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From debt to unemployment, Punjab’s entire economy needs reform, not just agriculture

Author: Shamika Ravi
Publication: The Print
Date: December 10, 2020
URL:      https://theprint.in/opinion/debt-unemployment-punjab-economy-needs-reform-agriculture/ 563891/

The bread basket of India, Punjab was the richest state in the country for decades before it began falling behind several states.

Punjab is hurting. The bread basket of India was the richest state in the country for decades before it began falling behind several states, more notably its neighbours. Other than Delhi and Goa, Punjab was the most affluent state, growing on the back of the Green Revolution for decades. India’s modern economic growth since liberalisation in 1991, and more significantly from the NDA-1 years, saw all states make tremendous gains. There was an overall lifting of the economic tide with pro-growth reforms and major investments into infrastructure across the country.

Many states that were significantly poorer than Punjab until early 2000s – Haryana, Gujarat, Himachal Pradesh, Maharashtra, Karnataka, Tamil Nadu and Kerala – quickly overtook it by achieving major economic growth. Not only did Punjab fall behind these states, but the gap widened greatly with time, such that today, an average Haryanvi is 1.5 times richer than an average Punjabi.

https://cdn-live.theprint.in/wp-content/uploads/2020/12/state_-scaled.jpeg

There is a large literature that explains the unsustainable nature of Punjab’s agriculture, both from economic and ecological perspectives. The changing nature of India’s overall economy, rising agricultural productivity across other states and improved procurement and distribution capacity mean that food security is no longer an overwhelming concern as it once used to be. Several scholars have highlighted these issues with insightful detail over the years.

In his overall research and frequent columns recently, India’s leading agriculture economist Ashok Gulati has emphasised the need for Punjab farmers to diversify away from minimum support price (MSP)-based paddy and wheat towards high value crops and livestock. But ultimately, given relative productivity, the share of the agriculture sector declines with increasing share of manufacturing and services in output and employment over time. Punjab, unfortunately, has witnessed widespread de-industrialisation, particularly since 2010.

Exit of firms, entry of unemployment

Manufacturing clusters of Jalandhar, Gurdaspur, Mandi Gobindgarh and Ludhiana have been struggling over time and reported lack of growth and rampant closures. One of the major reasons for this is the non-competitiveness of Punjab compared to other Indian states. Several states, including neighbouring Himachal Pradesh, Jammu and Kashmir, and Uttarakhand have improved their ease of doing business environment and offered incentives such as 100 per cent income tax and excise exemption, subsidised working capital loans, etc.

There has been significant relocation of small and medium-scale firms from Punjab to other Indian states in the last 15 years. These have included a large number of pharmaceutical firms to Himachal Pradesh, and cotton yarns, garments and woollen firms to Madhya Pradesh. Similar trends have been experienced in the bicycle industry and sports equipment. Cheap imports from China have only made matters worse and escalated the process of de-industrialisation across Punjab. Quite ironically, instead of competing to retain industry, Punjab has witnessed further increase in cost of doing business over time. One major factor in this is the cost of cross-subsidisation of power to the state’s farmers.

An immediate impact of de-industrialisation and plateauing agricultural growth has been the high unemployment rate. Punjab’s unemployment rate is higher than the national average; the state also has higher youth unemployment levels. The latest economic survey of Punjab highlights the mismatch between job opportunities and aspirations of the youth there, leading to more and more farmers selling land to finance their children’s migration to Canada, Australia, the UK, and the US.

Rising mental health problems

A deeply worrying trend that has emerged in the last two decades is of growing mental health problems in Punjab. The latest National Mental Health Survey (2016-17) found that the total lifetime prevalence of mental illnesses in Punjab was 18 per cent, significantly higher than the national level. In absolute numbers, there are more than 20 lakh people in the state who are afflicted with mental illness and a majority of them don’t have access to treatment.

This is strongly correlated to alcoholism and substance abuse. The prevalence of alcohol dependence is 6 per cent in Punjab, more than twice the national average, while substance abuse is 2.5 per cent, more than four times the national average. The National Sample Survey Office (NSSO) data on health expenditures shows that Punjabi households have a higher out-of-pocket health expenditure burden than an average Indian household, and also that they rely heavily on exclusively private healthcare for their needs. These strongly suggest the urgent need of raising public health spending in the state.

In the midst of the Covid-19 pandemic, the alarm bells are ringing particularly loud for Punjab – the state with the highest and still rising case fatality rate. CFR in Punjab is more than twice the national level. And more distressingly, it is showing no sign of decline even as the CFR is falling nearly everywhere else in India.

Deep in debt

Unfortunately, Punjab state finances have been fragile for past several years. The latest RBI State Finances Report shows that Punjab is also India’s most indebted state with debt to gross state domestic product at 40 per cent and interest payment amounting to more than 20 per cent of the state’s revenue receipts, the highest in the country. Over the years, mounting power subsidies specifically targeted to farmers, along with more recent largesse in the form of farm loan waivers etc. have all led to Punjab becoming a state with one of the highest revenue deficits in India.

The state’s tight financial situation has limited the scope for much-needed health spending as well as limited its capacity to make any significant improvements in competitiveness and productivity across any major sector of its economy.

Punjab is hurting, and beyond stop-gap policies, the sustainable solution lies in fundamental structural reforms to its overall economy and its agricultural sector in particular.

 

-The author is an economist and former member of the Prime Minister’s Economic Advisory Council. Views are personal.

 
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