Invest in research & development to revitalise Punjab’s economy

PUNJAB is passing through a stage of slow growth. Retrogression in the state’s ranking compared to other states has set in. Its rank has slumped from No. 1 to 12 in terms of per capita income among major states. This is a cause for concern. It should prompt informed citizens to reflect on why this has happened and what the way out is. Answering this is equivalent to envisioning the future engine of growth for Punjab’s economy.

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When one looks at the production structure, it is obvious that the lack of strong linkages among the production sectors, a dysfunctional fiscal policy, social and cultural factors, ruined institutional infrastructure and risk-averse political leadership and bureaucracy are the major constraining factors. These have formed a vicious cycle, breaking which requires a big investment push and a sound public policy.

Apart from addressing the current and interlinked constraints that have slowed down the economic growth of Punjab over the last four decades, there is an urgent need to envision future sources of growth. Even as economic growth processes are turning increasingly knowledge-intensive, they continue to be input-sensitive in Punjab, marked by low productivity as well as wages. The agriculture sector has been a relatively high-productivity but low-value-added one. The scenario of manufacturing and services sectors is no different, thanks to low value addition. The innovation index developed by the NITI Aayog assigned Punjab as low a value as 15.35 in 2021 (the rank among the major states is sixth). The major stumbling block is an inadequate investment in science & technology and the environment. It is as low as 0.39 per cent of the gross state domestic product (GSDP). Another dimension of the problem is the low level of knowledge-intensive employment, skill development training and involvement of NGOs in such areas.

To transform Punjab’s economy from being input-intensive to knowledge-intensive, the state government and economic players of production should consider investing in in-house research and development (R&D) and increase it to the desired level of engagement of science & technology workers. Nobel laureate economist Paul Romer has argued that the higher the engagement of science & technology workers, the higher is the level of innovations and patents (knowledge output). The application of innovations and technologies developed to address local problems faced by the economic production structure will help make it operate at higher efficiency. This requires decisions to shift the gears of the economy, while envisioning and channelling investment in the desired direction. The state government, during the annual budget formulation, should consider including the budgetary head of investment in R&D. A new incentive framework for knowledge enterprises should be framed and incorporated in the core policy and budgetary formulations.

There is an urgent need to develop coordinated high-end knowledge generation organisations and institutions. The goal should be to raise R&D standards and outcomes. In the short term, the share of R&D investment in the GSDP should be raised to 1 per cent. It should be increased to 2 per cent in the medium term and finally to the level of the Asian Tigers at around 3 per cent.

For this, higher educational/research institutions may be engaged to generate new knowledge for current and future needs of the economic agents of production while building strong business enterprise-institutional linkages. In this context, there is a need to learn from China’s experience of establishing solo research-based universities.

The main task of a research university should be to conduct research on the current problems faced by the economy, besides innovations and technologies for future sources of economic development. These universities will change the culture of academic engagement and give an edge in publishing research output and registering patents for raising global quality standards. This implies that the research output generated by such a university can be used by knowledge enterprises that can be established by it or by private enterprises. Obviously, the knowledge developed and absorbed in knowledge-intensive enterprises will help convert higher productivity into higher value addition and thus accelerate the pace of economic development.

The focus of the R&D budget should be on investing in risky projects to invent short-cycle technologies. Capability-building for harnessing future opportunities and making skilled manpower ready for futuristic technologies are the need of the hour. The state government and business enterprises should develop a strong linkage with the Indian diaspora to transmit the spillover effect from the knowledge gained from experience while working in developed countries. The production structure may also be fine-tuned to fulfil the needs of the diaspora while raising the quality standards of production that are acceptable in their respective country of residence. Brand-building could enable entry into global value chains. This will further enhance the possibilities of learning and facilitate increasing returns to scale in the enterprises and farms. This is the process that will help Punjab’s economy move from a ‘low productivity, low wage’ enterprise to a ‘high productivity, high income-generating’ one, along with agriculture.

Another advantage of this kind of new investment in knowledge enterprises is that it can be directed to generate green energy innovations and technologies for the greater benefit of achieving high productivity and high-wage employment in green enterprises. The Punjab Government must give the right signal to economic agents of production for making the state’s economy dynamic. The right kind of combination of institutions like the state and the market is needed to deliver long-awaited development.