Punjab is a mid-sized state in India with a population of 28 million. It has a primarily agriculture-based economy that has long served as India’s granary and ensured the country’s food security. Despite its glowing past, the state economy, as of program appraisal, had been slowing down for over a decade because of high fiscal stress. Its deteriorating fiscal situation was attributed to ad hoc expenditure planning and management and untargeted transfer-payment and subsidy schemes.
To help address the situation, the Asian Development Bank (ADB) approved a policy-based loan (PBL) of $200 million for the Punjab Development Finance Program in November 2014. The program had three tranches, $50 million each for the first and second tranches and $100 million for the third tranche. It was to facilitate the implementation of a comprehensive fiscal consolidation program, generating fiscal savings and helping the state to, in the future, invest in social and economic infrastructure. Its envisaged impact was improved capital investment in the state, and expected outcome was creation of a larger and more sustainable fiscal space. Its planned outputs were (i) improved fiscal management capacity, (ii) rationalized expenditure focusing on power subsidies, and (iii) improved revenue efforts. To achieve these outputs, the program suggested 22 policy actions over the three tranches. To strengthen the institutional and human resource capacities of key agencies, ADB also approved a technical assistance (TA) grant of $400,000 in November 2014, supplemented by an additional TA grant $100,000 in November 2015.
The three program outputs remained unchanged throughout implementation. Other than modifying one policy action ─ complete 100% metering of distribution transformers that were connected to agriculture power feeders ─ the project scope did not change. Implementation was delayed by 18 months because of the time taken to reach consensus on an alternative methodology for the revised policy action, as well as the state’s legislative assembly election in 2017. Accordingly, the target year for accomplishing the envisaged impact was moved from 2018 to 2019, and for the outcome and output indicators, from 2016 to 2019.
Of the 22 policy actions, 19 were fully achieved, 1 was partially achieved, and 2 others were substantially achieved. All targets under “improved revenue efforts” were met. The state’s efforts in digitizing all land records and implementing the Punjab State Development Tax Bill, including the professions tax, resulted in higher revenue collections.
All targets under “rationalized power subsidy expenditure” were likewise achieved. The Punjab State Power Corporation Limited completed 100% feeder metering, allowing for better provisioning of power subsidies to agricultural consumers. The state made great progress in bringing down the power subsidy per hectare of gross cropped area to well below the baseline, no-reform scenario. Despite the settlement of subsidy arrears from previous years as part of the UDAY (Ujwal DISCOM Assurance Yojana) scheme in 2019, the subsidy was almost 6% below the baseline scenario, meeting the performance target.
Under “improved fiscal management capacity,” institutional targets such as the establishment of the fiscal policy and management unit (FPMU), the preparation of gender-based medium-term expenditure frameworks, and the implementation of an integrated financial management system were achieved. The fiscal output target of 3%–4% discrepancy between estimated and actual own-tax revenue and total expenditure was not achieved because of developments in the national fiscal framework beyond the program’s control.
Accomplishments at the impact and outcome levels fell short of targets. Though on hindsight, the targets may seem ambitious, they were not so in the design phase, when the introduction of a new tax regime was not anticipated. Nevertheless, the program overall had helped strengthen the foundation of the state government’s fiscal consolidation agenda. Many of the completed reforms are either entrenched in state legislation or will continue to be implemented under the nationwide goods and services tax scheme and UDAY program for power sector restructuring. Moreover, the state government’s strong commitment to fiscal reforms continued after program completion, moving beyond the program requirements to ensure sustainability.
Punjab's Finance Department was the executing agency. The FPMU, headed by the Finance Department Secretary, helped implement the program and the TA.
