Amid a deepening financial crisis, the Punjab Government on Thursday introduced a series of harsh steps aimed at raising much-needed revenue to keep the state’s economy afloat. These decisions include increasing the value-added tax (VAT) on petrol and diesel, partially withdrawing the power subsidy to consumers with a load of more than seven KW, and raising bus fares. These decisions, approved by the state Cabinet in its meeting, are expected to generate an additional Rs 2400 to Rs 3000 crore annually, helping the state tackle its ongoing fiscal challenges.
The Cabinet, led by Chief Minister Bhagwant Mann, approved a hike in VAT on fuel. With this, the tax on petrol has been increased by 61 paise per litre, while diesel has seen a rise of 92 paise per litre — resulting in a hike in prices from Rs 97.03 per litre to Rs 97.64 for petrol; and from Rs 87.34 per litre to Rs 88.26 for diesel.
The hike, which is projected to bring in Rs 395 crore from diesel sales and Rs 150 crore from petrol annually, come at a time when the state is grappling with a mounting fiscal deficit. Notably, the cash-starved government is struggling to even meet its committed liabilities for the month of August, delaying the release of salaries and pensions by four days.
Even though the officials claimed that the increase is designed to boost revenue without drastically affecting consumers, the higher fuel prices will inevitably lead to some public discontent.
The fuel tax hikes come on the back of a series of other fiscal adjustments aimed at shoring up the state’s finances. Over the past month, the Aam Aadmi Party (AAP) led state government has also raised the collector rate for property registration and increased the motor vehicle tax on two-wheelers and four-wheelers.
In another decision, the Government decided to withdraw the Rs three per unit power subsidy, which was introduced by the previous Congress government under Charanjit Singh Channi. The decision is expected to save the state Rs 1,500 – Rs 1700 crore per year. In November 2021, the then-Channi-led Congress Government had slashed the power tariff by Rs three per unit for domestic consumers, having a connected load of up to seven kW (kilowatt).
Notably, the subsidy had been benefiting around 69 lakh consumers with connected loads of up to seven KW, significantly reducing their electricity bills. For instance, consumers who used to pay only Rs 1.50 per unit due to the subsidy will now have to pay the full tariff of Rs 4.50 per unit. This decision, while controversial, is being positioned as necessary to bring Punjab’s fiscal deficit under control.
Addressing the media after the Cabinet meeting, Punjab Finance Minister Harpal Singh Cheema outlined the government’s rationale for these measures. “We are under immense financial pressure, and it has become difficult to even meet our committed liabilities for this month,” said Cheema.
Explaining the decision to revoke the subsidy, Cheema highlighted that many consumers were receiving dual benefits. “Some consumers were getting both the free 300 units of electricity per month and the Rs three per unit subsidy…which was unfair, and we have now streamlined the system by removing the latter. We estimate that this will save the state Rs 1500 to 1700 crore annually,” he said.
Despite the withdrawal of the subsidy, the AAP government will continue its popular scheme of providing 300 units of free electricity per month to all domestic consumers. Cheema assured the public that this would cover more than 90 percent of households, helping the majority of the population manage their electricity expenses. However, those who exceed the 600-unit threshold over two months will no longer receive the same level of support.
The power subsidy withdrawal is part of a broader strategy to reduce the state’s electricity expenditure, which is expected to surpass Rs 24,000 crore this year. The AAP government has faced criticism for handling the fiscal situation, but it argued that these measures will encourage more efficient use of electricity while easing the state's financial burden.
In another major decision, the government also approved an increase in bus fares by 23 paise per kilometre, which is projected to generate an additional Rs 150 crore annually. This increase comes as part of a comprehensive plan to boost state revenue from various sectors and ensure that essential services continue to be funded.
Cheema emphasized that these measures are not just about plugging the fiscal gap but also ensuring the long-term financial sustainability of Punjab. “We are taking tough but necessary steps to ensure that we can meet our obligations and continue to provide essential services to the people of Punjab,” he said.
Compared to Punjab’s financial situation, neighbouring Himachal Pradesh has also adopted similar measures to cope with its fiscal strain. On Wednesday, the Himachal Pradesh Government announced that salaries and pensions would be disbursed on the fifth and tenth of every month, respectively, in a bid to manage its financial resources better.
Opposition Lashes Out AAP Govt for VAT Hike, Subsidy Withdrawal
The Aam Aadmi Party (AAP) Government faced sharp criticism from the opposition on Thursday after announcing a hike in Value Added Tax (VAT) on fuel and the withdrawal of a crucial power subsidy for domestic consumers. Leader of the Opposition (LoP) Partap Singh Bajwa condemned the government's decision, calling it a “direct attack” on the common people of Punjab. “The diesel hike will not only burden the agricultural sector but will also add to the spiralling inflation,” he remarked. He also expressed concern over the removal of the Rs three per unit power subsidy for consumers with loads up to 7 KW, which was initially implemented by the previous Congress government.
Bajwa also accused the AAP government of failing to manage the state's finances effectively. “Ever since coming to power, the AAP has been running the state on borrowed funds, and Punjab’s debt is now estimated to reach Rs 3.74 lakh crore by the end of the next fiscal year,” he noted, calling the state's financial management under the AAP regime a “recipe for bankruptcy”.
Punjab Congress president Amarinder Singh Raja Warring, echoing Bajwa’s concerns, said that the AAP Government was deceiving the people of Punjab by offering initial relief through free electricity but introducing steep hikes thereafter. “The government claims to be pro-common man, but their actions suggest otherwise. The middle class and poor are being hit the hardest by these price increases,” Warring added.
Both leaders urged the government to reconsider its approach and roll back these decisions, calling for more responsible governance that does not come at the expense of the state's citizens.
Punjab Petroleum Dealers Call for Rollback of VAT Hike
The Punjab Petroleum Dealers Association (PPDA) has voiced serious concern over the VAT hike on petrol and diesel in the State. The association has urged the State Government to reconsider the increase and align the VAT structure with neighbouring states to prevent further economic strain. PPDA representatives highlighted that the VAT hike will have severe consequences for the already struggling petroleum industry. “Our sales are plummeting due to neighbouring regions offering lower VAT rates, and this increase will only worsen the situation,” the Association warned, adding that it could lead to significant revenue losses for both dealers and the state. The PPDA has requested immediate action, calling on the government to roll back the increase, restore competitive pricing, and protect the interests of petroleum dealers and the state’s economy.
