Punjab's rising debt raises concern amid claims of sound fiscal management
Earlier this month, Punjab Finance Minister Harpal Singh Cheema stated that the government would borrow ₹8,500 crore in the second quarter of the current financial year to meet redemption obligations of over ₹3,500 crore for 'legacy debt' incurred during the previous Shiromani Akali Dal–Bharatiya Janata Party and Congress governments.
A recently published academic paper titled Walking with Punjab's Economy, authored by economist Ranjit Singh Ghuman, notes that steadily rising outstanding debt has pushed Punjab into a debt trap. The annual average increase in debt during the first three financial years of the Aam Aadmi Party (AAP) government (2022–23 to 2024–25) has been ₹33,721 crore.
While Punjab's debt liability has shown a steady upward trend over the years, the past decade has seen a particularly sharp rise. The outstanding debt stood at ₹1,28,836 crore in 2015–16 and jumped to ₹1,82,526 crore in 2016–17, largely due to the conversion of ₹30,584 crore in Cash Credit Limit into long-term debt. The debt increased to ₹2,81,773 crore (48.24% of Gross State Domestic Product) in 2021–22, to ₹3,14,221 crore (46.68%) in 2022–23, ₹3,46,185 crore (46.66%) in 2023–24, and further to ₹3,82,935 crore (47.30%) in 2024–25. It is expected to rise to ₹4,17,136 crore (46.80%) by the end of 2025–26.
The paper also notes an accelerating trend in average annual debt growth. In the 1980s, it rose by ₹609 crore annually; during 1990–91 to 2001–02, by ₹2,696 crore; and by ₹6,389 crore annually over the next five years. Between 2011–12 and 2021–22, the annual average increase was ₹19,867 crore. 'The annual average increase during the first three financial years of the AAP government (2022–23 to 2024–25) was ₹33,721 crore. During 2025–26, the budgeted increase would be ₹34,201 crore,' the paper states.
Pointing out that interest payments accounted for 22.72% of the State's total revenue in 2022–23, and principal repayments took up another 18.37%, Prof. Ghuman, Professor of Eminence (Economics) at Guru Nanak Dev University, Amritsar, said that approximately 41% of total revenue went toward debt servicing. 'Nearly 23% of the revenue was consumed by power subsidy. Salaries, wages, and pensions accounted for about 57.51% (36.72% salaries and wages and 20.82% pensions and retirement benefits). These five heads together consumed nearly 122% of the total revenue, which is a matter of concern as revenue expenditure exceeds the total revenue,' he said.
'All this means the government is running the show by raising additional loans, leading to a high net addition to debt liability,' he added. In the same year, fiscal and revenue deficits were 5.04% and 3.87% of GSDP, respectively. According to Dr. Ghuman, this scenario stems from a mix of 'competitive political populism in the name of welfarism, under-mobilisation of financial resources, injudicious use of resources, pilferage in welfare schemes and over-centralisation of finances by the Union government.' He noted, 'One is not arguing against the welfare responsibilities of the State but only that its policies on freebies and subsidies should be more targeted and given only to the most deserving households.'
The Finance Minister has maintained that Punjab's fiscal situation is stable, with the government taking steps to meet future obligations. Mr. Cheema recently said the State had invested ₹1,000 crore each in the Guarantee Redemption Fund (GRF) and the Consolidated Sinking Fund (CSF), the latter now exceeding ₹10,000 crore — up from ₹3,000 crore when the AAP government took office.
Expressing concern over the rising debt, Dr. Lakhwinder Singh, visiting professor at the Institute for Human Development, New Delhi, said, 'There's no doubt that the debt situation in Punjab is serious. The average debt has been growing. The government is borrowing to repay the rate of interest and notably, the AAP government has taken the borrowing to the highest. The key problem in Punjab is that the State hardly has the resources to make a new capital investment; hence, the development has come to a near standstill.'
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