Public Finances and Development: The Case of Punjab

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.