GUEST COLUMN: Reflections on the State of Punjab’s Economy

Punjab pioneered the green revolution and served as India’s food basket in the 1960s and 1970s, with an enterprising farming community and pragmatic state policies facilitating transformation. The government has provided infrastructure, institutional support and extension services to promote modern cultivation methods. High-yielding wheat varieties were introduced and concessional credit facilities were offered through cooperative banks. A network of tube wells irrigated the entire area.

Commodity marketing has not been a problem due to the nationwide shortage of food grains and the guaranteed minimum support price (MSP). Agriculture has thus become an engine of growth for job creation and poverty reduction. The state has long held the top spot in terms of per capita income nationwide. Resilience, dynamism and hope for a better future have marked these times.

However, the assured demand for food grains over a long period has generated complacency and blocked the structural transformation of the agrarian economy. The descent of Punjab’s economy began in the early 1990s when agricultural growth began to falter.


Over the past 10 years, the state’s growth rate has been below the national average. Its rank in terms of per capita income fell from the top to 10th position among the leading states. Neighboring Himachal Pradesh and Haryana have higher per capita income; Haryana has a figure 50% higher than Punjab.

The development trajectory of the state has been affected by a multitude of factors. These include the troubles of the 1980s, skewed development priorities in favor of agriculture, insufficient investment in human capital, neglect of urban development, and lavish state spending.

The agro-centric policies pursued for a long time, to the detriment of industry, trade and tourism, have led to an unbalanced economic structure of the state. Free energy for agriculture has encouraged the planting of paddy as a second crop. The use of groundwater beyond the recharge facility has resulted in a drop in the water table between 2 meters and 4 meters, the destruction of aquifers and land degradation.

The solution lies in crop diversification, but until free energy is available there will be little incentive to switch to other crops. The MSP, by encouraging the production of food grains, diverted land from pulses and oilseeds that required their importation. Free electricity is expensive for the state with an annual subsidy burden of more than 12,000 crore. It’s an emotional issue and political parties on all sides swear by it.

Unregulated and excessive use of pesticides has led to chemical toxicity and pollution, resulting in increased incidence of cancer in Malwa. Stubble burning for early sowing of wheat causes health hazards and pollution. The recent agricultural unrest was symptomatic of the serious agrarian crisis.

The fragmentation of land holdings due to the increase in population has made agriculture unviable for small, marginal farmers, most of whom are landless labourers. Farmers’ indebtedness has taken on alarming proportions, with the growing number of suicides aggravating the crisis.

Widespread drug addiction cripples young people, causing depression, family tensions, turmoil and the virtual ruin of a generation. The aspirations of young Punjabi are high and do not match their abilities. Punjab’s unemployment rate in 2018-2019 was 7.4% against a national figure of 5.8%.


The powers that be have treated the industry like a poor cousin. The tariff for industry is kept high for agricultural cross-subsidies. Developed infrastructure, tax incentives and ease of operation have not been adequately provided for industrial development. Labor-intensive small and medium-sized businesses, the backbone of the state’s industry, are languishing. Ludhiana, the industrialist, is very polluted. Strong agricultural growth should have been accompanied by industrial development for job creation to absorb excess labor.

Well-planned cities with the necessary infrastructure become poles of attraction for the creation of industrial conglomerates and the development of skills. The state has excellent energy infrastructure, arterial roads, means of transport and means of communication, the planned development of cities has not been a priority. The state’s urban population now stands at 37%, half of whom live in four districts of Jalandhar, Amritsar, Ludhiana and Mohali; today all have glaring pockets of slums. Again, Haryana fared much better.

Surveys have revealed that the quality of school education in the state leaves much to be desired. Children’s reading, writing and arithmetic skills are lower than in the best performing states. Public school teachers lack passion and commitment, although their salaries are four times what private schools pay. About 50% of school children seek admission to private schools.

It is not surprising that even poor parents prefer to have their wards admitted to private schools, despite the high fees, regardless of the midday meals, free uniforms and textbooks provided in public schools.


Paradoxically, in relatively wealthy Punjab, the government is saddled with debt, an odd combination of a high-income state and shoddy public finances. The government debt burden has skyrocketed to 2.7 lakh crore due to tax profligacy and subsidies. The government’s debt-to-gross domestic product (GDP) ratio has risen to 44%. The burden of paying interest is over 30,000 crore per year. Spending on salaries for the burgeoning bureaucracy, interest refunds, pensions and grants accounts for more than 90% of tax revenue, leaving little room for development.

All governments followed populist competitive policies and handed out freebies While the population below the poverty line in the state is 11.3%, more than 50% benefit from the Atta-Dal program entitling them to a ration monthly 5 kg of wheat per person at 2 the kg. Sops and subsidies have undermined the entrepreneurial spirit of self-respecting Punjabis.

It is time to empower our young people by providing skills and creating jobs to effect the structural transformation of the economy beyond agriculture. The state faces challenges related to youth, drug addiction, rural indebtedness, land degradation, agricultural distress and unemployment; these cannot be desired. The governance crisis in Punjab is a harsh reality and it will be a Herculean task for the new government to redress the situation.

(The author is a retired IAS officer from Punjab and a former Secretary to the Government of India)

About Cassondra Durden

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