Punjab: A State on Life Support? Dead Last Among 18 Major States in Fiscal Health Punjab, long celebrated as India’s breadbasket and a symbol of post-Independence agricultural prosperity, now finds itself in a precarious fiscal position. According to the second edition of NITI Aayog’s Fiscal Health Index (FHI) 2026, which evaluates state finances for the financial year 2023-24 using audited data from the Comptroller and Auditor General (CAG), Punjab ranks dead last among the 18 major states. With a composite score of just 12.4 out of 100, the state sits far below the national average and trails even other struggling peers by a significant margin. Odisha, by contrast, tops the rankings with an impressive 73.1.
This ranking has prompted pointed questions about whether Punjab’s public finances are effectively on life support sustained by continuous borrowing while developmental spending is squeezed and long-term sustainability remains elusive. The Fiscal Health Index assesses states across five key pillars: quality of expenditure, revenue mobilisation, fiscal prudence, debt index, and debt sustainability. States are classified into tiers : Achievers, Front Runners, Performers, and Aspirational. Punjab falls firmly into the Aspirational category alongside Andhra Pradesh, West Bengal, and Kerala. These states are characterised by persistent revenue and fiscal deficits that often breach Fiscal Responsibility and Budget Management (FRBM) norms, elevated debt levels of roughly 35–45 per cent of Gross State Domestic Product (GSDP), committed expenditure (salaries, pensions, and interest) consuming 50–60 per cent of revenue receipts, and interest payments exceeding 15–20 per cent of revenues.
Punjab’s pillar-wise performance is particularly weak. Its Debt Index score is among the lowest at around 2.1, fiscal prudence at 5.9, and quality of expenditure at 8.1. Revenue mobilisation fares somewhat better at roughly 29.8 but remains inadequate relative to the state’s expenditure needs. The result is a vicious cycle in which a large share of new borrowing is used simply to service existing debt and meet obligatory payments, leaving limited room for productive capital investment.Outstanding liabilities paint an equally concerning picture. By recent estimates, Punjab’s debt has climbed to over ₹4.13–4.17 lakh crore. Debt-to-GSDP ratios have hovered in the 44–48 per cent range in recent years, among the highest for major states. Budget documents project outstanding liabilities remaining around 45 per cent of GSDP into 2026-27, even as absolute debt continues to rise with the size of the economy. Interest payments alone absorb a substantial portion of revenue receipts, crowding out spending on infrastructure, education, health, and industrial promotion.
The roots of this crisis run deep and span multiple governments. At the turn of the millennium, Punjab ranked among India’s more prosperous states, buoyed by the Green Revolution’s gains in wheat and rice production, central procurement, and related subsidies. Over successive decades, however, debt grew rapidly from around ₹45,000 crore in the early 2000s to more than ₹2.61 lakh crore by 2020-21, and further thereafter. High and expanding power subsidies have been a central driver. Free or heavily subsidised electricity for agriculture, later extended to domestic consumers under the current Aam Aadmi Party government, has imposed a massive recurring burden. Cumulative spending on power subsidies alone under the present administration is projected to approach or exceed ₹95,000 crore by the end of its term, significantly higher than under the previous Congress government.
Agriculture itself contributes to the structural problem. The state’s farming economy remains locked into water-intensive paddy-wheat cycles supported by minimum support prices, free power, and input subsidies. This model has depleted groundwater, degraded soil health in places, and generated limited taxable surplus while imposing heavy fiscal costs. Committed expenditures on salaries, pensions, and interest further rigidify the budget. Own-tax revenue growth has lagged the expansion of these obligations, and dependence on central transfers and borrowings has increased.
The consequences are visible across the state’s economy and society. Capital outlay remains constrained, limiting infrastructure modernisation and industrial diversification. Public services face pressure. Farmers continue to grapple with rising input costs and environmental stress even as subsidies strain the exchequer. Political competition has often reinforced rather than resolved these patterns, with successive administrations expanding welfare commitments while postponing difficult reforms.Comparisons highlight the divergence. Odisha has transformed its fiscal position through disciplined expenditure, stronger revenue mobilisation (aided by mining royalties), controlled deficits, and prudent debt management, achieving low debt-to-GSDP ratios near single digits in some assessments. Gujarat and Maharashtra maintain relatively healthy profiles. Even Bihar has shown improvement on certain metrics in recent years. Punjab’s neighbouring state Haryana ranks considerably higher on the latest index.
Recovery will require sustained, multi-pronged effort. Broadening the tax base and improving own-revenue collection, particularly under GST and property taxes, is essential. Rationalising subsidies especially power while protecting the most vulnerable, reforming the agricultural model toward diversification and higher-value activities, controlling growth in committed expenditure, prioritising quality capital spending, and adopting credible medium-term fiscal frameworks are among the recommendations repeatedly emphasised by analysts and official reports. Greater transparency around off-budget liabilities and stronger public financial management would also help.Punjab’s fiscal challenges are not sudden or confined to any single administration. They reflect decades of structural choices, political incentives, and an agricultural model that delivered food security for the nation but exacted a heavy price on the state’s own finances and natural resources. The NITI Aayog ranking serves as a stark diagnostic rather than a final verdict. Whether the state can move off life support and rebuild fiscal resilience will depend on the willingness of its political leadership, bureaucracy, and citizens to confront hard trade-offs in the years ahead. The breadbasket remains vital to India; ensuring its public finances regain health is equally important for the state’s future prosperity.
Referances:theprint.in,timesofindia.indiatimes.com,niti.gov.in,indianexpress.com
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