Punjab has historically been a significant beneficiary of RDGs, which served as a stabilising cushion for persistent revenue shortfalls.

Punjab’s Fiscal Crisis: How 16th Finance Commission Recommendations Will Cost State Rs 4,800 Cr Annually

In a major financial setback for the Aam Aadmi Party (AAP)-led government, the 16th Finance Commission has discontinued the Revenue Deficit Grant (RDG) for Punjab. This decision, revealed in the report tabled in Parliament on Sunday, is expected to result in a massive loss of approximately Rs 4,800 crore annually, totalling up to Rs 24,000 crore over the five-year award period.

Noted economist Kesar Singh Bhangu described the move as a "huge loss" and a "weakening of the federal structure", noting that the debt-burdened state, already grappling with a debt of Rs 4 lakh crore, will now be forced to mobilise additional resources. Punjab has historically been a significant beneficiary of RDGs, which served as a stabilising cushion for persistent revenue shortfalls.

While the Commission marginally increased Punjab’s share in the divisible tax pool from 1.807% to 1.996% yielding an estimated gain of Rs 1,500 crore, this is overshadowed by the loss of the RDG. Additionally, the Commission introduced new devolution parameters, including a "GDP contribution factor".

Punjab Finance Minister Harpal Singh Cheema expressed disappointment, stating that the state's expectations for revenue support remained unmet. With high committed expenditures on salaries, pensions, and subsidies, the withdrawal of this central grant significantly tightens the state’s purse strings.

Source: Indian Express