The Comptroller and Auditor General of India (CAG) has flagged rising deficit, mounting debt and shrinking fiscal space, warning that high subsidies, committed expenditure and borrowings are pushing Punjab’s finances into deeper stress.The State Finances Audit Report for 2023–24 noted that while Punjab recorded steady economic growth, its fiscal indicators reveal structural weaknesses that could make long-term debt stabilisation difficult. The report stated that there is a persistent mismatch between receipts and expenditure. The report was tabled in the Budget session of Vidhan Sabha on Monday.Punjab’s Gross State Domestic Product (GSDP) at current prices grew at a compound annual growth rate of 8.52 per cent, rising from Rs 5.37 lakh crore in 2019–20 to Rs 7.44 lakh crore in 2023–24. The budget outlay also expanded during this period, increasing from Rs 1.62 lakh crore to Rs 2.08 lakh crore, at a compound annual growth rate of 6.50 per cent. But the growth alone has not translated into stronger fiscal stability, as pert the auditor.In 2023–24, Punjab’s GSDP grew 9.34 per cent over the previous year, but revenue receipts rose by just 1.80 per cent, resulting in the share of revenue receipts in GSDP declining from 12.86 per cent in 2022–23 to 11.97 per cent in 2023–24. While tax collections showed improvement with total tax revenue increasing 13.9 per cent and the state’s own tax revenue rising 11.86 per cent, the overall fiscal position remained strained due to rising expenditure and widening deficits.Mismatch between spending and earningWhile revenue receipts increased from Rs 61,575 crore in 2019–20 to Rs 89,192 crore in 2023–24, growing at a compound annual rate of 9.71 per cent, capital receipts also rose marginally from Rs 43,891 crore to Rs 46,902 crore during the same period, the expenditure was high. Revenue expenditure including spending on salaries, pensions, subsidies climbed sharply from Rs 75,860 crore in 2019–20 to Rs 1.17 lakh crore in 2023–24, accounting for 80 to 96 per cent of total expenditure in recent years.The report stated that such a high share of revenue expenditure leaves little room for investments that could strengthen infrastructure or boost long term economic growth.Revenue deficitThe state recorded a revenue deficit of Rs 28,215 crore in 2023–24, compared with Rs 14,285 crore in 2019–20. In terms of the state economy, the deficit now stands at 3.79 per cent of GSDP. The state is borrowing not just for development but also to finance its day-to-day spending.Story continues below this adFlagging another worrying trend, the report stated that the borrowed funds were not used for capital creation.“Punjab spent only Rs 4,743 crore on capital expenditure in 2023–24, representing 3.88 per cent of total expenditure. The capital expenditure accounted for just 4.40 per cent of total borrowings, indicating that the bulk of loans raised by the state are being used for consumption or repayment of past debt rather than for creating productive assets.” The gap between total expenditure and total non-debt receipts stood at Rs 33,115 crore in 2023–24, equivalent to 4.45 per cent of GSDP.Committed expenditureInterest payments, salaries and pensions together accounted for 65 per cent of revenue expenditure in 2023–24 (Second year of Aam Aadmi Party rule), down slightly from 69 per cent in 2019–20 (during former Chief Minister Amarinder Singhs government). However this still dominates the state’s spending profile. These commitments increased from Rs 52,544 crore in 2019–20 to Rs 76,388 crore in 2023–24, growing at a compound annual rate of 9.78 per cent. Inflexible expenditure, which includes transfers to local bodies and commitments under centrally sponsored schemes, rose to Rs 12,420 crore in 2023–24.Taken together, committed and inflexible expenditure amounted to Rs 88,808 crore, accounting for 75.64 per cent of revenue expenditure and leaving limited fiscal space for new development initiatives.Subsidies, especially power, weigh heavilyStory continues below this adSubsidies remained another major pressure point in Punjab’s finances. Total subsidies almost doubled from Rs 10,161 crore in 2019–20 to Rs 18,770 crore in 2023–24, during the AAP rule, increasing their share in revenue expenditure from 13.39 per cent to 15.99 per cent. Power subsidies alone accounted for between 92 and 99 per cent of total subsidies during this period. In addition, the state incurred Rs 501 crore in implicit subsidies.Rising debt and off-budget borrowingsPunjab’s debt burden has continued to rise steadily. The debt-to-GSDP ratio increased from 42.71 per cent in 2019–20 to 43.72 per cent in 2023–24. When off-budget borrowings are included, the overall liabilities rise to 44.27 per cent of GSDP. The report has stated that state’s debt has grown at a compound annual rate of 9.16 per cent over the past five years.The CAG has castigated the state for off-budget borrowings worth Rs 4,092.78 crore which were raised through public sector undertakings (PSUs) and other entities. The report said although these borrowings do not appear in the state’s consolidated fund, they still have to be serviced through the budget.Revenue deficit exceeds target levelThe audit has also flagged potential risks to fiscal sustainability in the coming years. Although the fiscal deficit of 4.45 per cent of GSDP remained within the 4.60 per cent ceiling prescribed under the Fiscal Responsibility and Budget Management (FRBM) framework, the revenue deficit exceeded the targeted level, reaching 3.79 per cent against the target of 3.52 per cent.Story continues below this adThe state’s decision to revert to the Old Pension Scheme (OPS) could further increase financial pressures in the long run, the report notes.The report has stated that Utilisation certificates for Rs 3,089.57 crore in grants remained pending as of March 2024, raising doubts about whether funds were used for their intended purposes.Similarly, 2,037 Abstract Contingency bills worth Rs 2,804.85 crore had not been adjusted through detailed bills. In another instance, Rs 406.98 crore collected as cess and levies had not been deposited into government accounts.The audit also found that supplementary provisions worth Rs 1,147.64 crore were unnecessary in several cases because actual expenditure did not even reach the level of original budget allocations.