Highs and lows of Punjab’s economic journey

The 75th anniversary of Independence is the most suitable occasion to trace the economic journey of Punjab, which suffered irredeemable loss due to Partition. The enterprising people of Punjab and the government accepted the challenges and started reconstruction of the economy on a war footing. Accomplishments in terms of growth, agriculture and the service sector have been impressive. In the case of industry, the progress has been moderate. During the post-economic liberalisation period, however, the economy started slowing down on many fronts. The economic journey of Punjab, therefore, has been marked by milestones and downslides.

The Punjab economy started recovery quickly. During the First Five-Year Plan (1951-56), it experienced a growth rate of 5.3 per cent, much higher than the Indian economy (3.5 per cent). During the Second Plan, Punjab registered a growth rate (2.9 per cent) lower than the average for India (3.7 per cent). In the Third Plan, Punjab (4.5 per cent) performed slightly better compared to the national average (4 per cent).

The mid-1960s proved a watershed in the journey on two counts. First, Punjab’s reorganisation on November 1, 1966, changed the political and social landscape, impacting economic development. Second, the launch of the Green Revolution, which took Punjab to a higher growth trajectory.

Punjab’s economy grew in the vicinity of 5 per cent per annum from the mid-1960s to the early 1990s. During most of this period, the Indian economy grew by around 3.5 per cent per annum. However, from 1980s onwards, due to partial liberalisation, the growth rate of India’s economy surpassed that of Punjab.

Punjab also enjoyed economic supremacy by having the highest per capita income among the major states from 1966-67 to 1994-95. Later on, the economic supremacy started crumbling. In 2020-21, Punjab got relegated to the 14th position in terms of per capita income. The downslide is attributed to economic liberalisation, near stagnation in land productivity, sluggishness in industry, deteriorating fiscal health and poor policy attention to social sectors.

The structure of the economy has witnessed remarkable changes. In 1952-53, the share of the primary sector in the state’s income was 54.4 per cent and that of secondary and tertiary sectors were 10.2 per cent and 35.4 per cent, respectively. In 2020-21, the corresponding shares changed to 30.74 per cent, 23.33 per cent and 45.93 per cent. The growing strength of the service sector suggests that Punjab has skipped the transition to industrialisation.

The agriculture sector was hit hard by the Partition. East Punjab got only 20 per cent share of irrigation and 14 per cent of the area despite accounting for 47 per cent of the population. The fertile canal colonies of Lyallpur, Montgomery and Sargodha went to Pakistan.

India faced food shortage after Partition and thus in the First Five-Year Plan, the top priority was accorded to agriculture. Punjab being an agrarian state, it played a pivotal role in this national endeavour. Empirical evidence suggests that the performance of Punjab was superior than the all-India average. Its agriculture grew at a rate of 3.8 per cent per annum, higher than that for India (2.8 per cent) during the First Plan. During the successive two plans, state agriculture witnessed 5.1 per cent and 5.56 per cent rate of growth respectively. The corresponding rates at national level were 3.9 per cent and 3.42 per cent. This impressive performance is ascribed to institutional changes like land to the tillers and consolidation of holdings, increased public investment in irrigation and power, including dams, rural roads and cooperative institutions. These initiatives provided a fertile ground for the Green Revolution.

The Green Revolution strategy of the mid-1960s proved to be a boon for agriculture. Wheat yield recorded four-fold increase from 1,238 kg per hectare in 1965-66 to 4,868 kg per hectare in 2020-21. Similarly, the yield of paddy increased from 1,000 kg per hectare to 4,443 kg per hectare during the same period. In the process, the economy benefitted phenomenally but at a heavy cost of excessive exploitation and pollution of environmental resources. The yield levels of both the crops have reached a plateau. This, coupled with decline in public investment in agriculture, depletion of underground water, decline in soil fertility, changing weather conditions and terms of trade against agriculture, resulted in deceleration of the rural economy.

Industry suffered heavily on account of Partition. For reviving industry, the government initiated measures, including increased resource allocation, freight equalisation policy by the Central Government, manpower training, financial & technical assistance and common service facilities, including marketing and industrial estates. More than 35 per cent of the urban migrant families had a business and industry background. They along with local entrepreneurs played a pivotal role. However, the Indo-Pak conflict of 1965 and the state’s reorganisation in 1966 adversely affected industry. During reorganisation, a number of industrial centres, having proximity to the national capital, went to Haryana along with areas of mineral resources. Despite best efforts, the Fourth Plan states that though progress of small-scale industries took place, it was not spectacular during the first three plans.

The Indo-Pak war of 1971, militancy, economic liberalisation, withdrawal of freight equalisation policy in 1993, collapse of the USSR — a stable market for hosiery products, and cheaper Chinese goods slowed down industrial development. Many units moved out of the state due to locational disadvantages and the Central Government’s tax holidays to the neighbouring hill states.

The service sector also bore the brunt of Partition. The progress has been examined on the basis of its share in the state’s income. In 1952-53, the share of the service sector in the state’s income was 35.4 per cent; it increased to 45.93 per cent in 2020-21. Thus, the sector consolidated its position.

Punjab’s economic journey has entered the downslide phase primarily due to lack of policies of Central and state governments for steering the economy to the next stage of development — industrialisation. Punjab is a forward-looking state and has strengths such as well-developed infrastructure, industrial peace, high bank deposits, demographic dividends, sizeable Punjabi diaspora and adequate markets. In this endeavour, the Central and state governments should together devise a strategy, as was done for agricultural development.