ALSO SEEKS CONVERSION OF SDRF TO NON-INTEREST BEARING RESERVE
REITERATES STATE DEMAND OF 50% SHARE IN DIVISIBLE POOL, AND INCLUSION OF CESSES, SURCHARGES, AND SELECT NON-TAX REVENUE IN THIS POOL
Chandigarh/New Delhi, September 30
A high-level delegation of the Punjab Government comprising Punjab Finance Minister Advocate Harpal Singh Cheema, Chief Secretary KAP Sinha, and Additional Chief Secretary, Home Affairs and Finance, Alok Shekhar, on Tuesday called on the Chairman of the 16th Finance Commission Dr. Arvind Panagariya in Delhi to present a forceful case for the special long term rehabilitation package to state, citing the recent experience with devastating floods, among the worst in decades, which caused an estimated damage of Rs 20,000 Crores, particularly in border areas, to crops, homes, and infrastructure.
Finance Minister Harpal Singh Cheema highlighted the immense strain placed on Punjab’s finances due to its unique status as a frontline border state, recent natural calamities, and the structural disadvantages arising from the shift to the Goods and Services Tax (GST) regime. He initiated the discussion by addressing the immediate need to reform the State Disaster Response Fund (SDRF) norms. He underscored that existing SDRF norms proved too restrictive and rigid, severely constraining the State Government’s ability to provide timely and adequate relief. He emphasised that it is therefore imperative that these guidelines be comprehensively reviewed to incorporate flexibility and provisions for state-specific disasters.
Furthermore, the Finance Minister stressed that the SDRF must be converted into a non-interest-bearing reserve fund, akin to the National Disaster Response Fund (NDRF), noting that Punjab’s fund currently holds a gigantic interest accumulation of Rs 7,623 Crores out of a total balance of Rs 12,268 Crores. The Chairman of the Finance Commission acknowledged the concern raised by the Punjab Finance Minister and assured that it would be discussed with the Commission members in their upcoming meeting.
Reiterating the demands put forth by the state in the last meeting with the 16th Finance Commission, the Finance Minister also made a compelling argument for dedicated financial support to states sharing a hostile border. He informed the Commission that the heightened tensions with Pakistan, particularly in the wake of Operation Sindhoor earlier this year, caused massive economic losses to the state’s border districts through repeated disruptions to daily life, industrial activity, and the movement of goods. “Punjab continues to face unique security challenges, including drone incursions, cross-border smuggling, and narco-terrorism, which demand constant, heavy investment in security and law enforcement”, he added.
The Finance Minister apprised the Chairman that the state is investing heavily in infrastructure and police modernisation to create an effective second line of defence in support of the Border Security Force (BSF). The Minister requested a dedicated Border Area Package to strengthen police forces and law enforcement infrastructure, for which the state has requested Rs 2,982 Crores in its memorandum to the Commission. He said that this support is crucial for ensuring both national security and regional stability.
Finance Minister Cheema also sought a special Industrial Package for Border Districts. He said that these districts consistently lag behind the state average in per capita income due to limited industrial activity caused by border tensions. “The closure of the Wagah border, once a vital trade corridor, has caused estimated losses of Rs 5,000 – 8,000 Crores per annum, further exacerbating the economic setback. To correct this structural disadvantage and foster inclusive growth, a special industrial development package is essential to revive industry and generate employment”, said Cheema.
Punjab has demanded a total of Rs 6,000 Crores for this package, encompassing funds for industrial development, maintenance, and incentives, drawing a parallel to similar packages already announced for neighbouring regions like Himachal Pradesh and Jammu & Kashmir.
The Finance Minister also addressed the adverse fiscal effects of implementing the GST regime. He said, “Punjab has incurred a permanent loss of Rs 49,727 Crores per annum due to the subsuming of various state taxes for which no compensation has been provided, a figure further compounded by the expected impact of recent GST rationalisation on state finances.”
To ensure greater fiscal space and fairness for the states, the Finance Minister proposed significant recommendations to the 16th Finance Commission. The major suggestions put forth include increasing the share of states to 50% of the Divisible Pool (up from the current 42%), as well as the inclusion of cesses, surcharges, and select non-tax revenue in the Divisible Pool. Additionally, the Finance Minister requested a developmental grant of Rs 75,000 Crores for the State of Punjab, on the lines of the Revenue Deficit Grant provided by the 15th Finance Commission.
In conclusion, Finance Minister Harpal Singh Cheema presented the state’s latest fiscal indicators, noting a Revenue Deficit of Rs 23,957 Crores and a Fiscal Deficit of Rs 34,201 Crores for FY 2025-26, with the Debt-to-GSDP Ratio standing at 44.50%. He reiterated that a favourable recommendation by the 16th Finance Commission is indispensable for Punjab to meet its critical security obligations and reverse its economic disadvantages.
The meeting took place in a productive atmosphere, with Finance Commission Chairman Dr Arvind Panagariya assuring the delegation that the points raised would be carefully considered.
