The Punjab Paradox: Agrarian Prosperity, Fiscal Distress and the Failure of Developmental Transformation
Monday, 7 September 2026
The Question
A change of government in Punjab in March 2022 has not, on the fullest audited evidence now available, moved the state's public finances in one consistent direction. This update draws on the state's newest CAG audit and its 2024-25 actual-versus-budget outcome, neither available when this comparison first ran, alongside the same four-state reading against Haryana, Gujarat and Maharashtra.
“Punjab's relative income advantage has eroded dramatically: from 119.6% of the national average in 1960–61, , the year before the Green Revolution began to approximately 105.0% in 2025–26.”
— EAC-PM Working Paper Series, “Relative Economic Performance” (2024); Punjab Economic Survey 2025-26
Sixty years ago Punjab ranked among India's two or three richest large states by per-capita income. It no longer does. A 2024 working paper from the Economic Advisory Council to the Prime Minister puts Haryana's relative per-capita income at 176.8% of the national average in 2023-24, against Punjab's 106.7% and 104.98% in 2025-26 - much lower than Punjab's own position before the Green Revolution began. NITI Aayog's summary note on Punjab adds that the state's share of India's GDP fell from 3.7% in 1990-91 to 2.6% by 2021-22, with real GSDP growth of 5.0% a year over 2012-13 to 2021-22 against a national 5.6%. By 2025-26, Punjab's own economic survey put per-capita income just 5% above the national figure - a premium that keeps narrowing.
None of this is contested. What is contested - and what this update actually tests - is narrower: has the government in office since March 2022 changed that trajectory? The fullest audited numbers now available answer with more precision than most commentary allows, in either direction.
Author(s)
Dr. Vikas Bhardwaj holds a Ph.D. and M.Phil. from the Centre for Russian and Central Asian Studies, SIS, JNU, New Delhi. His work focuses on economic statecraft, sanctions, energy geopolitics, and global economic governance.
He has worked as a researcher with numerous institutions, including the Indian Institute of Public Administration (IIPA).
Where Punjab Sits Today?
Punjab's fiscal deficit (4.1% of GSDP) and revenue deficit (2.2%) are the highest of the four states; its outstanding liabilities, at 45.1% of GSDP, are roughly double Haryana's and more than triple Gujarat's. The more revealing numbers sit beneath the headline ratios.
“Punjab commits 72 paise of every rupee of revenue receipts to salaries,
pensions and interest before funding anything else - in the last audited year, it was 85.”
— PRS Legislative Research, Punjab Budget Analysis 2026-27, citing 2024-25 actuals
That gap with Gujarat's 43% is arithmetic, not interpretation, and it is the best single predictor of why Punjab's capital outlay - ₹18,381 crore budgeted for 2026-27 - is a smaller share of a far smaller economy than any of its three comparators.
Did 2022 Change the Trend?
This is where digging one audit cycle deeper changes the picture. CAG's newest State Finances Audit Report - tabled to the Punjab Legislature on 16 March 2026, covering 2023-24 - extends the audited run a full year further than before, and that year matters. Punjab's fiscal deficit rose from 3.13% of GSDP in 2018-19 to 5.04% in 2022-23 (the first year substantially administered by the incoming government), then eased to 4.45% in 2023-24 - a genuine, audited improvement, not a projection. It did not hold: 2024-25 actuals show a fiscal deficit of 4.74% of GSDP against a budgeted 3.8%, a miss of nearly a full percentage point, in a year when revenue receipts came in 10% below budget.
The deficit eased again in 2025-26 (revised estimate 4.2%) and is budgeted lower still for 2026-27 (4.1%) - though the 2025-26 improvement owes something to an unbudgeted ₹8,300 crore from selling state land and property, without which the revised numbers would look considerably weaker.
“Punjab missed its own fiscal-deficit target by 30% in 2024-25 —
the same year its revenue came in 10% below what it had budgeted.”
— Punjab Budget Documents 2024-25 and 2026-27, via PRS Legislative Research
Outstanding liabilities show a similar up-and-down path: 41.35% of GSDP in 2018-19, a spike to 46.16% in the pandemic year 2020-21, a retreat to the low 42–44% range through 2023-24, then a further rise toward 45% by 2025-26. Four fiscal years under one government is not enough to read a clean trend out of this. What the fuller run of audited numbers does rule out is the simplest version of either claim — that the change of government wrecked Punjab's finances in a straight line, or that they have been quietly repaired since 2022.
A related but distinct problem shows up in how Punjab manages cash within each year, not just across years. CAG's auditors note that Punjab drew on the Reserve Bank's emergency Ways and Means Advances or overdraft facility for between 221 and 344 days a year, every single year from 2014-15 to 2023-24 - a pattern they describe as near-continuous reliance on short-term borrowing rather than the occasional bridging measure it is designed to be. Twelve states needed no such advances at all in 2023-24; Gujarat was one of them.
“Punjab needed the RBI's emergency cash-advance facility for 221 to 344 days
a year, every year, from 2014-15 to 2023-24. Gujarat needed it for zero days in 2023-24.”
— CAG (2025), State Finances 2023-24 Decadal Analysis, via PRS Legislative Research
What's inherited, What isn't?
Some of what sits behind these numbers unambiguously predates the current government: the wheat-paddy procurement architecture, the design of the agricultural power subsidy, the 2003-era Fiscal Responsibility law, and a stable of loss-making state enterprises - 18 of 33 working State Public Sector Enterprises were loss-making as of their latest available accounts, with 14 of those having fully eroded their net worth - all took shape over decades under governments of India's two largest national parties. The decision to revert to the Old Pension Scheme, announced in November 2022, was the incumbent government's own choice, and CAG's audit explicitly flags it as a liability still working its way into the numbers.
The clearest sign that spending has not yet been reoriented toward investment sharpened further in the newest audit: capital expenditure came to just 4.40% of Punjab's total borrowing in 2023-24, down from 7% the year before - meaning borrowed money is going even less toward anything that shows up as a durable asset, not more.
“Only 4 rupees in every 100 borrowed by Punjab's government in 2023-24,
the latest audited year, went toward building anything.”
— CAG, State Finances Audit Report for the year 2023-24 (Report No. 1 of 2025)
Subsidy targeting, not just subsidy size, is also a live and checkable issue: a study prepared for the 16th Finance Commission and cited in Punjab's own 2026-27 budget analysis found that three in four households in Punjab's highest spending bracket still receive free electricity - the second-highest such share of any state in the study. Equally, some of Haryana, Gujarat and Maharashtra's advantages have nothing to do with which party governs them: Haryana's integration with the Delhi-NCR labour and property market, Gujarat's ports and half-century of petrochemical and auto-component investment, and Maharashtra's century-old position as India's financial and industrial hub all predate the present governments by decades. A reading that credits the incumbent Punjab government with the entire divergence, or credits the other three states' governing party with the entirety of their advantage, is not supported by this data.
The mechanism most consistent with the numbers is a loop, not a single cause: assured procurement and subsidised inputs generate a large, largely fixed subsidy and committed-expenditure bill; that bill leaves little room for capital spending; weak capital spending constrains the diversification that would broaden the tax base; a narrow base forces further borrowing; and borrowing reinforces the original arrangement rather than funding an exit from it. Each arrow is plausible and consistent with the figures above; none has been demonstrated here as a proven causal effect.
What this doesn't show?
Several things cut the other way and deserve equal weight. First, Haryana's own fiscal deficit (2.7%) also sits above the 16th Finance Commission's 3% of GSDP ceiling once adjustments are set aside, and its debt stock is rising in rupee terms even where the ratio looks better. Second, Punjab's own-tax revenue as a share of GSDP has actually improved in the most recent years on record - 6.4% (2024-25 actual) to 6.9% (2025-26 RE) to a budgeted 7.2% (2026-27) - a genuine positive trend running alongside the fiscal strain. Third, 2023-24's audited improvement in the fiscal deficit (5.04% to 4.45%) was real, even though 2024-25 gave much of it back. Fourth, and most importantly, a four-state, nine-year fiscal comparison cannot cleanly separate the effect of a change of party from the effects of geography, national agricultural policy, or a single poor monsoon. Nothing here should be read as more than what it is.
Where this leaves it?
The defensible claim is narrower than either “the AAP government wrecked Punjab's finances” or “nothing has changed since 2022.” It is this: Punjab's fiscal deficit and debt ratio have moved in both directions since the change of government - improving on the audited 2023-24 numbers, then missing the state's own target by a wide margin in 2024-25, before easing again, partly on a one-off land sale, in 2025-26. That is a record of volatility around a still-elevated level, not a story that runs cleanly in either direction. Whether the 2026-27 budget's projected improvement holds will be visible in the next CAG audit, not in this one.
Sources: PRS Legislative Research (state budget analyses, 2026-27);Punjab Economic Survey 2025-26; Comptroller and Auditor General of India, State Finances Audit Report for the year 2023-24 (Report No. 1 of 2025), tabled to the Punjab Legislature 16 March 2026; EAC-PM Working Paper Series EAC-PM/WP/31/2024; NITI Aayog, Summary Report — Punjab. All figures independently checked against these primary releases; none are drawn from unverified secondary commentary.
Views expressed are of the author(s) and do not necessarily reflect the views of the Centre for Internal Security Analysis (CISA) or any of the stakeholders associated with it. Readers discretion is advised.