Chandigarh, Feb. 25 -- Days before the Bhagwant Mann-led Aam Aadmi Party (AAP) government announced free food kits for 40 lakh families registered under the National Food Security Act (NFSA), a study evaluating the state's finances recommended rationalising subsidies through direct benefit transfers, low-cost borrowing, and strategic debt restructuring to ease fiscal pressure. According to the evaluation conducted by the Mohali-based Indian School of Business (ISB), an excessive focus on subsidies and recurrent expenditures has caused the state to lag in capital-intensive sectors like industrial infrastructure, logistics, and digital transformation, thereby impacting long-term economic growth. The study notes that a substantial portion of resources is allocated to agriculture and power subsidies, limiting fiscal space for other critical areas such as education, health, and industrial development. "Agriculture-related subsidies provide the required support to farmers and agriculture by promoting sustainable practices, and debt relief measures alleviate the financial burden of debt-ridden farmers. However, in the case of Punjab, subsidies are creating a tremendous fiscal burden as well as detrimental to the financial health of the state," the study observes. The study was submitted to the 16th Finance Commission. The commission's report was tabled in Parliament on February 1. Punjab's subsidy bill has surged from Rs.9,747 crore in 2020-21 to Rs.21,833 crore in 2025-26 (budget estimates), which is about 35% of the state's own tax revenue. Power subsidy alone accounts for nearly 92%. While agriculture is the largest beneficiary, mainly through free power and financial support for cultivation and micro irrigation, other sectors like school education, industrial incentives and welfare schemes also receive assistance. The subsidy burden is expected to rise following the announcement of free food kits from April, in addition to wheat being provided under the NSFA. The scheme is estimated to cost Rs.950 crore per year. With assembly polls due early next year, the state government is also likely to implement its pre-poll promise of providing Rs.1,000 per month to every woman in the state. If rolled out without any eligibility conditions, as originally promised, the monthly social assistance scheme would require approximately Rs.12,000 crore annually, putting a huge strain on the state exchequer. To curb the rising subsidy bill, the study recommends a gradual reduction in free electricity for large farmers while ensuring that small and marginal farmers continue to receive support. It also calls for the introduction of direct benefit transfers for power and agricultural subsidies to improve targeting and reduce leakage. "Rationalising subsidies and improving targeting can help optimise fiscal resources while ensuring essential support for vulnerable sections," the evaluation stresses, suggesting that a cost-benefit analysis of subsidies be undertaken to assess the effectiveness and benefit of subsidies. It notes that the state's growing subsidy bill and fixed liabilities underscore the need to align fiscal planning with sustainable development goals. "Investments must be redirected towards human capital and infrastructure, with a focus on education, healthcare, and clean energy. Ensuring better targeting of subsidies and enhancing efficiency in public spending will help free up resources for development priorities." According to the study, Punjab's debt management requires immediate attention. Outstanding debt has soared from Rs.92,282 crore in 2012-13 to an estimated Rs.4.17 lakh crore by March 31, 2026 (budget estimates), pushing the debt-to-GSDP ratio from 23% to 46%, according to the latest data. The state now also has the highest debt-to-GSDP ratio among non-special category states, reflecting significant fiscal stress. On debt servicing, the study notes that interest payments currently consume about 20-25% of the state's revenue receipts. "If the present trend continues, the state's fiscal stress will worsen," the study warns, projecting that the debt-to-GSDP ratio could rise to 62% by 2030-31, with debt servicing exceeding Rs.80,000, severely constraining development spending. The study recommends reducing reliance on high-interest borrowings by shifting to concessional financing from multilateral institutions, besides improving debt structuring to extend repayment periods and reduce annual liabilities....