Chandigarh, Jul 28 (PTI) A panel led by noted economist Montek Singh Ahluwalia has recommended the Punjab government to undertake power sector reforms, stressing that unsustainable fiscal practices would "harm future generations".

The panel, which includes leading economists and industry experts, was set up last year by the state government to frame medium and long term post-COVID economic strategy for Punjab.

The panel said the 15th Finance Commission (FFC) has pointed out that free power was leading to the second highest discharge of groundwater through irrigation.

"In our first report we had drawn attention to the need to undertake power sector reforms and the GoP (government of Punjab) had pointed out that it was necessary to consider the political economy considerations in depth," it said.

"We recognise that political economy considerations are extremely important but it is also necessary to recognise that unsustainable fiscal practices will harm future generations and cannot be continued indefinitely. We would strongly recommend that the GoP should undertake power sector reforms along the lines indicated by the FFC,” as per the report.

"One way of reducing the burden of the power subsidy on the state budget might be to include the economic cost of power in the cost of production of agricultural products and raise the MSP (minimum support price) accordingly. If this is done the subsidy would be paid for as part of the food subsidy," it said.

Punjab's power subsidy bill including free electricity to farmers is pegged at more than Rs 10,000 crore.

Notably, in its first report, the panel had described free power to farmers as "highly regressive" and had said it has limited the "government's ability to incur other expenditures essential for Punjab's development.”

The group of experts, in its final report, also noted that Punjab is currently “one of the most fiscally stressed states”, with the lowest level of capital expenditure.

"Unless this is corrected over the next few years it will not be possible to achieve the objective of restoring Punjab to its pre-eminent position,” as per the report, which was submitted recently.

The panel said that the state government could reduce losses on foodgrain procurement operations.

"Given the large presence of FCI in the procurement operations, the government should gradually withdraw its involvement in intermediation," it said.

Among other recommendations, the panel suggested an increase in budget allocation for the healthcare sector by 20 per cent, setting up of Punjab Enterprise promotion panel, revising fee on minor minerals, shutting down of two thermal power plants and merging the Punjab Roadways and the PEPSU Road Transport Corporation.

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