Economic Transformation of a Developing Economy: The Experience of Punjab, India

481 Pages·2016·5.64 MB·English

by  Lakhwinder Singh

India Studies in Business and Economics
Lakhwinder Singh
Nirvikar Singh Editors
Economic
Transformation
of a Developing
Economy
The Experience of Punjab, India
India Studies in Business and Economics
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Lakhwinder Singh Nirvikar Singh
(cid:129)
Editors
Economic Transformation
of a Developing Economy
The Experience of Punjab, India
123
Editors
LakhwinderSingh Nirvikar Singh
Department ofEconomics andCentre Department ofEconomics
forDevelopment Economics University of California
andInnovation Studies(CDEIS) SantaCruz, CA
Punjabi University USA
Patiala
India
ISSN 2198-0012 ISSN 2198-0020 (electronic)
India Studies inBusiness andEconomics
ISBN978-981-10-0196-3 ISBN978-981-10-0197-0 (eBook)
DOI 10.1007/978-981-10-0197-0
LibraryofCongressControlNumber:2015958553
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Foreword
Punjab is, in many ways, India’s iconic state. A vast fertile land that marked the
northwestern frontier of the Indian subcontinent, it bore the brunt of invasions
through history, and, in 1947, the agony of one of the biggest migrations of
uprooted people witnessed anywhere in the world, which it shared with Bengal in
India’s eastern flank, during India’s independence and the partition of the sub-
continentintoIndiaandPakistan.GrowingupindistantBengal,Ihadwatchedwith
admiration Punjab’s rise as it shook off its wrenching history, embraced the Green
Revolutionofthemid-1960sandstrodeaheadeconomicallyasoneofIndia’smost
dynamicregions.Bytheearly1990sPunjabwasIndia’sthirdricheststateinterms
of per capita income, trailing behind only Maharashtra and Haryana, the latter
havingbeencarvedoutofthelargerPunjabstatein1966.Punjabhascontinuedto
dowellbutithasnotliveduptotheenormousinitialpromise.By2012itsrankhad
dropped to seventh, as it was overtaken by Kerala, Tamil Nadu, Gujarat and other
states.
Punjab’s history, both recent and distant, has been exciting, full of challenges
andexperiments.Itwasonceanextremelyegalitariansociety,hometoprogressive
ideology and religion; it was in the frontline of the radical movement for the
nation’s independence through the 1930s and 1940s. It was a region that saw the
developmentofsophisticatedcanalirrigationdatingbacktocolonialtimes;itmade
great strides in some light manufacturing sectors, such as textiles and bicycles. Its
recent slowdown raises important questions in political economy about the causes
of development and growth and the making of growth traps. Understanding these
canenhanceourunderstandingofPunjabandenablethestatetorestoreitsexcellent
earliereconomicperformance.But,inaddition,giventheiconicstatusofthePunjab
economy, such an understanding can shed light on development in general from
whichwecanlearnandbenefitwhereverwearelocated intheworld.Thisiswhat
makes the book, Economic Transformation of a Developing Economy: The
Experience of Indian Punjab, an important one.
Thebook’ssubjectmatteristheeconomicdevelopment ofIndia’sPunjab state,
hometooneofthemostsuccessfulattemptstomodernizeagriculture,fostergrowth
v
vi Foreword
and eradicate poverty. The articles in the book—written by distinguished scholars
—spanthestructuraltransformationofitseconomy,theeducationandhealthofits
people, the fiscal policies of the state government, and the relations between the
state and India’s central government. The book concludes with thoughtful reflec-
tions on how Punjab’s economy can be made vibrant once again.
Thebookteachesalot—howirrigationinthestatewasextendedfromlessthan
half offarmland at Independence to 98 % by 2010; how 100 % of Punjab’s wheat
and rice farmers now use high-yielding varieties, and how chemical fertilizer use
peracreincreasedsixfoldduringthelastfivedecades.Youlearnhowtheintensity
of cropping increased from 125 % in the 1960s to almost 200 % today, how the
shareofwheatandricehasgrownfromhalftomorethanthree-quartersofcropped
area while their yields have more than doubled since the1970s. By the year 2000,
Punjab’s share in India’s procured wheat and rice was more than half. With less
than 1.5 % of India’s land area, Punjab had become India’s granary and as such
provided the major impetus of India’s subsequent rapid growth.
At the same time, as growth rates of agricultural output fell by half between
1970and2010—from5toabout2.5%annually—industrialgrowthpickedupfrom
lessthan7tobarelymorethan8%.Thestate’sGDPhasgrownbymorethan5%
per annum decade after decade, slowing down a little during the turbulent 1990s.
Butsince2005,whenseveralIndianstatesbegandoingverywell,Punjab’sgrowth
begantotrail 11otherstates.Inthemid-1980s,Punjab’spercapitaoutput wasthe
highest in the land. Since then, as India’s economic growth picked up, Punjab
started to slip in relative terms.
Analyzingthereasonsforthisrecenttrailingcangivesusimportantinsightsinto
developmentingeneral.Thisbookdrawsattentiontoseveralpotentialcauses.Asis
pointed out inone of the chapters, inequality in Punjabhas grown sharply, cutting
into some of the state’s earlier social cohesion and also resulting in the political
capture of business. We know from standard growth theory that investment and
savingsaremajordriversofgrowth.Itthereforehelpstolookatinvestment-to-GDP
ratiosinPunjabandintherestofIndia.In1980,atabout15%,thisratiowasabout
the same. By 2010, it was 38 % in India but still 15 % in Punjab. Punjab is not
nearly the best place for investors. An important part of investment and capital
formationistheonethattakesplaceinhumansthrougheducationandthebuilding
up of human capital. Punjab, and for that matter all of India, need to pay more
attention to this.
AnotherfactorthathasprobablycontributedtoPunjab’srelativeslowdown,with
several states, especially in southern India, overtaking it in the manufacturing and
services sectors, is the subsidization of agriculture by the government, and the
market distortion that this led to. The sheltering of the agricultural sector led to
the huge success of the state’s economy in this sector but the persistence of these
interventionslulledtheeconomyintoakindofcomplacencywhichrobbeditofthe
incentives to develop the services sector where the rest of India has had huge
successes.ThearticlesinthisbookalsoshowthatPunjab’stenancylawsneedtobe
reformed so that land can be leased withless worry. Massivefuel subsidies distort
crop choices—making paddy more profitable and thwarting government efforts to
Foreword vii
diversifycrops.Despitesomeimprovementinaccesstobankcredit,many farmers
stillrelyoninformalcreditmarkets,payingonerousinterestratesof25to30%and
sometimes being driven to suicide to escape the humiliation of bankruptcy.
The potential for the Punjab economy is huge and Punjab is a great case study
formanyreasons.Thestatehasshownnotjusthowagriculturecanbemodernized
quickly, but also the dangers of staying too long with agriculture as the leading
edgeofdevelopment.Punjabhasshownthepovertyreductionandimprovementsin
living standards that come from large increases in productivity, but also the social
and environmental risks that rapid economic transformations bring in their wake.
It provides an inspiring example of the resilience of a progressive people.
Lakhwinder Singh and Nirvikar Singh have given us an excellent book that
dissects the rich experience of Punjab from diverse angles and deserves to be read
by those interested in Punjab, India, and even just development economics.
July 2015 Kaushik Basu
Senior Vice President and Chief Economist
of the World Bank
and
C. Marks Professor
Professor of Economics, Cornell University
Ithaca, USA
Preface
Punjab, after leading the way in India’s Green Revolution, remained one of the
nation’sfastestgrowingstatesforsomeyears.Itwasevenpicturedasarolemodel
of economic development, to be emulated, particularly by other states in India,
but also by other developing economies. However, an initial “golden period”
(1966–1980)fadedquicklyduringthepoliticalturmoilofthe1980sandevenmore
dramaticallyafterIndia’s1991economicreforms.Sincethen,Punjab’sgrowthhas
lagged quite badly, and its relative position in India’s state income rankings has
slippeddramatically.Meanwhile,concernsaboutecologicaldegradation—andeven
impending disaster—reflected in rapid deterioration of water quality and avail-
ability, have multiplied. Given these changes, the welfare of Punjab has become a
concernnotonlywithinthestate,butalsoamongitsrelativelylargediaspora,which
had spread the population’s reputation for entrepreneurial energy and economic
success within and outside India. The state’s waning economic position will also
have far reaching implications for its political influence and stability.
AllofthesemakeitimperativetoaskwhyPunjabfalteredintransformingwhat
wereoncehighratesofeconomicgrowthandhighlevelsofsavingsintosuccessful
industrialization of its economy. Despite the state’s losing its initial opportunity to
move on to a sustained path of economic development, finding answers to this
question of ‘why?’ can be the first step in shaping policies to return Punjab’s
economy to economic prosperity and sustainable development. Indeed, it is argu-
able that Punjab needs a dramatic economic transformation for achieving an
economically viable, ecologically sustainable, and socio-politically stable position
withinIndia.Withtheseobjectivesinmind,theCentreforDevelopmentEconomics
and Innovation Studies (CDEIS), Punjabi University, in collaboration with the
University of California, Santa Cruz, USA, organized an international conference
on the theme, “Rejuvenation of Punjab Economy”, which was held on 21–23
March 2014 at the Punjabi University campus. This volume is the outcome of this
conference directed by Lakhwinder Singh and Nirvikar Singh. The 21 chapters
included in this book are selected from the CDEIS-UCSC conference.
ix
x Preface
We express our gratitude to all the conference participants who contributed as
presenters, session chairs, discussants and rapporteurs. We are grateful to the
authorsforacceptingourinvitationtowritechapters,makingdetailedrevisionsand
strictlyobservingdeadlines.Organizingaconferenceandplanningavolumefromit
requiresconsiderablelogisticalsupportandteamwork.PunjabiUniversityprovided
both.WeparticularlythankthehigherleveladministrationoftheUniversityandthe
excellent team of the Department of Economics and CDEIS. We especially
appreciate the support of Profs. Inderjeet Singh, Anita Gill, Sukhwinder Singh,
KesarSinghBhangoo,JaswinderSinghBrarandParmodKumarAggarwal.Thanks
arealsoduetoMr.BaltejSinghBhathalandMr.GurdeepSinghfortheireffective
secretarial and administrative assistance in organizing the conference as well as
during preparation of the manuscript. We are grateful to Ms. Sagarika Ghosh and
Ms.NupoorSinghfortheirsupportduringthepublicationprocess.Weexpressour
deepest gratitude to Prof. Kaushik Basu, Senior Vice President and Chief
EconomistoftheWorldBank,forencouragingustocooperateandalsowritingthe
foreword of the book.
The CDEIS gratefully acknowledges the financial contributions and support to
theconferencebyPunjabMandiBoard,Mohali;IndianCouncilforSocialScience
Research (ICSSR), New Delhi; National Bank for Agriculture and Rural
Development (NABARD), Mumbai; and Planning Commission Chair, Punjabi
University.
Finally,wewouldliketothankourfamiliesfortheirencouragementandsupport
during our work on this volume.
Lakhwinder Singh
Nirvikar Singh