subsidy bill.” It is estimated that the power bill will increase by Rs 542 crore this year on account of increase in per unit cost of power by about 40 paisa.

Official sources in the RBI said that these state development loans are auctioned by various state governments to raise money for their development activities. Generally, banks bid for these loans as they are supposed to invest a certain prescribed percentage of their funds in government securities. Since this investment in government stocks is reckoned as an eligible investment in government securities by banks for the purpose of Statutory Liquidity Ratio (SLR), banks participate in these auctions. These stocks also qualify for ready forward facility.

with thanks : source : http://sikhsangat.org/2009/08/punjab-bleeding-itself-to-stay-afloat/

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