The Punjab paradox

Written by Nirvikar Singh | Updated: Oct 21 2013, 08:50am hrs
On October 10, Rahul Gandhi gave a political speech in Punjab. He made several political points. The Indian Express, in one story covering the speech, listed 10 of these points. The last of these quoted Gandhi (perhaps a translation) as saying, Punjab gives food to India the country cannot stand without it. He related Punjabs role in feeding the public distribution system (PDS) to the feasibility of the Right to Food effort of the ruling coalition.

This is the paradox of Punjab. The Green Revolution helped Punjab become more prosperous, by supplying grain to the rest of India. This role was consonant with the goals of national policy. This role is being pushed further by national policies such as the Right to Food Act. Punjabs economy is locked in to this role. But Punjabs agricultural economy, based on supplying food grain for the PDS, is heading for disaster. Punjabs economic welfare is not aligned with how the national goal of the right to food is being implemented.

As it happens, I was also speaking in Punjab on the same day as Rahul Gandhi. It was only an academic lecture at Punjabi University, Patiala. But I emphasised that Punjab is heading for disaster. The political and economic equilibrium is leading to an unsustainable depletion of groundwater, and the groundwater table will collapse in a decade, or soon after. Politicians and middlemen are contributing to the distorted use of water and the lock-in of Punjab farmers into a situation that will sacrifice their livelihoods and wellbeing. Praising them for their current role is cynical and counter-productive. A solution is needed to stave off collapse.

In his speech, Gandhi criticised corruption and bemoaned the lack of jobs in Punjab, which contributes to societal problems such as drug addiction. In my talk, I also said that, for Punjab to avoid economic collapse, it needs a more honest and effective government. But this is a no-brainer. What else can one say about a concrete way forward Here I offered only two suggestions, which must work together.

Given Punjabs social and economic structures, its size and geographic position, it is not a great candidate for large-scale labour intensive manufacturing. Instead, it has some chance of succeeding as a place for flexible mass-customised production. An analogy might be to northern Italy, which thrived in this role for decades, but is now suffering from lack of cost competitiveness. Another might be Germanys mittelstand of family-run engineering firms. A third example is the Swiss niche in watch making, which has survived over the years by adapting to technological change that made watches a commoditythe Swiss moved upscale, and emphasised design and status. My first suggestion, therefore, for moving Punjab forward, is to develop a strategic vision of what manufacturing and service niches the state can realistically fill in the global and national economic systems. Japan, South Korea, Taiwan and China have all had strategic visions to some degree, though implementations have varied by time and place.

The secret to success in all these cases was matching human capital to market needs, in particular demand niches, whether for consumer products or industrial goods. So my second and complementary suggestion is that Punjab needs to invest in human capital at a rapid rate. This investment needs to be shaped by the strategic vision, which will determine what kinds of jobs will be available. So local industry needs to help in formulating a strategy for building human capital in the state. The Indian School of Business campus in Mohali is an example of how things might progress. National-level liberalisation of entry by foreign education providers should be seized on proactively by Punjabs industry and its government. Such providers, with established brands, have an incentive not to behave as fly-by-night operators. Punjabs hilly areas, and the fading but still palpable grandeur of the former princely states of Patiala and Nabha provide possibly attractive physical locations for new education facilities.

The implementation challenges are enormous, of course, in achieving such dramatic structural change, especially with respect to improving governance. Indeed, if the state government had begun this process of guiding structural change 40 years ago, things could have been easier, and the current situation very different. One can go over the sad story of Punjabs politics over these decades, and it is understandable not paradoxical. Understanding it can help avoid extending or repeating past mistakes. Understanding the past and present brushes away the superficial paradox of Punjab.

Perhaps in the past Punjab was not in a position to break free of the compulsions emanating from New Delhi. But many other states of India have shown that economic development can be vigorously pursued at the state level, and that such a pursuit can be successful. If Punjab can achieve a turnaround, breaking free of its PDS-and-related lock-in, this will have positive spillovers across northern India. The alternative for Punjab is not stagnation, but economic collapse.

The author is professor of economics, University of California, Santa Cruz