What is blocking Punjab’s economic growth trajectory

Punjab had one of India’s most robust state economies during the pre-reforms era, particularly following the Green Revolution. As a result, it earned a reputation as the country’s most dynamic and prosperous state. For an extended period, Punjab consistently ranked first in per capita income and various other socio-economic indicators.After the initiation of the neo-liberal policy regime, the state lost its economic glory and slipped behind many states in most of the economic parameters that it was leading in earlier.Over the years, a debate on the issue has been taking place in academic and policymaking circles to pinpoint the causes and factors responsible for the below-par performance and the existing economic scenario of Punjab. The debate has been concentrating around two lines of thought: first, that Punjab itself is responsible for its below-potential performance and the present economic crisis; second, that the policies of the state and Central governments, along with some social, economic, geographical and federal factors, have led to the dismal performance of the state.Regarding the first line of thought, there is no denying that the policies of successive state governments during the neo-liberal regime have remained dysfunctional and ineffective. Consequently, the fiscal and developmental policies of the state government were in disarray, which led to the collapse of investment and employment-generation. Due to some vested interests, many people and reports try to brand the hard realities that Punjab has faced and is facing as myths. Further, they attempt to compare the incomparables and mislead the people of the country. Such reports and line of thinking have disappointed the academicians who advocate the cause of Punjab.It seems that the campaigners of the first line of thought are attempting to weaken the pressure generated by the believers of the second line of thought on the Centre for granting an investment revival package to Punjab.Regarding the second line of thought, the policy issues that emerge are that if Punjab wants to regain its lost economic glory, diversification and a structural transformation of its economy are required. Punjab's economy has been facing a chronic shortage of investment in capital formation as the investment-state domestic product (SDP) ratio has remained below 20 per cent, which is 15 percentage points lower than the all-India ratio and the lowest among the 14 major states of India.Further, investment in the agrarian economy of Punjab has been declining as the investment-agriculture state domestic product ratio has reached an all-time low of 8-9 per cent, according to the latest available estimates. The state's fiscal policy must be revamped and aim to raise the tax-GDP ratio of 7-9 per cent to 12-13 per cent. This is possible by increasing tax compliance, eliminating tax evasion and imposing new taxes.The universal approach to subsidies and freebies should be eschewed immediately. Subsidies should be provided for building the capabilities of the deprived sections for a limited time period, based on the principle of social justice. Freebies based on political considerations and vote-bank politics should be immediately done away with.While the rejuvenation of the economic development process remains the fundamental responsibility of the state government, major and dynamic policy instruments that affect the state's growth momentum, such as the monetary policy, are under the Centre's control.The Centre's neo-liberal policies with regard to the external sector, decontrol of prices, tax restructuring and many more have, in fact, played havoc with the economic growth momentum of the state. Therefore, it is suggested that the tendencies of the federal structure which are becoming more and more unitary need to be curbed as soon as possible.Since Punjab has been substantially contributing to the food security of the nation and will continue to do so and also due to its strategic location from the point of view of national security, the revival and rejuvenation of its economy is in the interest of both the nation and the state.Pertinently, the constraints of economic development encountered by Punjab's economy are partly under the purview of the state government and partly under the Centre. Thus, joint efforts of both governments are needed to remove the constraints that are blocking Punjab’s potential of economic growth.At this juncture, the Centre's initiatives will go a long way in setting things right. To tide over the unprecedented crisis, Punjab's economy needs, deserves and demands from the Centre not only the long-pending debt relief package but also a capability-building investment revival package. This package must at least cover the investment deficiency gap between the Punjab and Indian economies, based on the difference of the investment-gross domestic product ratios.The proposed investment revival package of Rs 20,000 crore per annum for five years will rejuvenate Punjab's economy. It will also lay the roadmap for the state's long-awaited structural transformation from an agrarian to an industrialised economy, along with ensuring food safety and security of the national economy.Kesar Singh Bhangoo is former Dean, Punjabi University, Patiala.

What is blocking Punjab’s economic growth trajectory

Kesar Singh Bhangoo

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