Panel suggests salary deferment, higher taxes to help Punjab tide over pendemic-led economic stress

A group of experts, formed by the Punjab government for the post COVID-19 revival strategy for the state, has recommended some tough measures including deferring salaries of employees, raising tax on liquor, avoiding fresh recruitment in police and higher professional tax. The group of experts (GoE), led by former deputy chairman of the erstwhile Planning Commission and noted economist Montek Singh Ahluwalia, in its first report submitted to the government has also described free power to farmers as "highly regressive" and said it has limited the "government's ability to incur other expenditures essential for Punjab's development".

The group, which includes leading economists and industry experts, was tasked to recommend to the Punjab government a short-term as well as medium-term action plan, including a fiscal management strategy along with other policy measures to revive the state's economy in the aftermath of the COVID-19 crisis. In the report titled as 'medium and long term post-Covid economic strategy for Punjab', the group noted that Punjab's financial position had been under stress for long.

"This stress will be intensified in the current year because the expected fall in the GSDP/GDP (gross state domestic product) will be reflected in a fall in the states own tax revenues and also in its share of revenues from the centre on account of devolution," as per the report. While suggesting measures to contain expenditure, the group of experts recommended deferment of salaries of employees.

"Several states have deferred the payment of salaries of all categories of employees by varying percentages. The Punjab government may need to take a similar step to deal with the resources problem," the report said. "We note that the government has deferred the payment of dearness allowances to the state employees and is currently lagging the Central DA (dearness allowance) rate by 16 per cent on old scales.

"Given the grim fiscal scenario, it may become necessary not to make payment of the deferred DA or arrears when moving to a new scale," it said. On the issue of pay scales, the GoE found that the pay scales of the Punjab government were much higher than the central government. It said the government should pay only central pay scales for all future employees.

Pointing out that the police to population ratio is much higher in Punjab than in other states, it advised the state government not to raise additional contingents of police and also refrain from fresh recruitments for the next few years. For raising revenue, the group suggested the state government that it must join other states in the GST council to urge the Centre to make timely payment of the Goods and Services Tax compensation.

It also suggested an increase in excise duty on liquor. "As the demand for both India Made Foreign Liquor (IMFL) and beer and wine are relatively price inelastic, it would be advisable to increase the duty. Punjab should consider substantially increasing the rates at least for the next two years." The panel also recommended regularising unauthorised constructions, sale of leased land, revise fee and royalty on minor minerals and increase in the ceiling for professional tax. The report further noted that the fundamental problem facing Punjab's agriculture was the policy of free power for agriculture and also listed out three damaging consequences.

"First, it has led to an unsustainable burden on the budget and limits the government's ability to incur other expenditures essential for Punjab's development. Second, the policy has very damaging environmental consequences because it promotes water intensive paddy cultivation, leading to an excessive use of ground water which has produced an alarming fall in the water table. Finally, the policy is highly regressive since most of the subsidy accrues to larger farmers," it said.

The expert group also stressed on the need for diverting 10 lakh hectares of area under paddy to other crops in next six to seven years. "Punjab should also consider gradually reducing procurement of paddy from the extremely water stressed areas," it noted.

It also recommended Punjab to follow the model of Haryana which is giving an incentive of Rs 7,000 per acre in over-exploited blocks to shift out of paddy. "Punjab should consider something along these lines," it said.