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Infrastructure key to fiscal revival

The colours of an economic prism can be used "for and against" to delineate a state's financial scenario. The million-dollar question is: what is the actual measuring rod to test a state's fiscal health? Manoranjan Kalia writes.

chandigarh Updated: Oct 11, 2013 09:25 IST
Manoranjan Kalia

The colours of an economic prism can be used "for and against" to delineate a state's financial scenario. The million-dollar question is: what is the actual measuring rod to test a state's fiscal health?

A government's primary duty of is to levy taxes and spend the revenue so generated through taxes in such a way as to coax every individual of the state to perform economic activity in the same direction, as decided by the government. The multiplying fact of the economic activity performed by the government as well every individual is the all-around development of the state.

How much development takes place in a particular time frame can be gauged by a comparative study of the progress made by various states. True, the volume of money spent on development projects increases with the passage of time. The inflation factor and the increase or decrease in the monetary value have to be taken into account for ascertaining the actual comparison of development.

Engine of development

Historically speaking, agriculture was the engine of development in Punjab during the 1970s. It was during this period that Punjab became a major player in making India self-sufficient in foodgrains; thereafter, industry became the driving force for development. Being enterprising, Punjabis installed industry in Punjab, though its raw material is not available in the state.

Punjab based its industrial growth during the 1980s on the import of raw material from other states, followed by value addition and re-export. So, there is the hosiery industry, but we don't have our own wool; there is the sports industry, but willow is imported from Jammu and Kashmir. The rubber industry imports raw rubber from Kerala, while the biggest steel mandi of Asia is at Mandi Gobindgarh, but Punjab doesn't have iron ore.

Industrial growth

It was the era of subsidisation during the 1980s, which saw industrial growth in Punjab. Punjab was a 'surplus' state up to the 1980s. Thereafter, stagnation in growth came in agriculture as well as industry because the policy of subsidisation fizzled out. As engines of growth, agricultural and industrial sectors slowed down. The 10 years of militancy added fuel to the fire as far as retardation of growth in Punjab was concerned.

With the advancement in technology and availability of uncultivated land, states such as Gujarat, Madhya Pradesh, Chhattisgarh and Bihar have greater agricultural growth in comparison to Punjab. States having raw material encouraged the respective industry in their states. Thus, Punjab landed in a disadvantageous situation. Punjab, which grew 9-10% during the 1970s and 1980s, has come down to 4-5% of the GSDP (gross state domestic product), whereas states such as Madhya Pradesh, Chhattisgarh and Bihar, which earlier grew at 3-4%, have started growing at 10-12% of the GSDP.

Key questions

How can the fiscal health of Punjab be improved? What should be the engine of growth? India's GDP (gross domestic product) was 4% in 1999 when Atal Bihari Vajpayee became the Prime Minister. In 2004, India's GDP was 8.5% when the National Democratic Alliance's (NDA) tenure came to an end. The reason behind the pink health of the economy in 2004 was that the Vajpayee government adopted infrastructure as the engine of growth.

The Akali-BJP government has taken certain steps to build infrastructure, but not as an engine of growth. During the Vajpayee regime, there was a debate on whether foreign contractors should be allowed to build infrastructure of international standards, which could drain out money from the country. Ultimately, it was decided to boost Indian contractors to build infrastructure as per international specifications. Indian contractors were encouraged to import machinery and technology by providing mobilisation advance. Something similar has to be done in Punjab to make infrastructure the engine of growth by lessening the tax burden and making building material cheaper.

Crop diversification

Besides this, Punjab, being an agrarian state, has to push for crop diversification. After getting soil testing done to know the potential of land suitable for a particular crop, farmers should be encouraged to grow that crop by making the support price more remunerative as compared to wheat and paddy. The central government's support is needed in this regard.

Debt is good for the state's development, provided it is taken for building capital assets. If it is taken to service previous debts, it is bad economics.

A holistic view is needed to take stock of the economy's plight. Corrective measures have to be taken immediately, lest it is too late.