Centre Cuts Punjab’s Borrowing Limit by Rs 16,676 Crore Amid Debt Woes

Centre Cuts Punjab’s Borrowing Limit by Rs 16,676 Crore Amid Debt Woes

RMN News Story Highlights

• The Centre has imposed a significant cut of Rs 16,676 crore on Punjab’s open market borrowing limit.

• The deductions were primarily made due to unpaid/outstanding amounts related to the power sector.

• Punjab’s outstanding debt is projected to reach Rs 4.17 lakh crore by the end of 2025-26.

• Punjab is considered the second-most indebted state in India based on Debt-to-GSDP ratio (46.6%) according to one source, while another source ranks it first (47.6%).

RMN News Government Desk
May 21, 2025

Chandigarh: The Centre has imposed a drastic cut in the open market borrowing limit for the state of Punjab. This decision comes as a significant jolt to the debt-stressed state, which relies heavily on borrowed funds each year.

Against the limit of Rs 47,076.40 crore sought by the Punjab government for open market borrowing, a cut of Rs 16,676 crore has been imposed. For the first nine months of the current financial year (April-December), Punjab has been approved to borrow Rs 21,905 crore, compared to the Rs 35,307 crore it had demanded for this period. The state government had requested a gross borrowing limit of Rs 51,117 crore for the entire ongoing fiscal, which includes components like negotiated loans and transfers from public accounts.

The deductions were made due to several unpaid/outstanding amounts, primarily linked to the power sector. These include:

• Unpaid/outstanding power subsidy: Rs 5,444 crore.
• Unpaid power subsidy arrears: Rs 4,107 crore.
• Additional borrowing linked to the power sector: Rs 4,151.60 crore.
• Previous years’ power sector-based borrowings: Rs 1,976 crore.

This reduction in market borrowings has widespread ramifications for Punjab.

A May 21, 2025 news report by The Tribune quotes Punjab Finance Minister Harpal Singh Cheema who described the cut as “financial strangulation” of the state. He stated that the Centre was “showing its hatred” against Punjab, especially as it is also imposing cuts on the state’s dues like the Rural Development Fund. Cheema noted that the state had agreed to and started routing all funds through the consolidated fund, yet financial cuts are being imposed.

Punjab faces a significant debt burden. The state’s outstanding debt is projected to reach Rs 4.17 lakh crore by the end of 2025-26. Reports indicate that the total debt by March 31, 2026, will stand at Rs 4,17,136.10 crore, an approximate 9-percent increase from the current outstanding debt of Rs 3,82,934.98 crore. When the current Aam Aadmi Party (AAP) government came to power in March 2022, the total debt was Rs 2.83 lakh crore. Debt liability has increased by Rs 1 lakh crore in the past three years.

A large portion of the new borrowing limit will be used to manage existing debt. Almost 90 per cent of the new open market borrowings will go towards servicing the state’s legacy debt and repaying old loans. This year, the state must repay old debt amounting to Rs 18,198.89 crore. An additional Rs 24,995.49 crore will be spent on interest payments for old loans.

👉 ਪੰਜਾਬੀ ਵਿੱਚ ਹੋਰ ਖ਼ਬਰਾਂ ਪੜ੍ਹਨ ਲਈ ਇੱਥੇ ਕਲਿੱਕ ਕਰੋ।

In 2024-25, the government paid Rs 23,953.72 crore as interest on outstanding debt, which was 23 percent of total revenue receipts. Interest liability has been consistently rising due to growing debt. The state government is reportedly negotiating with financial institutions to reduce interest rates on previous loans from 11-12 percent to a capped 7 percent.

Regarding its fiscal position, Punjab has targeted a revenue receipt of Rs 1.11 lakh crore this year, while revenue expenditure is targeted at Rs 1.35 lakh crore. This results in a revenue deficit of Rs 23,957.28 crore.

According to data shared by Union Minister of State for Finance Pankaj Chaudhary in Parliament, Punjab is the second-most indebted state in the country in terms of debt to Gross State Domestic Product (GSDP) ratio at 46.6 percent. Arunachal Pradesh is ranked first with 57 percent, and Himachal Pradesh is third with 45.2 percent.

However, a separate RMN India Debt Report 2025 lists Punjab first with a Debt-to-GSDP ratio of 47.6% based on 2023-24 data, with total outstanding debt listed as Rs 3,20,000 crore for that period. The state government denies its financial condition is grim, claiming the debt increase is in line with GSDP growth. The state budget claimed a current Debt-to-GSDP ratio of 44.77 percent and estimated it to be 44.50 percent in the coming year.

The state’s AAP government attributes the current fiscal difficulties to the legacy debt inherited from previous governments. However, opposition leaders like senior Congress politician Partap Singh Bajwa have questioned the government’s claims, suggesting that deficit reduction figures were achieved by delaying payments such as Scheduled Caste scholarship payments (Rs 3,968 crore) and pensions (Rs 18,424 lakh).

Reports on India’s public debt highlight that states with dangerously high debt levels sometimes announce unsustainable welfare schemes, such as free electricity or cash subsidies, which increase the risk of fiscal slippage. States are urged to align debt management with long-term fiscal sustainability.