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Mainstream, VOL 61 No 13, March 25, 2023

Budgets 2023-24 of Punjab and Haryana: High Temporary Loans from RBI - a Drag on Punjab Budget | Sher Singh Sangwan

Saturday 25 March 2023


by Sher Singh Sangwan *

The state of Punjab has projected total budget expenditure (BE) for 2023-24 at Rs 196452 crores compared to Rs183950 crores of Haryana. The increase in Punjab budget is 7 per cent while that of Haryana is 11.61 per cent over their RE of 2022-23. The highlighted 26 per cent growth in Punjab is over its previous year BE which has a little meaning. Out of this, interest expenditure will be Rs22000 crores in Punjab and Rs21250 crores in Haryana. In view size of economy, it appears to be higher in Haryana. The debt repayment will be Rs16626 in Punjab compared to Rs 35520 crores in Haryana which indicates some camouflaging by Punjab. In fact, Punjab will repay Rs45000 crores ways and means advances (WMAs) or temporary loans from RBI and it includes interest too. Thus in total BE of Punjab interest and debt repayment will be Rs 83626 crore compared to Rs56770 crores in Haryana. These repayments will account for 42.57 per cent in Punjab and 30.86 per cent in Haryana of their total BEs. The WMAs are 23 % in both Income and expenditure sides of Punjab Budget which state away reduce the size of budget. Moreover, budgeted power subsidies to industry, domestic consumers and agriculture are Rs 20224 crores i.e. more than 10 percent of total budget in Punjab which may about half of it in Haryana. After, the debt repayments and committed expenditure, very limited amount may be available for fresh initiatives in both the states especially in Punjab. Therefore, wording of special emphasis on capital expenditure may be an eye- wash. Hence, the outcome of the budget and progress of states will mainly depend upon efficient utilization their allotted funds and the government employees.

The outstanding debt of Punjab will reach Rs.330453 crore and that of Haryana to Rs285885 crores as on March 2024. As per a RBI’s fiscal study of states, during 2014-15 to 2022-23, the debt liability increased by about 4 times in Haryana as compared to 3 times in Punjab and 2.7 times in all States & UTs. Thus, Punjab has tried to contain the increases in debt by resorting high WMAs from RBI while Haryana is fast approaching to Punjab in the outstanding debt. However, the outstanding debt as percept of its GSDP will be 47.6 per cent in Punjab and 25.45per cent in Haryana as against stipulated limit of 33.3 per cent. Punjab may have intentionally resorted to high WMAs to adhere the fiscal parameters as per limits prescribed by the Fifteenth Finance Commission (FFC) under the FRBM Act. It is because the WMA are not part of Fiscal deficit. Under WMA facility, temporary loans are allowed from RBI to tide over mismatch between receipts and payments. The RBI allows a specified amount to the state government to which its acts as a banker, which state can draw when required. The Rate of interest to be charged depends upon the amount and duration of the advance. There are three categories under WMA; the Special Drawing Facility (SDF) limits which is fixed as per the market securities issued by the state. It has the lowest ROI but its limit is very low viz., it was Rs1480 crores for Punjab in 2021-22 and it increases over time. Then above SDF, the normal WMA limit is allowed which is based upon the average last 3 years actual revenue and capital expenditure. The ROI is equal to repo rate (RR) for SDF and equal to RR for normal WMA limit. Above that limit is the overdraft which attracts higher ROI. Overdraft has to be cleared in 14 working days and the portion of overdraft above the amount equal to normal ways and means advance limit must be cleared within 5 working days. Hence, the pattern of WMA availed will determine the cost to the states. Moreover, higher WMA attracts strictures like serious cash imbalances and such states are categorized as the vulnerable by RBI. In view of higher WMA, 10 states including Punjab, AP, Telangana, and Haryana are the vulnerable one.

The GFDs in the BE of 2023-24 has been projected at 4.98 per cent and 2.96 per cent of the GSDPs of Punjab and Haryana. In fact the real demon in state finance is the Revenue deficit (RD). It is to be noted that RD is the excess of Revenue expenditure over revenue Receipts. The budgeted RDs in 2023-24 as percent of GSDP are 3.52 per cent in Punjab and 1.51 per cent in Haryana which are well above the average 0.9 per cent of all states & UTs. In absolute amount, day-to-day expenses will be met by borrowing to the extent of Rs 24589 crores in Punjab and Rs 17000 crores in Haryana. The increasing RD is the main push factor for the increasing debt in both Punjab and Haryana

The question arises as, to how the debt has increased so fast without any big new project in recent years except for restructuring the debt of electricity corporations. Firstly, both the states have not dared to levy any new tax or increase non-tax charges to mobilize additional receipts. Secondly, both the states have been compelled to increase social sector expenses (SSE) on various pensions, honorariums and incentives. Haryana is giving honorarium/salaries to all public representatives from Panchayat members to the members of its legislature Assembly (MLAs) and even numberdars. The state is unable to stop multiple pensions of the MLAs, though its neighbor Punjab has done it. Colleges and Universities have been opened like schools without adequate teachers and even students in many colleges. Similarly, new medical colleges are also announced at district level. Social sector expenditure from 2014-15 to 2022-23 has increased 2.96 times in Haryana and 2.41 times in Punjab compared to 2.25 times in all states and UTs.

An increase in the SSE is always expected from a welfare government. But doing it by borrowings may not only jeopardize the development of a state but it may create serious cash imbalances in long run. In a way, most of the states are following Charvaka’s Philosophy i.e Rinam Kritva ghartam pibet which means, take debt and drink ghee. Punjab and Haryana and many other states of India should take lessons from the financial crisis in Sri Lanka, Pakistan, Argentina, etc.

The states should take some strong measures in its long-term interest. First of all, it must restructure its loan portfolio by borrowing at low rate interest to repay high-interest loans. Both states may also resort to an auction or leasing of some government assets which lying unused for a long time. Some of the new taxes on those with a capacity to pay may be considered e.g Professional tax, and green tax taxes on private hospitals and factories. Citizens may not mind reasonable increases in user charges in public departments, especially property-related departments if their works are done hassle-free within the stipulated periods.


1. The Budget Speeches of Finance Minister of Punjab on 10 March 2023 and Budget at Glance of Punjab from, accessed from
2. The Budget speech of Finance Minster cum CM of Haryana on February 26, 2023 and Budget at Glance, accessed from
3. RBI (20223): State Finances: a Study of Budgets 2021-22 January;

(Author: Sher Singh Sangwan, Professor State Bank of India, Rohtak)

March 14, 2023

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