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Punjab's Economic Issues and Possible Solutions

Various studies conducted in Punjab have shone a light on the worsening economic conditions of marginal and small farmers, agricultural labourers, and rural artisans.

Punjab made numerous sacrifices in the freedom struggle of India. It contributed immensely to the food security of the country in the three wars with Pakistan and as a border state, it assumes strategic importance. Despite all these facts, Punjab is facing many economic problems. Prominent among these are the ever-increasing debt of Punjab, the continuously worsening economic conditions of farmers, agricultural labourers, and rural artisans who depend on the agricultural sector for their livelihood, the deplorable state of the industrial sector, and a capital drain.

Before the 1980s, the financial condition of Punjab was good. Now, Punjab's debt and interest on it continue to rise and are higher than all other states as a percentage of the state's gross domestic product (GSDP) and as a percentage of the state's revenue receipts respectively. This fact is confirmed in the table below.


At present, the Punjab government has a debt of around Rs 3 lakh crore, which is estimated to rise to Rs 3.73 lakh crore by 2024-25. The policies of the central and state governments are responsible for the continuous increase in Punjab’s debt. To control militancy, the central government imposed all the security expenses on the Punjab government, while the central government itself has incurred and is incurring such expenses for other states. When Inder Kumar Gujral was the prime minister of the country, he waived a very small amount of Punjab’s debt. During militancy, some industrial units in Punjab moved to other states due to security reasons, which reduced industrial employment and production, and also reduced the state government revenue. Due to the financial concessions/facilities provided by the central government for the industrial development of the hilly states, many industrial units of Punjab moved to the hilly states, especially Himachal Pradesh – causing considerable loss to industrial employment and production, and revenue of the state government.

During the Second Five-Year Plan (1956-61), the main priority was given to the development of the industrial sector and as a result, the country faced a severe shortage of food grains. The drought during the two years – from 1964 to 1966 – made this problem more serious. In order to meet the food requirements, the central government had to import wheat from the United States of America under PL-480, which cost the country a lot. To overcome the huge shortage of foodgrains, the central government decided to adopt the ‘New Agriculture Technology’. This technology was adopted in Punjab on a priority basis keeping in view the hardworking farmers, agricultural labourers and rural artisans, soil fertility, and groundwater levels. The hard work of Punjab's farmers, agricultural labourers and rural artisans, and the excessive use of the rich natural resources of the state solved India’s food grains problem, but the central government's agricultural policies resulted in various issues related to agriculture in Punjab.

The economic conditions of various sections of people dependent on the agricultural sector have worsened in the state, while the debt of the Punjab government has also increased tremendously. On January 19, 2019, economist Ashok Gulati wrote in an article in The Indian Express about the ICRIER and OECD research project (2000-01 to 2016-17), which found a burden of Rs 45 lakh crore on farmers in 17 years through implicit taxation in India. Since Punjab is a state with high agricultural production costs, Punjab’s farmers and the state government have to bear the brunt of this implicit taxation.

Punjab has made and is making a great contribution to the food security of India. Geographically very small (1.54%), this state has been contributing nearly 50% in respect of wheat and paddy to the Central Pool of Foodgrains for a long time. Although this contribution of Punjab has decreased somewhat because the central government is giving priority to the agricultural development of some other states, even now it is more than 30%. An important fact that demands attention in this regard is that Punjab’s contribution increases even more during natural calamities like floods, droughts, etc.

Various studies conducted in Punjab have shone a light on the worsening economic conditions of marginal and small farmers, agricultural labourers, and rural artisans. Most of the individuals belonging to these sections are born in poverty and debt and continue to live hard life in poverty and debt. Leaving behind the abject poverty and huge debt for their coming generations, they either die a death of deprivation and misery or commit suicide when all their hopes are dashed by the governments and society. A study conducted for the Punjab government by the Punjabi University, Patiala, Guru Nanak Dev University, Amritsar, and Punjab Agricultural University, Ludhiana revealed that 16,606 farmers and agricultural labourers committed suicide between 2000 and 2016 due to their debt burden. Of these, 40% of the suicides were committed by agricultural labourers, and three-fourths of the suicides of farmers were committed by marginal and small farmers. Agricultural policies in India are mainly formulated by the central government. Although the central government is responsible for the poor economic conditions of the agriculture-related sections, the state government also cannot escape from its due responsibility.

Punjab's gross domestic product and per capita income have fallen below that of many states. This has gravel impacted employment in the state. For the past many years, employment and the quality of employment in Punjab have come down. Young children of Punjab, especially those belonging to the middle-income groups, are forced to migrate to foreign countries in large numbers to get employment. While this kind of migration is causing a brain drain and loss of demographic dividend, the capital drain is also causing a lot of damage. Among the children who are migrating from Punjab to foreign countries, the majority of them are going on student visas. After their admission to colleges/universities abroad, their fees etc. have to be remitted before they leave the country. The costs of obtaining visas for foreign countries and air travel are also quite high. After arriving in foreign countries, more money is demanded from the parents for further fees, and living expenses. This whole phenomenon has resulted in the capital drain from Punjab which is neither in Punjab’s favour nor the whole country’s.

According to the recommendations of the Finance Commission, 41% of the taxes collected by the central government from the states should be given to the states. The central government has started levying sub-taxes and cesses to increase its share of these taxes, from which all the income accrues to the central government. In reality, the states have received only 29.61% of the taxes collected from the states. According to the recommendations by some of the previous finance commissions, the share given to Punjab has been quite low compared to many other states.

Major changes in the agricultural, industrial, and financial policies of the central government are needed to solve the economic problems of Punjab. Keeping in view Punjab's contribution to the country's freedom, food security and border security, the central government should allot a special economic package for the state. Punjab deserves compensation for the loss incurred as the result of agriculture being a loss-making proposition. The state government has to take quick measures to increase its income.

As the Punjab government has procured moongi (Lentils) at the Minimum Support Price (MSP) this year, efforts should be made to procure maize, cotton, oil seeds and some other agricultural commodities in the coming period. The shamlat/panchayati land obtained from the illegal occupants should be given to Dalits, women, and landless farmers for cooperative agriculture without taking any rent. It is necessary to promote cooperative farming and efforts in this regard should be made by farmers' organisations. The Punjab government needs to establish cooperative agro-processing industrial units in the rural areas – which would increase employment, ensure value-addition, and benefit the farmers, agricultural labourers, and rural artisans. To reduce the economic problems of the working classes, along with the smooth running of the MGNREGA scheme, it is necessary to run other similar schemes so that the urban workers can also get some relief.

The author is a former professor from the Department of Economics, Punjabi University, Patiala. The views expressed are personal.

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