There is currently a vigorous debate about the true state of Punjab’s economy, and its prospects for the future. I have been invited to add my thoughts to this debate. I have been writing off and on for 20 years about Punjab’s economy. In 1995, I took a retrospective look at the state’s Green Revolution, and suggested that its success had been built on providing solid infrastructure, adequate information, and the right incentives to farmers whose enterprise and energy made good things happen. But by that time, the Green Revolution was already running out of steam. Furthermore, the state was just then coming out of a period of militancy and brutal government repression that has left scars.
However, it was also a time when the country as a whole was beginning to reap the fruits of initial economic reforms. Fortuitously, a global digital revolution was also beginning, which spurred a massive new form of economic activity, from which India also benefited, particularly in Bengaluru and other southern locations, but also in New Delhi and its environs.
I investigated what was happening with Punjab’s efforts to create an information technology sector within the state.
In fact, the state did not get very far in these efforts. I found that the general environment for doing business was
poor, including insufficiently supportive government policies, as well as practices such as corruption or rent-seeking that were active deterrents. I also identified a lack of adequate human capital (educated and skilled technology workers), physical capital (telecommunications and electric power infrastructure), and social capital (trust and positive beliefs), as barriers to Punjab’s development. An important underlying factor I saw was a tendency to be locked into backward-looking thinking about Punjab as a ‘Green Revolution’ state, with negative implications for policy priorities.
Poor fiscal health
In 2012, Swaminathan Aiyar, in a piece on Punjab for a volume on “economic freedom” of India’s states, noted Punjab’s slippage in measures meant to capture the ease with which the private sector could pursue economic opportunities. He emphasised the negative role of the state’s continued poor fiscal health (partly related to corruption and rent-seeking), and especially the deleterious effects of providing free electricity to farmers. Since then, it has become clear to everyone that the latter policy not only has terrible fiscal consequences, but it damages the infrastructure for other kinds of economic activity, and is contributing to a catastrophic depletion of groundwater in Punjab. Aiyar dismissed the terrible period of militancy and subsequent repression as an excuse for Punjab’s situation, but it is arguable that those events contributed to a persistent deterioration of the quality of governance, and an erosion of trust and social capital more broadly.
Looking at the current debate from outside, it seems that what the Punjab government leadership is doing is to market the state better as an investment destination. This includes downplaying the extent of any drug problem among the population, asserting the state government’s fiscal health, and arguing that economic progress in the state has been substantial on many dimensions, with continued strengths in aspects of physical and social infrastructure.
Indeed, Punjab remains a well-off state by the average standards of the country, and it does better than some states that have higher per capita incomes, on measures such as consumption and inequality. Nevertheless, I am inclined to side with the critics of current state policymaking, and the thinking that goes behind it: these critics include prominent economists based in the state. In particular, the relative trajectory of Punjab and Haryana over the past decade or more is a stunning indicator of Punjab’s failure to reach its economic potential.
I think that by denying the broader problems of the state, by continuing to blame state-level fiscal problems on the central government, and by not thinking clearly about what policies are needed to support a structural transformation, the state’s political leadership is in danger of missing the development boat for the third time in as many decades.
What does Punjab need? First, it needs a huge increase in scientific and technical education within the state, especially higher education. The human capital that was adequate for the Green Revolution is completely unprepared for the digital revolution that is still going strong. Second, the state needs a massive investment in digital infrastructure. Every aspect of future economic development in any sector will depend on having this infrastructure first-rate. Third, Punjab needs an open and honest government, including for fiscal policy. The state has been hurt by the fact that voters have not had good choices for their leaders. The fact that Punjab was the only state in India where the Aam Aadmi Party won seats in the 2014 Lok Sabha elections is an indicator of what the people think. Fourth, there needs to be a strategic vision for the state, and a plan for making a transition from the current ‘Green Revolution’ equilibrium that has far outlived its revolutionary status and is instead hindering change and development. Finally, the state needs an open and inclusive dialogue about economic policies, so that detailed reforms can be worked out and implemented.
Is Punjab broken? Yes. How broken is it? Enough to be a major worry for its people, if not for its leadership. But the real issue is stated clearly by South African writer Alan Paton. He wrote, “The tragedy is not that things are broken. The tragedy is that things are not mended again.” Let’s figure out together how to mend Punjab.
(The writer is a professor at the University of California, Santa Cruz (US). The views expressed are personal.)
Tomorrow: Prof RS Ghuman, economist, CRRID, Chandigarh