Punjab budget 2017-18

The source of PML-N power, Punjab, was projected to pass a budget for election year that would not only appease those who voted for the party in 2013 elections but also attract those who did not vote for the party. To add to these political requirements was the rising concern that the federal government has alienated various hitherto pro-PML-N supporters with its flawed economic policies including those engaged in commerce and industry and who would require adequate consideration in the budget. The recent anger by farmers displayed on the streets of the capital while the federal budget was being delivered in the assembly reflects a strong sense of disenchantment among farmers.
There was a noticeable change in the PML-N's traditional expenditure allocations in the budget 2017-18. For the first time social sectors were budgeted to receive a higher Annual Development Programme (ADP) allocation relative to infrastructure - 32 percent - with 13 percent allocated to education and 9 percent to water supply and sanitation. The Punjab government had come under considerable criticism for failing to invest appropriate amounts on these critical sectors in previous budgets, in marked contrast to the Khyber Pakhtunkhwa government's allocations, however, one would hope that this reflects a shift in priorities that would not be limited to election year. Disturbingly, the allocation on education of 82.6 billion rupees, clean drinking water and sanitation of 58 billion rupees are lower than the 93 billion rupees allocated for Orange Line (cleverly placed under special programme initiatives earmarked 14 percent of total budget, and out of the infrastructure basket) which challenges the claim of the highest allocation on social sectors in the current budget. Noteworthy is the small allocation for local government and community development (7.9 billion rupees) reflecting that power would remain centralized and the mindset of the Punjab government has changed little in this regard.
Infrastructure considered as the engine of growth that would provide jobs and fuel output was shown as the second largest component of Punjab's ADP and received 27 percent. The major recipients in line with the focus of the Sharif administration - federal and provincial - were roads (rural and dualization of Khanewal-Lodhran and DG Khan-Muzaffargarh), followed by irrigation and energy sector. Productive sectors were earmarked to receive 8 percent and here too policies favoured by the Sharif family prevailed notably credit for the farm sector and for the small and medium enterprise sub-sector.
Services sector would receive 8 percent of total ADP but the bulk was earmarked for transport with a huge chunk of allocation from foreign aid (loan) projected at 93.5 billion rupees which, one would assume, would reflect the cost of the Metrobus, and governance though noted unlike in the federal budget would receive a paltry 3.2 billion rupees.
Provincial governments have rarely focused on raising their own revenue base as a component of general revenue receipts and instead rely on their share from the divisible pool. That the federal share has been overestimated in recent years is fairly evident. As per Punjab Budget 2018-19, the shortfall between the budgeted and the revised estimates from the federal divisible pool is negative 2.6 percent (1,039,910.7 million rupees as opposed to 1,013,067.9 million rupees) - a relatively small percentage, however, the federal budget was announced on 26th May, 35 days before the end of the fiscal year on 30th June and given Federal Finance Minister Ishaq Dar's penchant for overestimating federal revenue it is highly unlikely that the revised estimates would be accurate to plus minus 2 percent, an acceptable level.
Be that as it may, Punjab budgeted a reliance of 83 percent on revenue from the divisible pool and around 17 percent from its own receipts for the current year; however, in the revised estimates it claims it relied on divisible pool to the extent of only 72 percent while provincial own receipts accounted for 28 percent of general revenue receipts. There was almost an across-the-board decline in direct tax collections compared to what was budgeted including tax on agriculture income (budgeted at 2.3 billion rupees and realized 1.28 billion rupees), however, inexplicably while mutation income declined by 7 percent, copying and inspection fees of patwari records rose by an unprecedented 80 percent. And capital value tax on urban (residential) rose by a whopping 72.2 percent (from 1.3 billion rupees budgeted to 2.3 billion rupees revised estimates). By far, the largest source of revenue for the province, however, was from sales tax on services which netted 84.2 billion rupees (budgeted 85 billion rupees reflecting a more accurate assessment) while it is projected to rise to 127 billion rupees in next fiscal year - a rise of almost 84 percent which effectively implies that the services would become more expensive for the public - and as sales tax is an indirect tax its incidence on the lower income levels would be relatively higher than its incidence on the rich.
The neglect by the Shahbaz Sharif administration of southern Punjab politically necessitated a budget dedicated to the region and a special package for southern Punjab was announced which included the dualization of the Khanewal-Lodhran road at 15 billion rupees, Saaf Pani Programme of 24.5 billion rupees, safe cities in Multan and Bahawalpur of 12 billion rupees and rural roads 11 billion rupees.
Currently, the provincial debt is a bit above 3 percent of provincial gross regional product and the government is planning to raise "more debt in a prudent manner with the primary objective of enhancing its development spending and hence the growth rate of the provincial economy" - prudent defined as selling bonds up to 25 billion rupees next year with the established Debt Management Unit (DMU). However, one would hope that the DMU provides necessary guidance and strictly monitors the economic viability of the amount of borrowing under this head - guidance which is clearly lacking in the case of the federal government.