Punjab economy a victim of neglect & populism

PUNJAB was the top performing state in terms of economic growth and per capita income from the early 1970s to the early 1990s. Agriculture was its major growth driver. But the state could not translate the splendid success of the Green Revolution into development in other sectors of the economy. This is amply demonstrated by the state’s slowdown in both overall and sectoral growth rates over the past four decades. The slipping of Punjab's economy in comparison to the national average growth rate and some other states began in the early 1990s, a time when agriculture, too, had started experiencing fatigue. The decade-long militancy of the 1980s not only changed the state's orientation from development to law and order but also had an adverse impact on the investment climate and, thereby, on the quantum and quality of investment.

As a consequence, the investment-GSDP (gross state domestic product) ratio started lagging behind the national average. This further propelled the economic slowdown and deceleration.

Between 2014-15 and 2022-23, Punjab ranked 18th in terms of economic growth rate among the 21 major states. In terms of real per capita income, Punjab slipped from the first position in 1995-96 to the 10th in 2022-23 among the 18 major states despite its relatively lower population growth rate.

Its decline from a top performing state to a laggard vis-à-vis the national average and other well-performing states for well over three decades must be a cause of serious concern not only for Punjab but also the nation as it has serious implications for country's food and border security.

Significantly, the agricultural growth rate of Punjab (2 per cent per annum) has been below the national average (3.94 per cent) during 2014-15 and 2022-23 and amongst the 21 major states, it ranked 19th.

In non-agricultural sectors also, Punjab stayed below the national average and ranked at the 14th position during the same period. The growth rate of its secondary sector too remained below the national average for nearly 31 years — from 1980-81 — while its tertiary sector has registered below national average growth rate since the 1980s.

Additionally, the competitive political populism (doling out across-the-board subsidies and freebies), imprudent use of finances and under-mobilisation of financial resources has pushed the state into an unsustainable debt trap.

The outstanding debt increased from Rs 7,102 crore in 1990-91 to Rs 3,82,935 crore in 2024-25 and is likely to surpass Rs 4,17,136 crore by March 2026. The debt increased annually by Rs 19,867 crore during 2012-21 and soared to Rs 33,721 crore during 2022-23 and 2024-25. The worsening situation might, inter alia, be due to lack of focus on the root causes of the problem.

This has further weakened the fiscal health of the state. In terms of the fiscal health index (FHI), Punjab ranked the lowest during 2014-15 and 2021-22 among the 18 major states. In terms of the employment index, Punjab's ranking has gone down from the seventh position in 2012 to the 16th in 2022 among 21 states, indicating an overall deterioration on the employment front. Currently, over 26 per cent of the youth (15-29 years) is unemployed.

Ironically, the employment opportunities in agriculture are shrinking even as the available employment in the non-agricultural sectors is not attracting the youth because of a mismatch in the quality of jobs and their aspirations. This shows that the state must focus on the quality of employment and development of the rural non-farm sector to add value to agricultural produce and, thereby, generate additional employment.

The ever-increasing investment deficiency, along with the low budgetary allocation to development, explains Punjab's low-growth syndrome, low per capita income and very high unemployment rate.

Punjab's economic deceleration has been mainly due to the shift in the state's orientation from development to law and order (reflected in declining budgetary allocation to development heads) and the deteriorating investment climate (reflected in decelerating investment-GSDP ratio).

The Union government's special incentives to the neighbouring states might also have had an adverse impact on investment in Punjab. Significantly, Punjab's budgetary allocation to development before the advent of militancy was around 72 per cent. Thereafter, it started declining and since 2005-06, it has been between 47 and 50 per cent.

Punjab's gross domestic capital formation (GDCF) — the backbone of economic growth — was 23 per cent in 1993-94 while the national average was 23.1 per cent. Thereafter, Punjab started lagging behind, leading to investment deficiency (difference between national and Punjab's GDCF), spanning over three decades.

Had Punjab's investment-GSDP ratio been equal to the national average, if not more, there would have been additional investment to the tune of Rs 1,71,100 crore during 2001-02 and 2010-11 and Rs 8,55,860 crore during 2011-12 and 2022-23. Incidentally, the investment deficiency has witnessed a higher gap since the implementation of GST. Clearly, Punjab's economy has been a victim of lost opportunities on more than one count. The tragedy is that we have not learned any lessons.

Punjab must increase investment (both public and private) and give higher budgetary allocation to development heads. The former would require a favourable investment climate and the latter a shift of the state's orientation from law-and-order concerns to development.

Given the business-as-usual mode, both seem to be difficult choices. But this is sine qua non for Punjab's economic resurrection. The state can improve its fiscal health by the optimum use of financial resources (rationalising freebies and subsidies) and additional resource mobilisation (the potential is of Rs 28,500 crore annually). That would require a well-functioning institutional framework, better tax compliance, a roadmap for debt-offloading, optimum use of Central schemes and curbing pilferage in welfare and development expenses.

This, in turn, would require a strong politico-bureaucratic will and vision to overcome policy paralysis. Being a border state and having a significant bearing on food and national security, the Union government, too, would have to be more concerned about Punjab's economic development. Political will is essential for accomplishing this goal.

Ranjit Singh Ghuman is Professor of eminence, GNDU, Amritsar.