Punjab needs a calibrated mix of fiscal consolidation, revenue reforms, public investment and technological innovation to trigger a self-reinforcing cycle of growth and fiscal resilience, according to an evaluation of the state’s finances submitted to the 16th Finance Commission (FC).
The study, undertaken by the Indian School of Business (ISB), shows that Punjab’s outstanding debt rose sharply from ₹92,282 crore in 2012–13 to ₹3,14,220 crore in 2022–23, pushing the debt-to-GSDP ratio from 23 per cent to 38 per cent.
The report flags that Punjab already carries one of the heaviest liability burdens among non-special category states and projects that, if current trends persist, the debt-to-GSDP ratio could cross 60 per cent by 2030–31, with debt servicing consuming a large share of the budget.
Given the existing stock of liabilities, the study urges more strategic borrowing. “Moving forward, Punjab must pursue a shift towards low-cost borrowing, strategic debt restructuring, and rationalising subsidies through direct benefit transfers (DBTs) to relieve fiscal pressure,” it said.
A central criticism is chronic slippage against the state’s own Fiscal Responsibility and Budget Management (FRBM) targets. In 2022–23, the revenue deficit was more than double what the medium-term fiscal plan had projected, while the fiscal deficit overshot estimates by over 42 per cent. To address this, the study recommends treating FRBM and the Medium-Term Fiscal Policy as operational guides rather than purely declaratory statements.
Punjab’s revenue receipts have risen over time, but the state’s tax-to-GSDP ratio remains below potential, hovering between 7.5 per cent and 9 per cent over the past decade. Non-tax revenues have also not recovered to pre-Covid levels.
“Punjab’s fiscal landscape, marked by a low and stagnant tax-to-GSDP ratio, underperforming non-tax revenue streams, and rising debt obligations, underscores the urgent need for a comprehensive and evidence-based reform strategy,” the study argued.
It recommends raising revenues by expanding the tax base, strengthening compliance, and deploying advanced electronic filing and payment systems. The study also suggests exploring new revenue streams such as public-private partnerships and monetisation of state assets, while supporting industries and exports that can act as catalysts for revenue generation.
On the expenditure side, the report highlights mounting pressure from committed spending and subsidies. “Due to the focus on subsidies and recurrent expenditures, Punjab lags in capital-intensive sectors like industrial infrastructure, logistics and digital transformation, restricting long-term economic growth,” it said.
Total committed expenditure — including salaries, pensions, interest payments and subsidies — rose from ₹32,049 crore in 2012–13 to ₹70,290 crore in 2022–23. In 2021–22, the power subsidy alone accounted for 14.23 per cent of revenue expenditure and 72.79 per cent of the revenue deficit.
The study recommends rationalising subsidies through better targeting and evaluation, including greater use of DBTs, and undertaking cost-benefit analyses to assess their impact on vulnerable sections and fiscal sustainability.
Ultimately, it argues that fiscal correction must be paired with growth to tackle Punjab’s long-standing debt problem, rising subsidies and chronic revenue shortfalls. The report calls for a “big push” towards diversification beyond the wheat–paddy regime, investment in logistics and border trade infrastructure, industrial clusters and skills, and even time-bound tax incentives for industry.
“At the heart of a successful fiscal transformation lies economic revitalisation. Punjab must unlock new engines of growth by diversifying its agriculture — through high-value crops, export-oriented production and agri-logistics — and by modernising its industrial base via SEZs, industrial corridors and ease-of-doing-business reforms,” it said.
With the right mix of prudence, innovation and investment, Punjab can emerge from its current debt trap and chart a path towards a financially empowered and prosperous future. “Ultimately, the vision must be to make Punjab self-reliant,” the study concluded.
 "Punjab needs fiscal reset to avoid debt trap: ISB to Finance Commission")
