Chief Minister Bhagwant Mann has been informed by Punjab Governor Banwarilal Purohit that the Aam Aadmi Party government’s performance raises doubts about effective governance and prudent fiscal management.

Purohit further accused the state government of diverting capital receipts for secret reasons in his most recent letter to the CM, dated October 17,  2023. Purohit sought an explanation for the same. Since the additional borrowing by the state government has “not been utilised for creation of capital assets,” the governor has requested an explanation regarding why it has gone beyond what the state Assembly authorised in the budget.

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“I am asking this question for the sake of transparency. I assure you that once such a comprehensive picture is available, we can approach the Government of India for appropriate assistance as the Prime Minister has always expressed his commitment for Punjab, as the welfare of its magnificent people is close to his heart,” reads the letter, at the same time it also advises the CM that all public borrowings should be carefully done so that the youth of Punjab do not have to suffer owing to such insurmountable debt. The copy of the letter is available with The Statesman.

He has stated that borrowings should ideally be used to create capital assets rather than to implement populist policies.

The state is expected to manage its limited financial resources by adhering to responsible fiscal policies, according to the Governor’s second letter to the state administration on the subject of the state’s economic health. The state government was recently asked to explain how it had accrued debt totaling Rs 50,000 crore in the previous 18 months by the governor in a letter. Later, in response, the Chief Minister stated that the borrowed funds had primarily been utilised to pay back the loans that the previous administrations had taken out.

Through the letter, Governor Purohit has said, “As per the information available, the state government is not managing its fiscal resources in an effective and efficient manner. For instance, in 2022-23, the state government has borrowed Rs 33,886 crore, as against the approved amount of Rs 23,835 crore, which is over Rs 10,000 crores above the amount approved originally by the State Assembly in the Budget. This additional borrowing needs to be explained as, apparently, it has not been utilised for creation of capital assets. This is evident from the fact that the effective capital expenditure dropped by over Rs 1,500 crore – from a projected Rs 11,375.59 crore to Rs 9,691.53 crore. Further, the additional borrowing was not even used to discharge legacy interest obligations, as per the figures projected in the revised estimates in this regard. These, in fact, demonstrate that the total payments defrayed on this account during the year finally stood at Rs 19,905 crore, as against a projection of Rs. 20,100 crore in the budgetary estimates for 2022-23,” it says.

It appears that the Governor has also considered input from the Comptroller and Auditor General (CAG) of India, who is responsible for maintaining the state and federal government’s financial records.  Purohit added that while he agrees that welfare measures should be carried out completely, fiscal prudence requires that these measures be combined with resource mobilisation by reducing pilferages, reducing wasteful spending, and avoiding fiscal profligacy.