1. Not Udta Punjab ban, state needs an economic elixir

Not Udta Punjab ban, state needs an economic elixir

Punjab can’t obfuscate its diminishing standing in the national landscape by keeping portions of Udta Punjab out of bounds to the audience.

By: | Updated: June 13, 2016 6:39 AM
On the other hand, despite the efforts at equity by successive finance commissions, many other states would have genuine reasons to grumble.

On the other hand, despite the efforts at equity by successive finance commissions, many other states would have genuine reasons to grumble.

Punjab can’t obfuscate its diminishing standing in the national landscape by keeping portions of Udta Punjab out of bounds to the audience. The font of India’s green revolution roughly half a century ago, the state badly needs to have an imaginative economic model and implement it with gusto to reverse its self-imposed decline that has, for quite some time now, looked vertiginous. The question is if the state’s gauche political system has the stomach to pick up the gauntlet.

The once-extolled farm sector of the land of five rivers has plumbed fresh depths in recent years. The Punjabi farmer’s fall from grace is despite her land’s famed fecundity (which is on the decline owing to irrational use of fertilisers), its perennial irrigation support (98.7% of the state’s areas under grains are irrigated), the coagulation of central funds in her hands as minimum support prices and the generous electricity subsidy — R5,600 crore budgeted for 2016-17 — she gets to run tubewells (Not for nothing that Punjab’s per capita electricity consumption is the highest in the country at over 1,800 kWh, twice the national average).

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The Reserve Bank of India recently sent a missive to banks to declare advances to Punjab for food grain purchases as non-performing assets amid reports that the state did not actually hold the reported grain stocks worth R20,000 crore. The RBI’s move was a stark reminder of how Punjab’s agriculture is mollycoddled. Thoughtless largesse to the farmers has put enormous fiscal burden on the state and kept it from developing the financial sinew to promote industry. Of course, there has been a gradual structural shift in Punjab’s economy in recent decades toward manufacturing and industry in general.

But as the chart shows, the transformation has been too slow-paced to maintain Punjab’s share in India’s gross domestic product, let alone increase it.

Punjab’s outstanding liabilities — at 32.4% of the gross state domestic product (GSDP) in 2014-15 — are the most onerous among major Indian states (at 35.5%, the only other large state reporting higher liabilities relative its economy is West Bengal, but unlike Punjab, it has lately shown some promise in fiscal management). With a modest budget size of R86,400 crore and staggering liabilities of R1.4 lakh crore — both estimates for FY17 — the Punjab government cannot single-handedly steer the state’s R3.5 lakh crore economy. Punjab’s annual debt-servicing bill is around R13,000 crore or close to three-fourth if its estimated VAT revenue for this year, proof that the state’s revenue productivity is abysmal.

The solution lies in building a robust manufacturing sector and accelerating the growth in services. But the state’s manufacturing industry continues to consist largely of small and medium-sized units; large industries are few and far between. The state’s policymakers haven’t been able to inspire confidence among large investors and the state has therefore lost out to Gujarat, Tamil Nadu and Karnataka, etc. which have carried out more successful campaigns to lure investors.

In the World Bank’s latest ranking of Indian states on “ease of doing business,” where it assessed how they fared against targets given for a six-month period (January-June 2015), Punjab occupied an unimpressive 15th slot, while not just Gujarat and Andhra Pradesh which led the pack, but even a state like Jharkhand (which is relatively new to industrialisation) grabbed the third rank.

While Punjab has no major problem of electricity– deficit during peak hours was reduced from 13% in 2014-15 to a negligible level in the last fiscal– but its relative advantage on the infrastructure front suffered in recent years as the efforts to supplement (grossly insufficient) state resources with private investments yielded only moderate results. Mired in a vicious cycle of low industrial growth and enfeebled fiscal capacity, Punjab has no easy way out. It needs to make major strides in acquiring competitive advantage over other states –including neighbouring Haryana and newer states with greater administarive agility like Jharkhand and Chhattisgarh– to atttact investments.

Punjab’s political classes, seeming oligarchies irrespective of their ideological hues, will need to disabuse themselves of the false notion of being patrons of the larger country; ever since it was part of a larger administrative unit including the present-day Haryana and Himachal, Punjab has got every penny of its due form the Centre, the custodian and allocator of the country’s natural and tax resources. Come to think of Bhakra Nangal and the bounteous allocations to the state to create irrigation infrastructure since 1960s. Although the state was afflicted with the extremist Khalistan movement in the 1970s and 1980s, the Centre, guided by the finance commissions, amply compensated it for the consequent financial losses.

On the other hand, despite the efforts at equity by successive finance commissions, many other states would have genuine reasons to grumble.

Punjab is seeking the Centre’s help to resurrect itself, and the latter, going by its decision to give soft loans to the state to tide over the missing-grain-stocks crisis, is more than willing to oblige. With assembly elections around the corner, the centre’s move seems to have been influenced by the political leaning of the present state government run by the SAD-BJP combine. Ultimately, Punjab will have to put its fiscal house in order and be able to spur private investments. The political leadership in the state will have to hover above partisan interests and resist the temptation to pander to sections in perennial need of sops. Concerted efforts to boost industrialisation are urgently needed to cut down on high unemployment levels and prevent youths from straying into drugs.

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