A roadmap for Punjab’s economic revival

PUNJAB, once a leader in India’s Green Revolution success story, now finds its economic growth dwindling. It is today placed among the nation’s slow-growing states. Between 1981 and 1994, Punjab’s real per capita GDP growth of 3.2 per cent mirrored the national average of 3.1 per cent. However, from 1994 to 2020, its per capita GDP grew at 4.1 per cent annually, significantly lower than the national average of 4.9 per cent. Consequently, its per capita GDP, which was 65 per cent higher than the national average in 1994, is now just 20 per cent higher.

This sluggish performance is puzzling, given Punjab’s relatively strong performance on most growth attributes (for 2020 as well as the long-term historical average) across physical and social infrastructure and governance.

Look at these examples: in 2020, house prices in Punjab were 20 per cent lower than the average for 20 major states; its gross enrolment ratio in tertiary education of 29.50 per cent is higher than the national ratio of 27.50 per cent; it has a lower stunting ratio of 26 per cent versus 35 per cent for India; and the state is among the top six states on the labour flexibility score.

There are some challenges, like the Pradhan Mantri Gram Sadak Yojana coverage, which is at 73 per cent compared to more than 90 per cent achieved by many other states; and a significantly higher-than-average fiscal deficit-to-GDP ratio of 4 per cent and these issues need to be redressed.

So, why is the state lagging in growth, and what can be done to correct it? Punjab is big in agriculture and labour-intensive manufacturing. To understand the state’s slow performance, it is vital to study the performance of these two sectors.

Agriculture still accounts for 20 per cent of Punjab’s GDP, significantly higher than the national average of 15 per cent. Yet, since 2012, it has been the slowest-growing sector in the state, expanding at a mere 2 per cent per annum — half the national agricultural growth rate of 4 per cent (2012-24).

Contrary to the popular narrative, this underperformance is not inherent to the agricultural sector. Madhya Pradesh and Andhra Pradesh have witnessed impressive agricultural growth rates of 7 per cent annually since 2012 due to strategic specialisation in wheat and soybean (MP) and shrimp farming (AP). As a result, agriculture accounts for about a third of the GDP of each of these two states.

The farm predicament in Punjab stems from an over-reliance on rice and wheat, which together consume 80 per cent of the total gross cropped area. This over-indexing has coincided with declining productivity, as evidenced by the state’s shrinking share in national wheat production (from 21 per cent to 16 per cent between 2005 and 2024) and rice production (from 12 per cent to 10 per cent in the same period).

The intensive cultivation of these crops has also led to critical issues like groundwater depletion and increased soil nutrient deficiency, fundamentally undermining long-term agricultural sustainability and competitiveness.

Punjab farmers are reluctant to shift from these two crops due to such key factors as the guaranteed procurement of wheat and rice at minimum support price (MSP) by the Central government; and input subsidies offered by both the Central and the state governments favouring inputs required for rice and wheat, which are more water intensive and require more fertilisers than other kharif crops. Together, they make the profitability of wheat and rice up to four times higher than that of other kharif crops, as per a study by Singh, Thangaraj, Juneja, & Gulati, 2024.

Regarding manufacturing, the state’s key economic centres (KECs) of Ludhiana and Amritsar contribute 27 per cent to its GDP. On average, KECs across India tend to grow 1-3 per cent faster than their respective state GDPs. However, Punjab’s KECs defy this trend; their weighted average growth between 2000 and 2020 was 5.4 per cent, which is lower than the state’s overall growth of 5.7 per cent.

This lacklustre performance is surprising, given that Ludhiana specialises in the textile industry. Contrary to popular narrative, the textile industry is not an intrinsically slow-growth sector. China’s Pearl River Delta (PRD) in Guangdong province is a prime example of a world-leading labour-intensive cluster, significantly boosting China’s GDP and exports. The PRD’s share in China’s GDP increased from 5 to 9 per cent between 1990 and 2011, accounting for 27 per cent of the country’s exports and 19 per cent of its foreign investment by 2013 (Cheng, 2018).

In India, Coimbatore, which also specialises in textiles, saw its GDP grow at a robust 6.9 per cent between 2000 and 2020.

Thus, the issue in Punjab is not of the industry, but of the specific constraints and inefficiencies within its local clusters that prevent it from achieving global competitiveness and acting as true engines of economic expansion.

The lacklustre performance of the labour-intensive manufacturing sector is a constraint in Punjab’s faster growth. This remains a policy conundrum and needs resolution at the highest level.

Amidst this challenging economic structure, Mohali (SAS Nagar) emerges as a beacon of hope. Mohali’s share in the state’s GDP since its formation in 2006 till the latest available data point of 2018 has doubled from 6.5 per cent to 11.5 per cent. This can be attributed to the nurturing of the district as an IT hub, marked by the establishment of such institutions as the Infosys campus and the Indian School of Business.

However, Mohali’s full potential as a service sector powerhouse remains constrained, partly due to the lack of a full-fledged international airport in Chandigarh, which limits its accessibility and global connectivity, unlike Gurgaon which has seen a meteoric rise over the last 20 years.

To unlock its true economic potential, Punjab must embark on a multi-pronged strategy. First, it must diversify its agriculture from wheat and rice to more value-added products like livestock and dairy. Second, it must address the specific constraints hindering the textile industry in Ludhiana to enhance productivity, innovation and market access, learning from successful clusters like Coimbatore and PRD. Lastly, it must nurture Mohali as a service sector hub.

By strategically diversifying its economic basket, fostering competitive industrial clusters and leveraging its existing strengths in growth attributes, Punjab can reclaim its position as a high-growth, vibrant and prosperous state.

Views are personal.

Shishir Gupta is a Senior Fellow and Rishita Sachdeva is an Associate Fellow with the Centre for Social and Economic Progress (CSEP).

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