How to build a new Punjab and restore its economic standing

Punjab CM-elect Bhagwant Mann and Aam Aadmi Party (AAP) national convener Arvind Kejriwal  (Photo: HT)
Punjab CM-elect Bhagwant Mann and Aam Aadmi Party (AAP) national convener Arvind Kejriwal  (Photo: HT)


The state’s economy needs a transformative strategy of development that revives agriculture and promotes industrialization

The outcome of the assembly elections in Punjab last month is a radical departure from the past. The ballot box unleashed a metaphorical bloodbath. Heads rolled—as former chief ministers Amarinder Singh and Prakash Singh Badal, incumbent Chief Minister Charanjit Singh Channi, Congress leaders Navjot Sidhu and Manpreet Badal, Akali leaders Bikram Majithia and Sukhbir Badal—were all vanquished by unknown new entrants to politics. The Aam Aadmi Party (AAP), with just over two-fifths of the popular vote, captured an overwhelming majority with almost four-fifths of assembly seats.

The factors underlying this dramatic change are manifold and complex. Even so, it is clear that there was widespread disillusionment with the mainstream political parties among people in Punjab. Incumbent governments were voted out time after time. Yet, the more things changed, the more they remained the same. Rampant corruption persisted. The drug mafia prospered. The mess in state finances worsened. Employment opportunities, which were sparse for decades, almost vanished. For the young who had initiative, the choice was migration, hoping for a better life abroad, but for many who had family income or assets, drugs provided an illusory soft option that only ruined lives. Successive governments simply failed to meet the economic aspirations and political expectations of people.

A story of missed opportunities 
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A story of missed opportunities 

An economic slowdown during the 1990s, which gathered momentum circa 2000, led to a relative economic decline of Punjab in comparison with other states. The accompanying chart compares trends in the per capita income of Punjab with Haryana, Himachal Pradesh and Chandigarh, which were part of undivided Punjab until 1966, and that of India, from 1970-71 to 2019-20. Until 2000-01, per capita income in Punjab and Haryana was about the same, while it was lower in Himachal to begin with but had caught up by 2000-01. Over the next two decades, per capita income in Haryana grew far more rapidly, widening the gap with Punjab, while Himachal also left Punjab behind. So much so that in 2019-20, as compared with Punjab, per capita income was 20% higher in Himachal, 50% higher in Haryana and almost 100% higher in Chandigarh.

In 1965-66, undivided Punjab was ranked fourth in per capita income among states in India. At that time, among its three constituent regions, per capita income in Punjab was higher than in Haryana and much higher than in Himachal, so that a divided Punjab would have ranked third, if not higher, in India. The table shows that this picture did not change much until 2000-01. In fact, divided Punjab ranked third in 1990-91 and fifth in 2000-01, while Haryana was ranked slightly lower and Himachal much lower. Over the next two decades, Haryana and Chandigarh retained their ranks among the top five but, among 33 states, Punjab dropped sharply to 15th in 2010-11 and 17th in 2019-20.

This slippage is a story of missed opportunities. By 1990, Punjab had completed its agricultural revolution and exhausted its rural surplus labour, so that industrialization was the obvious next stage, in conformity with the classical path to development. It had the manufacturing experience—sports goods in Jalandhar, cotton hosiery and woolen textiles in Ludhiana, or metal manufactures in Batala—and the skilled labour practiced at jugaad to do so. Alas, it did nothing to promote industrialization, in sharp contrast with its neighbours. Haryana nurtured the automobiles sector and Himachal attracted pharmaceuticals. Punjab was a laggard. By 2019-20, manufacturing net state domestic product per capita in Punjab was just 45% of that in Haryana and only 32% of that in Himachal. Sadly, the services revolution in India, driven by information technology, which led economic growth in many states—telecommunications, business, finance or e-commerce—also largely bypassed Punjab.

Agriculture had made Punjab the bread-basket of India, increased incomes and brought prosperity. But that was no reason to sit back in comfort. It was essential to diversify the state economy into manufacturing and services. That would have created employment and raised living standards. Instead, Punjab lost three decades.

Even so, it is never too late to act and make amends. There is a need for a new beginning in agriculture, where tube-wells for irrigation have dropped groundwater levels, high-yielding varieties have depleted soil nutrients, and chemical fertilizers have had environmental consequences. Subsidized water or electricity for farmers is no answer. It is time to think of an environmentally sustainable agriculture. Rice cultivation, using scarce water resources, should be progressively replaced by pulses and oilseeds which will be more profitable for farmers. The processing of agricultural produce and labour-intensive manufacturing have an obvious potential. Indeed, there is no reason why Punjab cannot leapfrog into skilled-labour-intensive or technology-intensive manufacturing and services. But this will require a proactive industrial policy for infrastructure, land, industrial finance and skill-development.

The challenges confronting the new AAP government in Punjab are formidable. The task is not simply about ending corruption and eliminating the drug mafia, or about improving education and healthcare, which are all clearly necessary but will not suffice. Punjab needs a transformative change in its economy. It is about thinking big (beyond corruption) and thinking long (beyond the next election), to formulate and implement a strategy of development that revives agriculture and promotes industrialization for a sustainable development.

Deepak Nayyar is emeritus professor of economics, Jawaharlal Nehru University, New Delhi


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