Guest Column| Revive Punjab’s economy for development, peace - Hindustan Times
close_game
close_game

Guest Column| Revive Punjab’s economy for development, peace

ByLakhwinder Singh
Jun 19, 2024 05:32 PM IST

As a first step, the Punjab government should rationalise subsidies, raise adequate revenue and free the fiscal policy for unleashing dynamics of development. Another doable step is to make policy institutions functional and decentralise decision-making, while ensuring the participation of the stakeholders.

Punjab’s economy has been on the slide since the turn of the century. For 2022-23, the per capita income of the state was 1,81,716, just 5.5% above the all-India per capita, whereas it was 64% above the national level in the mid-eighties. When compared with other states, Punjab’s relative rank dropped from the first to 12th from 2000-01 to 2022-23. It is converging to the all-India average but lagging far behind the frontrunner states. However, its social indicators, including the human development index, multidimensional poverty, infant mortality rates, life expectancy and innovation index, are still comparable to frontrunner states. The rise and fall of economic development of Punjab needs soul searching to reverse the retrogression.

Workers on the job at one of Ludhiana’s many cycle manufacturing units. Punjab’s industrial sector is small both in size and scale. Modern industry has shifted to neighbouring states due to a special package of tax concessions and subsidies by the Centre. (HT file photo)
Workers on the job at one of Ludhiana’s many cycle manufacturing units. Punjab’s industrial sector is small both in size and scale. Modern industry has shifted to neighbouring states due to a special package of tax concessions and subsidies by the Centre. (HT file photo)

Punjab’s economic prosperity was based on the success of the Green Revolution. Initially, the Green Revolution offered advantages such as the dramatic reduction of poverty, high rates of savings, revenue surplus and the big push to the growth of industrial and service sectors. The state provided food security to the nation and continues to do so. It attracted migrant labour from poorer states and transmitted remittances. Thus, the national political leadership and public policy makers showcased Punjab as a model of economic development. As decreasing returns to scale occurred in agriculture, the contradictions of the model of development started appearing. Instead of facing reality, the political leadership twisted it to a socio-religious moment and the result was turmoil. This derailed economic development and turned a well-functioning state into a dysfunctional one. The ‘80s witnessed ruined institutions, exodus of human and investible capital, and lack of development policy intervention.

As peace returned in the early ‘90s, democratically elected governments during the last three decades successfully completed their terms. But each adopted a business-as-usual approach to public policy that could neither identify the obstacles faced by the Punjab economy nor develop a holistic strategy to address them.

Revenue surplus to revenue deficit state

Four decades ago, Punjab turned from a revenue surplus to a revenue deficit state. Committed cost is being incurred, while reducing expenditure on education and healthcare (two pillars of human capital), by borrowings. The burden on the state exchequer further increased when the state government initiated the policy of subsidies. The impact of state subsidies has gone up over time and reached a level where more than 20% of the revenue goes to electricity subsidies and another 20% goes to paying the rate of interest on debt. The debt level has reached higher than 47% of the GSDP. Consequently, the fiscal policy has turned dysfunctional. Capital expenditure has been abysmally low and remained short of replacement capital. This has reduced the capacity to produce output, crippled institutions and impacted private investment.

Investment deficiency played an important role in complicating the structural problems of development such as the agrarian crisis, high unemployment, desertification of industry and bypassing the information and communication technologies revolution. Punjab agriculture is unique and produces everything in bulk. It overloads markets that leads to price crashes and losses to farmers. The wheat-paddy rotation turned out to be the best bet for stability of price due to minimum support prices and the procurement system. This assured system has reduced high productivity agriculture to low value added. It is hazardous for the environment and water balance. Its integration with industry and diversification is overdue.

Punjab’s industrial sector is small both in size and scale. Modern industry has shifted to neighbouring states due to a special package of tax concessions and subsidies by the Centre. Punjab is a risky state for industrial investment due to the long active border, hostile international relations and suspension of border trade with Pakistan. This has disincentivised the industry to make investments in upgrading and innovations in new technologies that have created the high cost-low productivity-low wage industrial sector. It is mainly based on raw material from outside the state and sells output in the markets at distant places, involving higher transportation cost. It has low linkages with other sectors of the economy, too.

Services sector can be engine of growth

The share of services sector in the GSDP is more than 45% and is expected to be an engine of growth of the economy. However, it is largely functioning with low level of efficiency and devoid of dynamic enterprises that can absorb high skill work force of the state. Financial services due to unitary banking system has transmitted huge amount of financial resources to other states rather than providing adequate investible resources to dynamic economic activities. Education and health services are over privatised and due to lack of regulation, quality is compromised. There is a mismatch of skills and requirement, dampening the medical tourism potential. This has stunted human capital and generated limits on growth of the state’s economy.

Female labour force participation in the workforce is relatively low. Educated youth unemployment rates are relatively high. The quality of public sector jobs due to government policy has deteriorated and 80% of youngsters employed in public jobs in Punjab are dissatisfied. This has affected the nature and quality of employment of the private sector. These inadequate and adverse job conditions have pushed Punjab’s youngsters to either search for jobs in other parts of the country or move abroad.

Mandate for change in public policy

Given the vicious circle in which Punjab’s economy and policy has fallen, a push by both the state and the central governments is required. The state government should make the first move to change the public policy that can address the challenges before Punjab’s economy. The mandates of the 2022 assembly elections and the 2024 parliamentary polls show the people of Punjab have rejected the freebie/subsidy regime and voted for change in public policy. Political leadership and bureaucracy are risk averse and avoid innovative and experimental policy decisions due to vested interests. People are impatient and this is indicative from agitations, including the more than a year long farmers’ protest.

As a first step, the Punjab government should rationalise subsidies, raise adequate revenue and free the fiscal policy for unleashing dynamics of development. Another doable step is to make policy institutions functional and decentralise decision-making, while ensuring the participation of the stakeholders. Domain knowledge experts should be involved in specific areas but a holistic approach to policy making should be the goal. A separation of policy making, implementation and evaluation agencies is desired for accountability and discipline. For envisioning the future engines of economic development, the expertise and innovative-investible resources of the diaspora can be harnessed.

Punjab has a legitimate right to ask the Centre for support in lieu of unique benefits, including food security, for marching on its journey of development. The state can seek a special investment deficiency package. In lieu of the long-term low credit-deposit ratio that transmitted investible resources to other parts of the country, the state government can prepare a case for a moratorium on debt. The Punjab government can claim its share from the 2.1 lakh crore monetary proceeds by the Reserve Bank of India to the Union government because diaspora send remittances to build exchange reserves to save the country from a balance of payment crisis.

The restoration of the development process is a win-win for the nation and Punjab. The Centre should support and complement the efforts of the Punjab government to rejuvenate the state’s economy for sustainable development and peace. Peace has its own cost and devolution of financial resources from the nation’s kitty is worth it. lakhwindergill@pbi.ac.in

The writer is a visiting professor, Institute for Human Development, New Delhi, and former professor, Punjabi University, Patiala.Views expressed are personal.

SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Wednesday, July 17, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On