India, Feb. 28 -- An election-year budget in Punjab is expected to lean toward populism, with the much-talked-about popular scheme of giving an allowance of Rs.1,000 to each eligible woman of Punjab is likely to be rolled out in the budget, involving an estimated Rs.12,000 crore per year. The budget will also require provision of funds for meeting financial obligations under the "Mukh Mantri Sehat Yojana", which provides cashless medical treatment worth Rs.10 lakh per family annually, covering 65 lakh families. Announcing such popular schemes in an election-year budget is a common practice among political parties in India. Theoretically, this behaviour is explained by public choice theory. According to this theory, politicians endeavour to maximise votes through targeted benefits to the public. However, the canons of public finance require the adoption of fiscal prudence so that budgetary parameters remain within prescribed limits. Fiscal prudence means managing public finances in such a manner that fiscal distress is minimised and preferably avoided. For adhering to the principles of fiscal prudence, the state finance minister, in the forthcoming budget, is expected to manage revenue, expenditure, revenue deficit, fiscal deficit and debt in such a way that fiscal parameters remain within prescribed norms. For augmenting revenue, the finance minister has two fiscal instruments at his disposal - own tax revenue and non-tax revenue. In both cases, Punjab has ample scope to mobilise additional resources. Punjab has not tapped the potential of tax revenue as effectively as some other states. The own tax revenue - Gross State Domestic Product (GSDP) ratio - an indicator of the state's own ability to mobilise resources - was 6.12% in 2023-24, which was much below states like Telangana (7.65% ), Maharashtra (7.45% ), Uttar Pradesh (7.31% ) and Haryana (6.68%). By moderately raising its own tax revenue - GSDP ratio to 7% - the finance minister can succeed in raising resources to some extent for financing popular schemes. This target can be achieved by stimulating economic growth, introducing new taxes, broadening the base of existing taxes, improving tax compliance and implementing technology-driven tax reforms. Under non-tax revenue, in the current financial year, the government has succeeded in raising resources to the tune of Rs.12,761.45 crore, above the target of Rs.12,210.57 crore, mainly through asset sales. In the 2025-26 budget, the finance minister should also augment resources by tapping other non-tax revenue sources such as user charges and resources from public sector undertakings, including through disinvestment. Rationalisation of expenditure is another important policy tool for ensuring fiscal prudence. At present, the lion's share of government revenue goes towards committed expenditure covering salaries, wages, pensions and interest payments. Committed expenditure constituted 75% of revenue receipts in 2024-25 (revised estimates) and is projected at 74% in 2025-26. Power subsidy to agriculture and household sectors, and free bus travel to women, are likely to constitute around 20% of total revenue receipts. High committed expenditure limits fiscal space for capital expenditure. Capital expenditure, incurred on infrastructure and productive assets for enhancing the productive capacity of the economy, was only 5% of total expenditure in 2024-25. In the 2025-26 budget, capital expenditure is targeted at 6% . For allocating more funds to the capital budget, the finance minister should attempt to reduce committed expenditure, including rationalisation of subsidies. Innovative approaches such as the "Pani Bachoo, Paise Kamao" scheme for the farm sector can help stabilise power subsidies. The finance minister should also weed out unproductive expenditure by adopting Zero-Based Budgeting (ZBB), under which each programme starts from scratch and is included in the budget only if its outcome is productive. For ensuring fiscal prudence, the finance minister should also reduce revenue and fiscal deficits. Revenue deficit is the difference between government revenue receipts and revenue expenditure. As per the Punjab Fiscal Responsibility and Budget Management Act, 2003, the revenue deficit should be zero per cent of the GSDP. This means that the government should meet its revenue expenditure from revenue receipts and should not borrow to meet day-to-day expenditure. In 2024-25 (revised estimates), the revenue deficit was 3.54% of the GSDP. The 2025-26 budget has fixed the revenue deficit target at 2.69% of the GSDP. The situation may become more serious in future as the Sixteenth Finance Commission has stopped revenue deficit grants (RDG) to states, and Punjab is likely to lose around Rs.26,000 crore. Fiscal deficit shows the excess of revenue and capital expenditure over revenue and capital receipts. The FRBM Act, 2003, has fixed a fiscal deficit target of 3 per cent of the GSDP. In 2024-25, the fiscal deficit was 4.5% of the GSDP. In the 2025-26 budget, the target is 3.8% of the GSDP. The Sixteenth Finance Commission has also recommended that the fiscal deficit should remain within 3%. The finance minister can reduce revenue and fiscal deficits through revenue augmentation, regulation of committed expenditure and enhancement of capital receipts, as suggested earlier. Burgeoning public debt is another alarming fiscal parameter. As per revised estimates for 2024-25, outstanding debt was Rs.3,62,443.57 crore, comprising 44.77% of the GSDP. According to the 2025-26 budget, outstanding debt is projected at Rs.3,96,644.69 crore, constituting 44.5% of the GSDP. This high ratio adversely affects fiscal sustainability. The government cannot clear outstanding debt except by resorting to further borrowing. Overdependence on public debt has a crippling effect on the economy, as development and capital projects suffer due to the growing component of committed expenditure on debt servicing. The finance minister must attempt to bring down the debt-GSDP ratio to at least 40% . For this, fresh borrowing should be lowered, options for low-cost borrowing explored, revenue deficit mitigated, fiscal deficit brought down to 3% of GSDP, and faster economic growth stimulated. High growth is a strong debt reducer. This can be achieved by allocating more funds for infrastructure and incentivising projects that develop strong linkages among agricultural, industrial and service sectors....