Poll-bound Punjab: A rich agrarian state hits a low for failing to adapt

Straddled with high debt, huge internal security outlay, excessive agrarian focus that choked industrialisation, Punjab is now also vulnerable to a host of problems brought on by poor social spending

Nothing else sums up the economic worries of Punjab and its people better: The Green Revolution made Punjab the richest major state in India, and it remained tethered at the top well into the eighties and nineties. In the new millennium, Punjab went down a slippery slope, and in four decades, its per capita income fell from fourth among 28 states and UTs in 1980-81, to 19th among 33 in 2019-20. 

How did this come about? Punjab is the complex story of a state that frittered the advantages of development, beset as it was by internal security risks and its inability to overcome financial troubles for decades.

The current structure of Punjab’s economy is baffling. The top agrarian state in the country had to have agriculture as the biggest contributor to its economy in the past. But even in 2020, the farm sector occupies a massive 29 per cent of its annual gross value added (GVA). The share of manufacturing is less than 14 per cent. 

Experts say that Punjab failed to undergo the transition most other Indian states went through—struggling with manufacturing and riding on the services sector. The Green Revolution probably remained its last major economic intervention. 

Experts that Business Standard spoke to also said that new investments did not make their way into Punjab, as industrialists found better opportunities in the new industrial towns of the National Capital Region—Faridabad, Gurugram, Sonepat, Noida and so on—and hilly states such as Himachal Pradesh, that shower incentives with the help of the Centre. 

In such a situation, it becomes the job of the state government to ramp up public expenditure, and help channelise private capital to the state. But being the most indebted state in India, rising interest payments have constrained Punjab's ability to spend on vital areas like health and education. 

See how an overhang of debt translates into a real world impact on the people: 

According to the Reserve Bank of India’s study on state finances, Punjab’s debt-to-GSDP ratio has risen from 42 per cent in 2017-18, the first year of the current government, to a projected 53.5 per cent at the end of March 2022--the highest among large states. Only two hilly domains--Jammu & Kashmir and Arunachal Pradesh--have a higher debt ratio. 

As a result, the state has the highest ratio of interest payments-to-gross domestic product among all states in the country. According to RBI data, the IP-to-GSDP ratio of Punjab stands at 3.8 per cent in 2020. Interest payments take up more than a quarter of its revenue receipts. 

Combining salaries, wages and pensions, committed spending takes up half of the total expenditure of Punjab, highest for any major state. Developmental spending has ranged from 35-45 per cent under the current government, while capital expenditure (capex) has been largely volatile, going as low as 3 per cent of total expenditure in 2018-19. 

And here comes the most deleterious impact of this severe inability: Punjab has the lowest health spending, at 3.4 per cent of total expenditure, among all states but one (Telangana is lower at 2.5 per cent), with the average for all states standing at 5.5 per cent. 

Education spend is the second-lowest too: Punjab spends only 10 per cent of its purse on education, compared to the all-state average of 13.9 per cent (Telangana at 5.9 per cent). 

The result: overall social sector expenditure is the lowest among all states, at 27 per cent of total expenditure. 

The most recent symptom of this economic lethargy has been the gruesome impact of Covid-19 on the state. Punjab exhibits the highest case fatality rate (CFR, or registered deaths as a percentage of confirmed cases) among all states in India, at 2.7 per cent. No other state—small or large—has a higher death rate.

To make matters worse, Punjab is the slowest in vaccinating adults against Covid-19. Only one in five young adults in the 18-44 age group were fully vaccinated in the state on December 1, according to data presented by the Centre to the Parliament. For those above 45, less than half have been double-jabbed, putting it in the worst three vaccinator states in India. 

In addition, Punjab has the highest informality among non-agricultural workers among all states, with 56.5 per cent of workers having none of these: a written job contract, access to paid leaves, and any social security benefit.

Though labour participation and unemployment rates are close to the national average, Punjab is a clear example of how lack of private investments, poor financial management of the state government, and inability to overcome them for a long time can take a toll on its economy and people. 

Punjab votes in less than three months.