It is a widely held view that economic development is a multidimensional phenomenon. It is reflected through a multidimensional summary measure, comparable across space and time, in the human development index (HDI) comprising per capita income, health and education indicators. It is a widely accepted and respected indicator of economic development. When we compare Punjab’s HDI ranking with that of other states, the state’s downturn is visible. It is important to understand the underlying transmission mechanism of economic prosperity reflected by the level of per capita income in improving the social indicators. Amartya Sen, India’s lone Nobel Prize winner in economic sciences, and one of the founders of the multidimensional indicator of economic development, laid down the principles of the transmission mechanism as ‘growth-mediated development’.
Those who challenge the prime importance of material well-being (prosperity) reflected through the summary measure -- the level of per capita income -- fail to understand the undergoing principle of the mechanism and do not appreciate the value of economic prosperity.
CM’s candid admission
The increasing relative marginalisation and regression of Punjab’s economy compared with other dynamic states of India and the all-India average has been well recognised both by economists and the political elite of Punjab. The recent denial is an aberration and the handiwork of vested interests. It is in right earnest to recall that after the Shiromani Akali Dal-BJP alliance won the 2012 assembly elections, chief minister Parkash Singh Badal visited Punjabi University, Patiala. While addressing the intellectuals, he candidly admitted that politicians won the elections but Punjab had lost. Punjab is broken, he painfully asserted. He appealed to the intellectuals for help and well-researched consensus-based policy advice and programmes to rejuvenate Punjab’s economy.
Accepting the challenge, Punjabi University invited 22 leading economists from four universities of the state and other parts of India to discuss and debate Punjab’s economy. After observing the ailments of the economy, the economists arrived at common minimum consensus-based policy measures; a document in English and Punjabi was prepared and submitted to the chief minister (available at http://www.punjabiuniversity.ac.in/cdeiswebsite). This amply brings out that Punjab’s political elite and economists in tandem recognised the slide of the state’s economy.
Economic glory lost
The three-decade-long economic glory of Punjab since the ushering in of the Green Revolution was achieved because of the hard work of the political elite, well-informed policy advice, suitable institutional arrangements and good economic governance. Why was this lost?
Precisely because of two reasons: one, the political instability and a decade-and-a-half-long disruption of economic governance and institutional arrangements. The role of the state shifted from development to law and order. Two, the liberalisation, privatisation and globalisation era, since 1991, questioned the power and capability of the state to direct economic activities. During this period, the political elite intelligently understood the changing times and changed their character from statesman politician to businessman politician. As a consequence of it, dysfunctionality of governance-related institutions remained a handy tool for both thriving in business and through fiscal profligacy as well in politics. The political elite turned ‘ideology-less’. This has eliminated the role of the opposition, which is otherwise vital for a well-functioning democracy. The role of well-informed policy advice to direct economic activities was the casualty.
Revamp public policy environment
How to bring back Punjab’s economic prosperity in the geographical space of India? This question is haunting us all.
Now is an opportune time to revamp the public policy environment for escaping the so-called ‘middle income trap’ and also of the ‘vicious circle’ in which the political elite is trapped – rent-seeking behaviour and competitive populism. Public policy-making is not a discrete process, rather a continuous one. In the era of increasingly globalised economic world, the policy-making that works at the ground level and economic coordination with global economic changes, requires a highly specialised team of experts inside the government structure for regularly churning out innovative ideas translated through institutional feedback system. The government has an option to reactivate the existing defunct economic governance and planning institutions and can also create a new body of policy-makers.
Lift siege on fiscal policy
Macroeconomic policy environment of the state government is in a shambles. This has dampened the expectations of the economic agents of production and killed the spirit of new investment initiatives of entrepreneurs. The Punjab government, in the immediate short period, can act to lift the siege on the fiscal policy and throw positive signals for economic activities to flourish. For this, it is possible to curb rampant tax evasion and increase the flow of revenue into the government exchequer. Rationalisation of expenditure and subsidies can also help to release the funds for creating much desired ‘social overhead capital’, which has collapsed in the past two-and-a-half decades.
Education and health, the two pillars of human capital, should be accorded priority for transformation of the agrarian economy to the age of knowledge-based economy. There is no clue how monetary policy decisions affect the state’s economy. This is vital for warding off the adverse effects, if any, and enhancing the positive effects, if there are any. If macroeconomic policies are fixed in the short period, it will help the state government develop medium and long-term vision to put the economic development path in the high orbit. The sectoral policy issues are interlinked with the macroeconomic policy. When the macroeconomic policy is functioning well, it is easier to fix the sectoral and sub-sectoral problems.
The Punjab government’s long-term target should be to transform the economy, while integrating agriculture with industry so that the larger share of the pie goes to primary producers. The existing industry suffers from several problems that need to be attended to make it competitive. This will prepare the ground for new opportunities of industrialisation in a knowledge-based economy to flourish. For knowledge-based activities to prosper, it is suggested that the state government should fix the target of spending 1.5-2% of the state domestic product on the research and development of innovative ideas. This will carve out a distinct pathway for a prosperous Punjab.
(The writer is a professor of economics at Punjabi University, Patiala. Views expressed are personal.)
Tomorrow: Pramod Kumar, director, Institute for Development and Communication, Chandigarh.