Even Punjab CM knows reforms are needed to get the state back in shape, but he seems unable to even try to push them
By rejecting the medium- and long-term economic strategy recommendations of the Group of Experts headed by former finance secretary and Planning Commission deputy chairman Montek Singh Ahluwalia on grounds that it was anti-farmer, Punjab chief minister Amarinder Singh has made it clear he is going to be guided by political considerations alone, and not any desire to get the state out of the economic rut it is in. Never mind that it was because the state was slipping so badly – from the highest per capita income among the major states in 1999, it slipped to 10th position in 2019-20 – that Singh asked Ahluwalia to suggest a way forward for the state. While the report is not just about the state’s agriculture, including Punjab’s rapid desertification due to massive overuse of water, fixing the sector is critical if the rest of the economy is to prosper. The report has important suggestions on how to revive manufacturing, including the promotion of startups and greater use of digital technology, but fixing agriculture is central to everything for a variety of reasons.
For one, with the state spending as much as 1.9% of its GDP on power subsidies for agriculture – these grew, this newspaper reported, from Rs 5,670 crore in FY19 to a likely Rs 7,180 in FY21 – it has little left to spend on creating better facilities for either manufacturing or services. Indeed, as the first report of the Group of Experts points out, the high electricity subsidy has resulted in a situation where the total capital expenditure in the budget is only about 1.6% of the state’s GDP; the electricity subsidy, in turn, is what makes it possible for farmers to pump up water, so Punjab’s desertification cannot be slowed till this is fixed. If electricity subsidies for agriculture are rationalized, this will also help reduce power costs for manufacturing; and should Punjab develop a food processing industry, as the report recommends, that will also boost the MSME sector and create a lot of jobs in the state.
It is understandable that, in the face of a massive farmer protest, the state’s chief minister is reluctant to accept a report whose main recommendations on agriculture mirror the Central farm laws the unions are protesting against, but it is not clear what other options the CM has. Even with the Centre bearing the cost of the MSP, the state’s finances are coming apart, so much so that it cannot even spend enough in critical areas like health. Ironically, with its farmers continuing to grow cereals which the Centre buys at MSP, the state’s agriculture is also suffering. Agriculture GDP in Punjab grew at 5.7% per annum in 1971-72 to 1985-86 versus India’s 2.3% but, since 2005-06, agricultural growth in Punjab was only 1.9 per cent per year versus 3.7% for the country.
This is because, while the value of cereals output grew by just 1.6% per year between 2000-01 and 2018-19, horticulture grew 4.4% and dairy by 4.5%; the Punjab farmer likes the certainty of his crop being bought by the Centre, but the prices of other crops – including milk – are growing much faster. Ideally, as the report recommends, the CM should have tried to move around a third of the area under paddy to other crops over 5-7 years – he could have negotiated a support package for this with the Centre – and, by encouraging cooperatives like Amul to the state, he could developed the dairy industry and also tried to double the area under plums, peaches, litchi, guava, etc and vegetables like potatoes, peas, chilli etc that are suitable to Punjab. Linking them to processors, organized retailers and exporters – including giving air freight subsidy for exports to the Gulf – would both reduce price volatility and also boost both industry and jobs. When politics takes centre-stage, the economy always suffers.