It’s worrisome that Punjab only receives 45 paise for every rupee it contributes to the Centre’s tax kitty. This is especially concerning when compared to states like UP and Bihar, which receive Rs 1.80 and Rs 1.20, respectively. This revenue-sharing disparity is a significant contributor to the socio-economic distress experienced by Punjab. As a landlocked border state, it’s even more crucial for Punjab to overcome this fiscal distress since India’s and Pakistan’s bilateral trade, also halted through the Wagah-Attari route, majorly affected Punjab’s economy only. The said cost-effective cross-border route can directly short-connect to Europe, a big potential to catalyse the Punjab economy as strong as the economy of Southern-Western states, because of near to seaports.
Being far away from the seaports is one of the major challenges Punjab is struggling with, which has a crippling impact on industrial growth. Secondly, adjoining to the sensitive Pakistan border not only halted the trade but led to illegal arms supply and drug terror which scuffed the social fabric and law and order of Punjab. Keeping these two major geographical disadvantages centre-stage, no central government has compensated Punjab as it faces odd challenges in comparison to other states. Not even a fair share of tax kitty given, the Rural Development Fund (RDF) and Mandi Fee of Rs 5337 crore has not been released for long. For how long can a fiscally distressed state government take forward the most development and welfare-oriented expenditure alone?
When a state’s economy weakens, its people and progress suffer together. This is evident in the current crisis in India-Canada relations, as Punjab’s economic distress has led to a migration of its human resources to Canada. Unfortunately, this migration has created a breeding ground for radicals and anti-Indian Khalistani extremist activities on Canadian soil, a globalised challenge which has gone unaddressed. The Canadian connection to Khalistan is longstanding. Since the mid-80s, there has been a significant exodus of Punjabi youth to Canada, where they often do odd jobs to sustain themselves. Unfortunately, some of these young people become prey to anti-India extremists.
It is not good to allow a lopsided economic development of a sensitive state like Punjab. It has serious repercussions. If we fail to ensure holistic development, then we will be accused of inefficiencies in handling human resources. Unemployment is a multi-faceted problem exacerbating the distressed places associated with poorer mental health, crime and drug abuse. There is enough evidence of drug abuse and distress in the law and order situation, that an issue of brimming can be ascribed directly to unemployment.
Punjab, which used to be a prosperous and progressive state even during its toughest time, is currently facing a significant problem of uncontrolled unemployment due to distressed farming and an imbalanced industrial base. This has resulted in Punjab’s GDP growth rate dropping to 6 per cent, which is lower than the national growth rate of 7.24 per cent in 2022-23. Punjab is currently ranked at the 19th position, whereas it ranked first in GDP among the states in 1981 and fourth in 2001. Interestingly, UP and Bihar, which were once part of the economically sick states known as ‘BIMARU’ (Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh), are now fast-growing economies. UP achieved an impressive growth rate of 16.8 per cent, with a GDP of Rs 20.48 lakh crore in 2022-23, while Bihar’s growth rate was 10.98 per cent with a GDP of Rs 7,45,310 crore.
It is crucial to acknowledge that Punjab has immense potential that should not be overlooked when compared to the southern and western states. Presently, Punjab’s contribution to the country’s tax kitty stands at approximately 3 per cent, and it only receives 1.8 per cent of the divisible pool of taxes allocated by the Fifteen Finance Commission. In contrast, the western and southern states contribute 67 per cent to the Central exchequer but only receive a meagre 3-4 per cent. While their argument may appear valid, it is essential to consider that the southern and western states account for 53 per cent of India’s total factories and have the advantage of being closer to seaports, which can drive economic growth and result in more contributions to the Central exchequer. Punjab’s sluggish growth may dampen overall economic sentiments, but it still holds enormous potential for growth and contribution to the country’s economy.
Undoubtedly, Punjab has the potential to contribute 10-15 per cent as it possesses a strong, capable and committed entrepreneurial spirit to overcome this economic distress. This spirit has been evident in the past when it overcame the challenges of the partition of India in 1947 and 13 years of militancy in the mid-80s to mid-90s. Within a few years of these events, Punjab was able to rehabilitate its economy and become the richest state in India in the 80s. Today, Punjab seeks a fair interface without any political interference to compete on a level playing field and strengthen its economy, ultimately reducing unemployment.
It is important to consider Punjab’s significant contribution to national food security. However, the large areas and population figures of Uttar Pradesh and Bihar provide them with additional leverage from the Central tax pool. It is concerning that Punjab only received 1.8 per cent of the Rs 8,16,649 crore distributed by the Centre to the states during 2022-23. In contrast, Uttar Pradesh received the highest share at 18 per cent (Rs 1,46,525 crore) and Bihar received the second-highest share at 10 per cent. This highlights why Punjab and other states argue that they are not receiving a fair share of funds, despite contributing more to the exchequer.
During the fiscal year 2022-23, Punjab contributed a sum of Rs 32,800 crore to the Central taxes fund, which included CGST, income tax, corporation tax, wealth tax, union excise duty, customs, and service tax. However, in return, the state only received Rs 14,756 crore. This has led to Punjab raising the issue with the Fifteen Finance Commission, as it believes it deserves a fair share of Central tax. Despite its efforts, Punjab has been unable to secure an amendment to the Finance Act.
Constitutionally, the purpose of the finance commission is to create some kind of ‘equalisation’ among advantaged and disadvantaged states. From the point of view of equalisation, the adoption of population figures as one of the criteria of devolution needs to be justified. Therefore, the Constitution provides for a fair share of union revenue to be devolved to the states to address this issue.
The Way Forward
In a federal structure, it is important for the Central government to prioritise the improvement of economic conditions and livelihood prospects for the people of Punjab, which are facing unique challenges in comparison to other states. It is crucial to take a comprehensive approach that ensures employment opportunities and social respect regardless of demographic and political differences. Without sustainable economic growth, local employment generation, and self-reliance, Punjab’s well-being will continue to be a challenge, which is indispensable for the overall well-being of our nation.
The Author is Vice-Chairman Sonalika Group, Vice-Chairman (Cabinet minister rank) of the Punjab Economic Policy and Planning Board, Chairman of ASSOCHAM Northern Region Development Council and Chairman Tractor and Mechanization Association (TMA). Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect News18’s views.
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