Food scam adds to Punjab's already 'precarious' fiscal: Report

India Ratings has said the financial condition of Punjab has been steadily deteriorating over the past few years and is now "quite precarious", which is at the centre of a controversy over missing Rs 20,000-crore foodgrain stocks from its granaries.
"The financial situation of Punjab, particularly with respect to liquidity, has remained quite precarious over the past few years... The situation has deteriorated considerably now," the agency said in a note today.
According to the note, Punjab's liquidity has been "worrisome" since 2011-12, and in 2016-17, the state proposes to use Rs 19,500 crore through ways and means advances (WMAs), up from Rs 17,000 crore in 2015-16.

The situation is so grave that the government has mortgaged assets like the Gandhi Vanita Ashram for widows in Jalandhar and state jails at Bathinda, Amritsar and Goindwal to raise cash from banks, it said.
The rising debt level -- the overall liabilities have doubled since 2008-09 -- has only compounded the problem for the state, it said, adding that the state is second among non-special states at 31.4 per cent of Gross State Domestic Product (GSDP).
In the past two years alone, the gross fiscal deficit of Punjab rose 23 per cent to Rs 13,087 crore in 2016-17 (budget estimate) and public debt rose sharply by 32.3 per cent, it said.

The note comes a day after RBI issued an authorisation of cash credit limit of Rs 17,523 crore towards first installment for wheat procurement during the ongoing rabi season and asked banks to make provisions against missing foodgrains in the state's stock.

The RBI's decision followed some 30-odd banks with an exposure to the state reportedly deciding to freeze lending to the state earlier this week.
According to the rating agency, even though Punjab has hit headlines recently on financial issues, liquidity crunch has been a "perennial problem" for the state.
The state administration maintains that all stocks
procured over the years have been duly accounted for.

Some 30-odd banks led by SBI had extended loans of Rs 40,000 crore to the state for its foodgrain procurement programme, out of which Rs 12,000-20,000 crore grains are missing from godowns. If banks were to provide 15 per cent for the missing stocks, they would take a hit of around Rs 3,000 crore through March and June quarters.
Punjab is the largest food procurer while the total food credit is Rs 1 trillion. It procures grains on behalf of the Centre/Food Corporation.
The Reserve Bank has asked the lenders to set aside money as provisions for non-performing assets. They say loans to states are considered sovereign, hence no need to set aside money.

Banks are already feeling the pressure after RBI Governor Raghuram Rajan asked them to clean their books by next March. This has led to banks making massive provisions in the December quarter, which is expected to continue in the fourth quarter of 2015-16 as well.
According to reports, lenders have threatened to stop lending to Punjab, a primarily agrarian state, in the new season if the issue stays unresolved.