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Punjab’s economic slide: Report blames power subsidy, farm mess
Ruchika M. Khanna/TNS

Chandigarh, January 29
Political rhetoric about the upswing in Punjab’s economy aside, the state has slipped from sixth spot to twelfth in six years as per the latest edition of the Economic Freedom Index (EFI).

The Economic Freedom of the States of India, 2012, which ranks 20 states on three parameters -- size of the government, legal structure and security of property rights, and regulation of business and labour -- debunks reasons given by politicians to explain the sorry state of affairs in Punjab. It maintains that the huge power subsidy bill, fiscal crunch, tapering off of the Green Revolution, failures in agricultural marketing and inability to catch the services revolution have led to the decline in the state’s economy.

The report claims that the state sharing its border with a hostile neighbour or terrorism causing a decline in the state’s economy were mere myths created by policy-makers to absolve themselves of responsibility for the state’s steady decline.

While most other states such as Gujarat have dramatically improved their ratings, the report says that the freedom rating (indices used to rate states) has remained almost static for Punjab, showing that not much effort is being put in to improve its condition. The report, which has undertaken a study called ‘Why Punjab has suffered long, steady decline’ by noted economist Swaminathan S Anklesaria Aiyar, has said that the chief culprit for the fiscal crunch in Punjab is free power to farmers.

From having huge revenue surpluses in its glory days in the 1960s and 1970s, the Punjab’s fiscal deficit in now amongst the highest among all major states (budgeted at 3.8 per cent of GDP for 2011-12). Aiyar said though Punjab has enacted the Fiscal Responsibility and Budget Management Act, which aims to gradually bring revenue deficit to zero, runaway subsidies -- above all, the supply of free electricity to the farm sector -- has led to a steady increase in revenue deficit.

“In fact, revenue deficit increased from 1.8 per cent of GDP in 2010-11 to 2.75 per cent in 2011-12. The committed expenditure on salaries, pensions, interest payment and power subsidy alone account for 80.44 per cent of the revenue receipts during this financial year alone,” he said.

Aiyar told The Tribune that one of the reasons for the decline in the state’s economy was that no major investments were coming into the state. “The state is power deficient and the cost of land is prohibitive. It is for this reason that most industry finds investing in Punjab very capital intensive,” he said.

The report also points out that though there has been huge emphasis on the agricultural economy, the state seems to be caught in the wheat-paddy cycle and effects of the Green Revolution are now tapering off and agricultural marketing has failed. “Unlike other states, Punjab missed the opportunity to catch the services revolution. But we cannot attribute the sorry state of affairs to Punjab being land locked and away from ports or the state lacking in metallic minerals or coal, and thus losing avenues of making money,” said Aiyar.

The silver lining for Punjab, according to Aiyar, is the opportunity to explore trade with Pakistan. “As trade volumes with Pakistan grow, Punjab can see its economy growing. This will also have a substantial impact on investment in the state,” he said. He also lauded the state government for bringing in the Right to Services Act.

Researchers have used objective data to produce the index. The report has been co-published by Cato Institute, USA, Indicus Analytics, and the Friedrich Naumann Foundation, New Delhi, especially in the context of Punjab.

Ludhiana most business-friendly

A study ‘Why Punjab has suffered long, steady decline’ by noted economist Swaminathan S Anklesaria Aiyar (that was part of the Economic Freedom of the States of India report) rated Ludhiana as the country’s best city for ease of doing business, mainly for creating the most business-friendly environment. Gujarat and Tamil Nadu are widely cited as the best states for doing business.