Why Punjab has suffered long, steady decline

Since the 1980s, the state has lost its economic leadership. Since the 1990s, its GDP growth has been lower than the national average. As measured by the Economic Freedom Index, its rank has slipped badly from 6th position in 2005 to 12th position in 2011

Punjab has historically been one of the fastest-growing and richest states of India, with one of the lowest poverty rates. Punjab's farmers are the best in India, boasting the highest rice and wheat yields. The state was at the very heart of the green revolution which, starting in the mid-1960s, ended Indian starvation and heavy dependence on food aid. Punjab was among the first states to provide weather-proof roads and electricity to all villages, these being important facilitators of the green revolution. Electricity was required to provide irrigation through tubewells, and good roads were essential to move inputs to farms and produce out to markets. Punjab has always boasted a tradition of entrepreneurship, and willingness to travel to other states and countries in search of work. This has produced a large return stream of cash remittances, estimated to be the second largest of any state after Kerala.

However, since the 1980s, the state has lost its economic leadership among states, and steadily slipped behind other states. Since the 1990s, (see graph), Punjab's GDP growth has been lower than the national average. According to government data (CSO estimates November, 2011), the state's GDP growth in 1994-2002 was 4.32% per year, against the national average of 6.16%; and in the period 2002-11 Punjab's rate was 6.61% against the national 7.95%. By global standards, these were reasonable rates of growth. But relative to other Indian states, Punjab kept slipping.

A major weakness has been a high fiscal deficit, which is the highest among all major states—budgeted at 3.4% of GDP for 2011-12. The high fiscal deficit arises mainly out of huge unwarranted subsidies, the chief culprit being free power to farmers.

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