Keywords

The historical experience of economic transformation of the world’s advanced economies has included significant structural change, both of production and workforce structure, over time. The pace of this transformation differed across economies and over time, but an important common feature has been shifting from a low-productivity–low-wage economy to one with high productivity and wages. This has involved shifting economic activities from rural/agricultural to urban/industrial activities. The dynamic force behind this change has been innovation. The innovative process has also generated opportunities for institutional change and cultural transformation of societies along with economic transformation.

Historically, the transformation of the industrially advanced countries of the world was never smooth, but rather faced several roadblocks. Arguably, the state during this economic transformation phase played a leading role, not only in removing roadblocks but also in actively guiding, directing or planning the pathways of transformation. This process did not necessarily involve direct state action, but could be through enabling suitable incentive systems for private economic agents of production to succeed (Kuznets 1966). Research on this transformation experience in the post second world war period conducted by Chenery (1960) examined the relationship between the level of economic prosperity (measured through per capita income) and the structure of the economy. He established the importance of the industrial sector in achieving higher levels of per capita income and economic well-being. However, Chenery and subsequent scholars who have examined the role of accumulation of capital in economic transformation have neglected the institutional and cultural aspects of transformation, which was an integral part of Kuznets’s analysis of structural transformation (Syrquin 1988).Footnote 1

The recent successful transformation experience of the newly industrializing economies of East Asia has re-ignited interest among scholars in understanding the interlinked processes of economic development and structural transformation.Footnote 2 The engine of growth in East Asia remained the industrial sector. An important feature of this transformation was in developing unique innovation capabilities through systems of innovation specialized in ‘short cycle technologies’ that allowed South Korea and Taiwan to pass through the middle-income trap (Lee 2013). Furthermore, the sustained economic growth experience of China since the 1980s and India’s high growth experience in the first decade of the twenty-first century have generated interest in examining the path of structural change that may occur in the future of the global economy. The engine of growth in the Chinese economy has been manufacturing, but it has arguably been the services sector in India (e.g., Singh 2006; Nayyar 2013). In this respect, the economic transformation and catch-up of China and India have followed different pathways.

The reasons for the relative stagnation of manufacturing and industry in India and the importance of services have something to do with the specifics of the country’s policy environment, as well as the emergence of information technology services as a source of innovation and economic dynamism. Nevertheless, the sustained accumulation of capital and transformation of developing economies like India can only be expected to occur if systemic constraints can be removed, with the active support of the state in nurturing innovation capabilities and building synergies across and within sectors, whatever the relative importance of manufacturing and services in this process.

When considering the possible future economic trajectory of India, one has to recall that it is a country of continental size, and the level of economic development differs substantially across Indian states. Of course China is even larger, and has also seen diversity in economic development among its regions, but it has a much more centralized political system, which provides very different mechanisms for managing this diversity.

In India’s case, the state of Punjab, due to its historical importance, strategic location and significant religious minority, is an important example of the challenges of the nation’s diversity. Economic growth and transformation of the Punjab economy through the Green Revolution in the pre-reform period gave leading status to Punjab, in terms of economic prosperity, among India’s states. According to per capita income rankings, Punjab remained number one among the Indian states for over three decades, that is, the 1970s, 1980s and 1990s. This rise was mainly due to the ushering in of the Green Revolution in Punjab from about 1966, which emerged from the promotion of much-needed food security for the country, as well as a political consensus on a state-led model of economic development. Punjab, with the help of the Union government, developed a physical and institutional infrastructure that supported and nurtured private economic agents in realizing the full potential of their investments. Modern production methods, supported by an effective research and extension system and assured markets, allowed the agriculture sector to thrive. Agricultural productivity increased manifold and generated substantial employment opportunities, while a remunerative procurement system of food grains led to the emergence of economic surpluses (Dhesi and Singh 2008). Private investment, due to this conducive economic environment, flourished, and as a consequence, economic prosperity spread in multiple dimensions. Complementary economic activities, such as an agricultural machinery industry, transport and services, also started flourishing (Bhalla 1995). As a consequence of these developments, Punjab achieved another distinction, of having the lowest incidence of poverty among India’s states (Ahluwalia 1978).

The agriculture sector emerged as an engine of growth and structural transformation of the Punjab economy very early in the Green Revolution period. In 1966–67, the share of agriculture in the state domestic product was 52.85 and increased to 54.27 in 1970–71 (Singh and Singh 2002). The importance of the agriculture sector in the economy of Punjab can further be seen from the employment structure. The agriculture sector provided employment to 62.67 % of the workforce in the year 1971 (Singh et al. 2016). In the subsequent decade, the agriculture sector dominated both in terms of income and employment generation. At the same time, the cropping pattern moved towards concentration, changing from more diversified to less diversified, in what is commonly known as a wheat–paddy rotation. The structure of the Punjab economy remained highly skewed towards agriculture, and the agriculture sector further concentrated on these two crops, which were targeted to provide food security for the nation. As is well known, agriculture is subject to diminishing returns, and agricultural productivity growth started showing signs of slowing as early as the late 1970s and early 1980s. This in turn contributed to escalating costs of production and a decline in the surpluses from farm production. The high degree of dependence of the population on agricultural income, combined with a declining number of man-days due to an increasing use of agricultural machinery in farm operations, put pressure on earning income from farm labour. Furthermore, capital-intensive agriculture increased investment requirements per unit of agriculture production, rendering small and marginal sized land holdings non-viable. These trends, which evolved into a crisis of structural stagnation of Punjab economy, started to appear in the late 1970s and early 1980s. However, instead of addressing this looming crisis through economic transformation of the Punjab economy, one can argue that the political leadership, both at the national and state level, diverted the focus to other issues, contributing to political turmoil that lasted more than a decade.

At the same time, new economic policy initiatives of the Indian government that began in the 1980s relaxed internal and external constraints, allowed expansion of capacity of the industrial sector and helped to raise the growth of the national economy. Meanwhile, the Punjab economy during the 1980s was suffering from extreme political and social turmoil. The functioning of democratic government at the state level was completely disrupted, and there was no avenue to use the opportunity provided by the national economic policy reform. In fact, turmoil in the state completely diverted the government from engaging in developmental activities to tackling law and order problems instead. The heavy expenditure incurred on the security forces, including large investments on enhancing the capabilities of the police in Punjab, acted as a drain on the public exchequer. The normal functioning of the state government was derailed, making the institutions for collecting revenue and providing health and educational services, dysfunctional. To cover revenue shortfalls, the state government began borrowing heavily from the central government. As a result, the burden of debt on the state government increased dramatically.

Beyond the significant financial costs of the turmoil, there were enormous and long-lasting human costs. The state’s social overhead capital suffered in multiple ways, and the impact of this was visible in the subsequent decades. For example, there was an elimination of the kind of political opposition required for a well-functioning democracy. Several prominent social workers and important political leaders were killed in this period, silencing the voice of democracy through the channel of social movements.

Against the backdrop of Punjab’s turmoil, it is now almost forgotten that a significant economic transformation agenda and programme had been contemplated and laid down in an industrial policy resolution of the government of Punjab in 1978. This programme was expected to be implemented during the 1980s, but was completely sidelined by the disruption of democratically elected governments. Instead, the Punjab economy remained locked into an equilibrium that was dominated by an agricultural system which remained oriented towards fulfilling the needs of national food security.

When the Indian government initiated full-fledged liberalization and globalization of the economy in July 1991, Punjab’s economy and society were characterized by this situation of disrupted developmental institutional arrangements and extreme fragility. At the same time, Punjab’s turmoil was being reduced, and achieving peace with a restoration of democratically elected government was the primary item on the political agenda. During the first half of the 1990s, Punjab returned to some level of peacefulness, and a democratic government did begin to function, but with a fragile fiscal policy and huge debt burden. In this situation, there was little scope for the state political leadership to restore the kinds of institutional arrangements and capacity needed to catalyse an economic transformation.

Arguably, there were possibly compelling arguments for reducing government intervention in economic activities, both directly and indirectly, thereby giving market forces a greater role in the economy. However, this was taken as an opportunity by some of the state’s political leadership to change their character from statesmen-politicians to businessmen-politicians. This leadership has adopted a strategy to gain political legitimacy by using populist measures on the one hand, and promoting their business interests through state power on the other. Their engagement in business activities, especially in rent-thick sectors, has added tremendously to their wealth. Meanwhile, weak institutional arrangements, a dysfunctional fiscal policy and a rising debt burden have continued to characterize the state. The consequence of this process has been a deceleration of economic growth in the 1990s (Singh and Singh 2002) and emergence of agrarian distress, including farmer and agricultural labourer suicides (Singh et al. 2016).

The post-reform period performance of Punjab compared with other Indian states was examined by Ahluwalia (2002) with a view to identifying the factors that contributed to differential economic performance among major Indian states. This study brought out the fact that Punjab remained at the bottom among the major Indian states in its investment–SDP ratio, in the post-reform period. It is well recognized that investment is fundamental to determining economic growth. Punjab’s investment–SDP ratio declined sharply, from 24.06 in 1995 to 13.40 in 1999–2000 (Singh 2014). This fall included the agriculture sector, which has served as the backbone of the Punjab economy. Contrary to the accelerated growth experience of the Indian economy in the first decade of the twenty-first century, the Punjab economy decelerated and regressed relative to the national economy. Punjab slipped from ranking first in per capita income after the Green Revolution to second in the late 1990s and now ninth after a decade-and-a-half of the twenty-first century.

Instead of attending to the structural problems faced by the Punjab economy, the political leadership engaged in populist fiscal profligacy through subsidies and other giveaways, further increasing state government indebtedness and weakening the capacity for economic governance. Social sectors such as health and education, which are central to human development, suffered severely due to a lack of investible public resources. Arguably, the institutional arrangements for delivering development have become even more dysfunctional, even after a succession of democratically elected governments. The self-interested behaviour of the political leadership likely has contributed to a drying up of investment opportunities in the state and consequently intensified its economic crisis.

The process of turning from a relatively successful economic development experience to derailment of economic development surely needs to be reversed. Punjab occupies a strategic position in the country, in terms of food security and national security, and therefore its economy requires early attention to arrest its downward spiral. To explore policy measures for the revival, rejuvenation and transformation of the Punjab economy, a conclave of researchers, policy makers and policy implementation agencies was organized jointly by the Centre for Development Economics and Innovation Studies (CDEIS), Punjabi University and the University of California, Santa Cruz, USA, on March 21–23, 2014, at the Punjabi University campus. Selected papers presented and discussed in the conference were revised by the authors after incorporating comments and suggestions made by the discussants and participants. Furthermore, the papers were again read by both the editors and detailed comments were given to the authors for further revisions. The 20 final selected, revised papers are collected in this volume, keeping in view thematic unity, and are organized into seven sections as follows.

1.1 Understanding the Crisis of Agrarian Transition

The agrarian economy of Punjab has undergone dramatic changes in the post-independence era. It has transformed from traditional to technologically “modern,” and from modern to highly capital- and resource-intensive. Punjab’s agriculture now has high productivity relative to developing countries, as well as to other Indian states, as measured by per hectare yield of two crops, wheat and rice. The contribution of Punjab to India’s central pool of buffer food stocks in 2013 was 29.3 % in rice and 43.4 % in wheat (GOP 2013). Not only has agriculture in Punjab contributed to the food security of the country but generating this surplus also helped reduce poverty in the state.

However, the specifics of this agrarian transformation generated their own problems. Increasing agrarian distress for farmers with small and marginal sized holdings and for rural labour has followed from declining returns and rising costs, and the resultant reduced surpluses. Lack of alternative remunerative employment opportunities has reduced the state economy’s capacity to generate sustainable livelihoods. This is further being reflected in high rates of suicides among marginalized farmers and agricultural labourers. The current pattern of highly specialized agriculture has also generated a high degree of environmental stress through the use of high levels of chemical fertilizers, pesticides and groundwater resources. The sustainability of Punjab agriculture is now seriously in question, both in terms of ecological and human health, and in remunerative occupations for the state’s people. The four chapters in this section shed light on the emerging crisis of agrarian transformation of the Punjab economy as well as attempts to provide possible alternative ways forward.

K.N. Nair and Gurpreet Singh, in Chap. 2, have traced the evolution of the process of agriculture transformation from the colonial period to the present. The authors use institutional and technological perspectives in explaining the differential performance of the agriculture sector across Indian states. The superior performance of agriculture in Punjab during the colonial period is attributed to three factors, that is, land rights, modernization of the canal system and the revenue collection system. Clear property rights of ownership of land title were granted to cultivators. This generated relatively efficient land markets, and land prices increased manifold. Canal irrigation improved land productivity and evidence shows that wheat productivity was higher on irrigated versus non-irrigated land. Land revenue was collected through relatively rich landowners, who passed the collected revenue to the administration while retaining some part of the revenue. These surpluses also generated an informal credit market in Punjab agriculture. Rich landowners were engaged in lending money, although at high rates of interest.

The interaction of technological progress in agriculture, generating a supportive research and extension system along with other institutional changes, and a network of rail transportation worked together to enable superior agriculture performance as well as higher revenue for the colonial administration. However, the evolution of interlinked agrarian markets for credit, land and produce within this system allowed surpluses from the farmers to be squeezed, which contributed to large-scale alienation of land and consequently forced the British to pass the Land Alienation Act in 1901. This Act pushed moneylenders out of the land market. The authors argue that canal irrigation was the main factor in triggering institutional and technological changes, which led to economic prosperity but also increased socio-economic divisions within and across various regions of India.

Nair and Singh further argue that the post-independence agriculture of Punjab was conditioned by the food insecurity of the country, so that institutional and technological changes were devised both by the union government and the state government to fulfil the nation’s food security requirements. The success of the Green Revolution is essentially attributed to the evolution of institutions that governed the agriculture sector, accompanied by technological innovations, and supported by subsidies to electricity, water, fertilizer, plus assured government procurement of the output at minimum support prices. Now, however, agriculture productivity has reached a plateau due to environmental and over-mechanization constraints, and the institutional arrangements which facilitated and enabled high productivity agriculture have turned into roadblocks for further progress. The authors conclude that the crisis of agrarian transition faced by the state urgently needs to be resolved. Their well-founded opinion is that the agrarian crisis is complex and its extent is large; therefore, the state government will not be able to overcome it without the support of the Union government.

R.S. Sidhu, Kamal Vatta and S.Z. Ali examine the wheat revolution and its economic consequences for agriculture development in Chap. 3. The authors note that agricultural productivity variations across India’s states are quite large. Agricultural productivity, which increased manifold during the early Green Revolution period in Punjab, is now stagnating. Can agricultural productivity be increased with the same combination of factors through which productivity was increased earlier? This question is put to the test by the authors by employing a simultaneous equation econometric model to determine factors affecting productivity growth of wheat in India as a whole as well as in Punjab specifically.

A significant result is that wheat productivity is highly correlated with availability of water for irrigation. Irrigation emerges as the most important determinant of increase in wheat production among non-price variables. It is argued by the authors that to achieve the targeted agriculture growth of 4 %, the area under irrigation needs to be increased across Indian states and the efficiency of the existing irrigation infrastructure needs significant improvement.

While examining the factors behind the rise of wheat productivity and production in Punjab, the authors also test the role of the agriculture research and extension system through the creation of new HYVs seeds over the time period 1970–2011. The major conclusion emerging from this empirical investigation is that the factors that increased wheat productivity included non-price, price and institutional variables. They also examine the question of who benefitted more—small or large farmers—from the rise in wheat productivity. Their methodology involves using frontier production function approaches for estimation of the coefficients of technical efficiency. The variations in productivity of wheat across farm size categories turn out to be quite small. The average level of technical efficiency relative to the estimated frontier achieved by different categories of farms ranged between 85 and 95 %. However, 57 % of large sized farmers achieved the highest (90 %) frontier level of productivity compared with relatively low proportions of small and medium sized farmers. On the whole, the authors conclude that irrigation is vitally important for agriculture productivity growth, and therefore water use efficiency needs substantial improvement. They also stress the need for rationalization of cropping patterns, while keeping in view the groundwater situation of particular regions of the state and the country as a whole.

In Chap. 4 Sukhpal Singh provides an overview of existing thinking on diversification strategy for agriculture, identifies flaws in that thinking and suggests alternative ways to tackle the agrarian crisis of Punjab. The author discusses in detail the Johl committee reports—one (1986) and two (2002)—on diversification of Punjab agriculture, and connects this discussion to the Kalkat committee report of 2013. He finds many similarities in the approaches of the earlier committee reports and notes their ineffectiveness in leading to any significant diversification of agriculture in Punjab. These diversification reports generated considerable academic debate, but failed to change the ground realities of Punjab agriculture. Singh identifies flaws in the policy of diversification, including the fact that it targeted, directly and indirectly, support for farmers with large sized holdings, but failed to provide recommendations for the crisis-ridden small peasantry of Punjab.

It is also a well-recognized fact that the quasi-mono-culture of the wheat–paddy rotation of Punjab agriculture is a highly specialized cropping pattern, which is adversely affecting the groundwater balance and has severe environmental consequences. For this reason, the sustainability of Punjab agriculture is seriously under question. The other very important factor underlined by the author is non-remunerative agriculture for small holders and agricultural labour. The rationale of subsidies, especially of free supply of electricity for exploitation of groundwater, which is contrary even to the diversification policy of the state government, is challenged by the author. He suggests an alternative strategy to develop community-based solutions and farmer (cooperative) companies for sustainability of the diversification of Punjab agriculture, based on the success stories of farmer companies thriving in other states of India. He suggests several alternative solutions such as contract farming and environmentally safe crops, but all this will need innovative new institutional arrangements, which may have to be provided by the state government.

As indicated in the three important contributions mentioned above, water is the lifeline of agriculture, and given innovations in new seed varieties, fertilizers and institutional arrangements, the productivity of crops is dependent on assured irrigation. Rita Pandey, in Chap. 5, examines the state of groundwater balance in Punjab and suggests strategies to make it sustainable. The author notes that the net irrigated area is predominantly under tube well irrigation, that is, 71 %. Therefore, the pressure on groundwater for fulfilling irrigation needs in Punjab is very high. The groundwater table is receding at a rapid rate. Out of 137 developmental blocks, 112 are over-exploited so far as groundwater is concerned. These blocks belong to the central part of Punjab. The author notes two significant factors that have determined the over-exploitation of groundwater: one, the scarcity of surface water, especially canal water for irrigation and two, groundwater has advantage in terms of control over the timing and amount of water. The welfare implications in terms of rising costs of lifting water from the aquifer and falling water table are having negative effects on agricultural production.

The increasing awareness among policy makers and political leaders regarding the critical importance of groundwater is a positive development. This is reflected in the new agriculture diversification programmes devised by the state of Punjab and enactment of Punjab Preservation of Subsoil Water Act of 2009, which has restricted the unmindful pumping of water from the aquifer during dry spells. The act has allowed transplantation of the paddy crop only from June 10 onwards, which roughly coincides with the start of the rainy season. There is growing evidence that in a normal monsoon the delayed paddy planting reduces pressure on the groundwater table. The author examines the practices of other Indian states, and the laws passed by the Union government, which could have been used in managing groundwater, but have not been employed by the state of Punjab. There are several options available for sustainable use of groundwater on both the supply side and demand side. To accomplish sustainable water use, the author identifies regulatory instruments and economic instruments. However, the state of Punjab has not been able to use the available regulatory instruments; to the contrary, it has encouraged over-exploitation of groundwater by subsidizing electricity and providing other capital subsidies too. In conclusion, Rita Pandey provides nine guiding principles to support informed interventions by the state government for sustainable use of groundwater. An important suggestion given by the author, based on a successful experiment in the Moga district of Punjab, is that of artificial recharging of aquifers through harvesting rainwater. This can not only recharge the aquifer but also save electricity use by reducing the cost of lifting groundwater for irrigation purposes.

1.2 Agrarian Markets and Distributive Outcomes

It is a widely known fact that there is a positive relationship between well-functioning agrarian markets and economic development. In developing countries, either these markets are missing or they are imperfect. Imperfect markets either lead to inefficiencies and underperforming agriculture, or generate high rents and transactions costs, over-exploitation of resources, and under-pricing of outputs or over-pricing of inputs. Therefore, the contribution of well-functioning agrarian markets is substantial in terms of its effects on the economic development process and transformation of a developing economy. The five chapters included in this section examine issues pertaining to the functioning of agrarian input and output markets and the consequences for distributive justice.

In Chap. 6, H.S. Shergill provides an overview of the functioning of land lease markets and its impact on undermining the efficiency of the agriculture production system in Punjab. While comparing the extent of cash rent tenancy across Indian states, the author marshals evidence to show that Punjab is distinct in terms of leasing the area operated: more than 80 % of the total area covered by modern cash rent tenancy is leased in. He examines the transformation of cash rent tenancy since the inception of the Green Revolution and finds that the area under cash rent tenancy was even higher in Punjab than the all-India average (29 % in 1971–72 compared with an all-India level of only 15.42 %). However, the major form of tenancy in the early Green Revolution period was not cash rent tenancy. During the period of the Green Revolution, these trends dramatically changed in favour of cash rent tenancy in Punjab, but the all-India proportion increased at a very slow pace and remained marginal. Modern cash rent tenancy has increased in Punjab at a fast rate and reached 90.42 % in 2010–11, a phenomenon popularly called ‘reverse tenancy’. The author also shows that there are only small variations in cash rent tenancy across various regions of Punjab. And this testifies that Punjab is a leading state in terms of structural transformation that has occurred in the system of agrarian tenancy practices.

An important question asked by the author is why has the rest of India been sticking to the traditional systems of tenancy, while Punjab dramatically altered the course of its tenancy system. He provides an answer to this question in terms of unravelling the underlying factors responsible for this change. He argues that the character of the land lessors and tenants has completely changed in Punjab due to the adoption of a capitalist farming system. Land lessors are mostly small owners and absentee medium and big farmers. The lessees are medium and big farmers who are using modern capital-intensive techniques of production and have acquired appropriate expertise and capabilities to reap the highest benefits from attaining high productivity from those plots of land. The existing law, which was enacted to protect the tenant in a traditional tenancy system, is now ineffective for attaining equity in the land market, due to the very existence of modern cash rent tenancy. Therefore, the author proposes enactment of an alternative modern tenancy law for overcoming current inefficiencies and inequities both in the specific functioning of the land market and the agriculture production system overall.

M.S. Sidhu, in Chap. 7, examines the nature and extent of the food grains market and its relationship to agricultural development. The food grains market has revolved around the food security needs of the nation. It is regulated through legislation including the widely implemented APMC Act of 1961. This act declares any sale of wheat and paddy made other than in regulated food grains markets as illegal. The government of India has been procuring all the output that comes to the regulated markets and does so at assured minimum support prices. The author points out that 99 % of the wheat and 100 % of the paddy in Punjab are being sold through the regulated markets, which have reduced the role of informal agriculture output markets in the state. In the year 2012–13, 250.92 lakh tons of wheat, which was 43.43 % of the total wheat procured by the government of India, and 85.58 lakh tons of paddy, which was 25.15 % of the total paddy procured in India, were transacted in the food grains market of Punjab. To handle such a large food grain output, the government of Punjab had set up total of 1795 purchase centres by the year 2013–14. The author estimates that farmers on average travel only 7–8 km to transport food grains to market. This shows that the infrastructure laid down by the state government, not only setting up purchase centres, but also covering each village with metalled road networks, facilitated easy access to food grains procurement centres. This system of a network of purchasing centres and road connectivity has facilitated the efficient post-harvest clearance of agricultural output. The Punjab Mandi Board has been entrusted with the duty of regulating the market and creating the infrastructure, while generating revenue through collection of fees levied on the sale purchase of the agriculture output. This organization has played a key role in developing and maintaining rural link roads and developing markets.

The other important feature of the output market pointed out by the author is that the storage capacity for the food grains, both covered and open, was 234 lakh tonnes in the year 2013–14. Sidhu also provides evidence regarding how the regulated market assigned a special role to commission agents as intermediaries. These agents are often involved in the moneylending business and trap the farmers in this interlinkage to extract farmers’ surplus. These commission agents are thriving because the APMC Act of 1961 prohibits direct sale of food grains. However, the author also notes the lack of modern food grain storage facilities as a contributory factor in this situation. He suggests that the government should develop, perhaps through public–private partnerships, new safe storage capacity (such as silos), so that wastage of food grains can be prevented in the future.

It is well established, both theoretically and empirically, that there is a positive relationship between access to finance and agricultural development. Well-functioning financial markets can reduce inefficiencies in economic transactions and can also leverage surpluses for investment in productive economic activities. However, developing economies typically have imperfect financial markets that reduce investment opportunities and squeeze surpluses from productive economic agents.

In this vein, Anita Gill, in Chap. 8, has examined the nature, extent and evolution of the credit market and its relationship with agricultural development in Punjab. While analysing the overall development experience of the Punjab economy, the author documents the relative decline of the agriculture sector in the state’s economy. The agriculture sector has gone from a very high to a low growth rate in value addition. The rate of growth has declined in the 1990s at a sharp rate, recovering a little bit in the first decade of twenty-first century, but remaining quite low compared to the early Green Revolution period. This has reduced the relative importance of agriculture as an income generating sector, but one which continues to support a large proportion of the workforce. The slow rise in agricultural output prices compared with input prices has in fact squeezed the income of agriculture-dependent households and pushed the small and marginal peasantry of Punjab into a crisis-like situation.

While tracing the history of agrarian credit markets of Punjab, the author argues that credit markets in Punjab were comprised of both formal and informal sources of finance. Institutional intervention in the credit market started with the enactment in 1904 of a cooperative society act, and subsequently, commercial banks’ entry into the credit market in the 1970s. The institutional credit market has undergone structural transformation. The cooperative banks were providing more than 82 % of total institutional finance in the year 1970, but a complete shift has occurred since then, with commercial banks’ contribution to agricultural credit in Punjab being more than 78 % in 2012–13. Despite institutional intervention in the agriculture credit market in Punjab, informal lenders’ presence in extending credit declined, but continued to be very high, that is, more than 40 %.

An important feature of this study is that the author has conducted two surveys of the same households with a gap of 20 years (1993–94 and 2012–13), for understanding the change in the agrarian credit market. On the basis of evidence, it is argued that there is a marked shift in the agrarian credit market from informal lenders to formal sources of finance. But the extent of the existence of informal lenders still continued. Even the extent of linking credit with other markets has declined but still persists. The requirement in the informal credit market for collateral underwent a change and now land is being asked for as collateral, suggesting that commission agents seek to appropriate land from borrowers. The credit raised by rural households has been spent largely on productive purposes (67 %), while cross-household variations have been observed in terms of uses of credit.

Why was there a decline in the extent of informal lending in the agrarian credit markets in the study villages? The author argues that when the agrarian crisis became pervasive, the government of India and the Reserve Bank of India announced several measures designed to increase the inflow of institutional credit. Low-cost and flexible programmes such as Kisan Credit Card, Agriculture Debt Waiver and Debt Relief Scheme, and One Time Settlement schemes were announced. For rural labour, the MGNREGA remained quite effective in terms of reducing linkages of credit with the labour market. However, to save the farmers from the clutches of exploitative interlinked informal agrarian markets, much still needs to be done by the state.

Complementary to Gill’s analysis of the functioning of the informal and interlinked agrarian credit markets, Indervir Singh, in Chap. 9, reports on a primary survey of commission agents, spread over four developmental blocks, designed to examine their business conduct. Drawing lessons from the economic theory of interlinked agrarian credit markets, Singh reaches the conclusion that imperfect information makes the rural credit market oligopolistic. Under such a situation, the interest rates charged are higher than the marginal cost of lending and this also inhibits expansionary formal credit public policy.

Singh provides new evidence, based on his carefully conducted survey of 30 commission agents, on risk minimization by the commission agents through spending time and resources to screen and monitor lenders and to enforce contracts. Commission agents develop social relations with client farmers and continue to fulfil their needs while linking credit provision with services in other markets. Commission agents also ask the most trusted client farmers to certify new clients and verify the clearance from other commission agents in case of a shift from a previous lending agent.

An important piece of empirical evidence brought out by Singh is that the rate of default is very low, and in cases where default occurs, legal recourse is the least preferred remedy. Recent high default rates have occurred due to repeated crop failures and farmers turned to new commission agents, who with an eye on the land of borrowing farmers have started lending without much screening and monitoring. When commission agents used unfair practices to recover loans from defaulters, civil society organizations appeared on the scene to rescue the farmers. However, the involvement of these civil society organizations (farmer unions) triggered further defaults. According to the author, this benefitted medium and large farmers rather than small and marginal farmers. In fact, small and marginal farmers have high dependence on commission agents for meeting their credit needs and they suffered due to the credit rationing that came about.

Kamal Vatta and Pavithra S., in Chap. 10, provide analysis on one of the most pressing issues of recent times, that is, economic inequality. As pointed out by the authors, land is the most productive asset available in the countryside. While examining household inequality of productive assets, based on two primary surveys conducted in 2005–06 and 2010–11, the authors find that access to land has increased for the top 10 % of farm households, from 46.67 to 51.74 %. However, access to land decreased from 17.78 to 9.53 % between 2005–06 and 2010–11, for the bottom decile of farming households. The estimated value of the Gini coefficient has increased.

An important piece of evidence provided by Kamal Vatta and Pavithra is that the relationship between level of education and size of land asset holdings is one of high positive correlation. The authors conclude that new opportunities of employment require education, and those are concentrated in the larger sized farming categories, which indicates further the concentration of income from sources other than agriculture.

The most significant finding that emerged from the empirical exercise done by the authors is that across various sources of income in rural Punjab, the value of the Gini coefficient increased. A similar increase in inequality of income emerges from considering the income shares of the poorest quintile and the richest quintile households over time. These inequalities were also strongly present in educational outcomes. These empirical observations and calculations bring out the stark reality of the situation in rural Punjab, where poverty has also returned, along with increasing inequality. Thus, the authors suggest that this trend of rising inequality and poverty is a cause for concern and needs urgent attention from the state’s policy makers to arrest it.

1.3 Structural Transformation of Punjab Economy: Emergence of Industry and Services

Punjab’s economy has witnessed some, but not all, of the structural transformation that has been observed in other developing economies. The agriculture sector constituting agriculture and allied activities has progressively been reduced and contributed 28.70 % to the state domestic product in 2012–13. The secondary sector-manufacturing, construction and electricity-provided 24.41 % of state domestic product. However, the tertiary sector emerged in 2012–13 as the most dominant sector of Punjab economy with its contribution to the state domestic product being 46.89 % (GOP 2013). There has been a sharp decline in the agriculture sector’s contribution to the state domestic product, and the secondary sector is maintaining its share but tertiary services are fast gaining in share. In terms of workforce structure, the agriculture sector, according to the 2011 population census, employed more than 35 % of the workforce, while manufacturing just employed 10.24 % of the workforce (GOI 2011). The long-term sustainability of a developing economy is determined by the rate of its structural transformation and the dynamics of its emerging productive sectors. For understanding the dynamics of structural change and sustainability of the emerging development path of the Punjab economy, three contributions analysing the nature and growth of emerging sectors, that is, industry and services, are included in this section.

Aradhna Aggarwal, in Chap. 11, has investigated in a comparative framework the relationship between economic growth and structural change during the post-reform period. Structural change entails expansion of value added and employment in higher productivity sectors. This process of transformation, accompanied by economic growth, has a capacity to make a dent in the poverty rate. While subdividing the whole period into slow and fast growth periods of the Indian economy after reforms, the author finds that Punjab has lagged behind in its economic growth and slipped in its relative ranking. Employment growth also declined to 0.5 % between 2004–05 and 2011–12, which was a fast growth period for the Indian economy.

The empirical exercise carried out by Aradhna Aggarwal shows that structural change occurred both in terms of gross state domestic product and employment structure. On the basis of Shapley’s decomposition analysis, it is argued that productivity effects, both inter- and intra-sectoral, have driven growth during the fast and slow growth periods. The construction sector is an exception and employment creation programmes focused on the construction sector are growth reducing, according to this analysis.

The author suggests that policy makers have to simultaneously emphasize achieving high growth rates of gross state domestic product and increasing the employment elasticity to realize the possibility of sustainable growth. Furthermore, it is argued that the state should take initiatives to strengthen the skill-oriented educational system, and that economic growth and manpower planning need to be integrated for solving the unemployment problem. The system of flexibility in the labour market should be combined with income security of workers, and the state should provide assistance in retraining and relocation of the workers. The author outlines five principles for devising and implementing a comprehensive employment policy to draw the full benefits from any structural transformation of the economy.

Varinder Jain, in Chap. 12, examines the nature, character and evolution of the manufacturing sector of Punjab from colonial times to the present. To trace the evolution of the industrial sector in an agrarian economy, the author reviews both theoretical and empirical literature dealing with the relationship between agriculture development and industrial dynamics. The linkages between the agricultural and industrial sectors, at an early stage of industrialization, had remained very high. Taking a cue from classical economic theory, Jain analyses the factors used by the colonial rulers to develop agriculture in otherwise barren areas of Punjab. An irrigation network, a railway network and commercialization of agriculture were the three factors that generated economic surplus to fulfil the needs of the British administration. This also generated an intermediary class of moneylenders that started squeezing the surpluses from the peasantry and started usurping agriculture land. These conditions forced the colonial authorities to enact the Land Alienation Act of 1901, which prevented moneylenders from investing in landed property. However, as argued by the author, this act sowed the seeds of investing some of the surpluses in industrial establishments. This process was even boosted by the independence struggle in the case of handloom cloth, and the policy environment was reasonably favourable for industrialization. However, the partition of greater Punjab to West and East Punjab disrupted the linkages of trade, finance and industrial raw materials. Large number of industries and the well-developed agriculture of West Punjab went to Pakistan with Partition.

An important finding emerges from the analysis of policies to resurrect the industrial sector in the post-independence period. Well-designed rehabilitation programmes of the Indian and Punjab governments, by extending institutional and financial support, helped in firmly rooting small-scale industrialization in the East Punjab. The division of East Punjab in 1966 into three parts, which roughly coincides with the Green Revolution, almost again disrupted the progress of industrialization due to raw material sources going to other two states. However, the Green Revolution generated huge demand for agriculture-related inputs and a rise in incomes led to a higher demand for consumption goods, and again boosted the industrial development in Punjab.

The comparative empirical analysis mentioned in this chapter clarifies that Punjab’s industrial sector progressed better than the other states in the 1980s but performed poorly in the 1990s and lagged much behind the neighbouring states of Himachal Pradesh and Haryana. During the first decade of the twenty-first century, there was some revival of industrial growth, but the dominant role of the unorganized industrial segment in Punjab’s manufacturing growth highlights the weak industrial base and vulnerabilities of this segment in the current competitive environment. Such an industrial base is unable to provide dynamic and sustainable growth momentum. For rejuvenation of the industrial sector of Punjab, Jain has suggested a strategy to provide a supportive policy framework, one which will enable the industrial sector not only to overcome structural weaknesses but also to graduate from small and inefficient to large, efficient and competitive in the increasingly globalized world economy.

In Chap. 13, Inderjeet Singh presents a systematic account of the structural transformation of Punjab economy from the onset of the Green Revolution to the present. An important feature of this chapter is that the author divides the whole period of analysis into four meaningful sub-periods, that is, the rise of the primary sector during the early Green Revolution phase, the period of social turmoil, the post-social turmoil period and the recovery period.

From the analysis of the growth of the primary, secondary and tertiary sectors and the shifting of sectoral shares, the author draws the conclusion that, in terms of contribution to the gross state domestic product, the primary sector is losing importance and both the secondary and tertiary sectors are gaining ground. The tertiary sector has become a dominant sector, but in comparison to the all-India average as well with respect to other states, Punjab is way behind in this shift.

Factors that contributed to the slow growth of the service sector in Punjab, as pointed out by the author, are the social turmoil in the state during the 1980s and the early 1990s which helped put the economy into a crisis. Investors and entrepreneurs in trade, hotels, restaurants, real estate, ownership of dwelling and business services lost interest in the state and capital flight took place in the 1980s and early 1990s. Activities complementary to these services, professional services and supporting services also followed the same path. The social turmoil period witnessed a sharp rise in the share of ‘public administration’ due to heavy public expenditure on police and paramilitary forces. Another important finding of this chapter is that Punjab experienced a greater shift in workforce to the non-agricultural sectors as compared to the country as a whole.

The sub-period wise disaggregated analysis of the service sectors reveals that developed regions, with better economic and social infrastructure, have a higher share of tertiary sector in domestic product and vice versa. Much of the tertiary sector development as well as overall development has taken place in the already developed regions of Punjab, while the relatively backward Malwa region continues to be dominated by the agricultural sector and remained low on the ladder of the service sector.

An important conclusion that emerges from the inter-sectoral linkage analysis is that the service sector has very weak linkages with the primary sector, whereas it has relatively strong linkages with the secondary sector and with itself. Therefore, it is suggested by the author that to draw full benefit from the service sector for economic growth and transformation of the Punjab economy, the efficiency of the workforce needs substantial improvement. Investment in human capital and infrastructure is required to exploit the potentialities of service sector growth. Since the investment–SDP ratio is very low in Punjab, the author argues that the Union government should shoulder some responsibility in helping the state government to overcome investment deficiencies in the state.

1.4 Human Development in Punjab’s Economic Transformation

Education and health are the two pillars of human development. It is now a widely accepted argument in economic thinking that there is a positive relationship between human development and the level of economic growth. However, this relationship is not unidirectional. The level of human development is relatively low in the developing countries but is improving. These improvements in human development are not the automatic consequence of economic growth, but rather, reflect the conscious decisions of the state and households to invest. Due to significant positive externalities in the case of basic health and education, households in developing countries arguably may under-invest in human development, creating a role for the state in developing human resources. When the state falters in investing in basic human development, there can be distortions in the economic transformation process and lower economic growth. Arguably, Punjab has been facing this issue of state failure in providing adequate support for basic education and health. Two chapters included in this section provide comprehensive analyses on the state of human development in Punjab and its interrelations with economic growth and transformation of the Punjab economy.

Jaswinder Singh Brar, in Chap. 14, has examined intensively the trends of education in the state over the last two decades. He has identified the dichotomy between the high-income and low educational achievements of Punjab state. To capture the political economy of this dichotomy, the author has analysed in a comparative framework the literacy achievements, educational level of workforce, exclusion of have-nots and quality of education. Punjab, compared with major states of India in terms of literacy indicators, has been moving towards the bottom in terms of rates of improvement. It has been lagging behind in terms of female literacy and literacy of the scheduled caste population. The gap between low literacy districts and high literacy districts has also widened in Punjab. This gives a sufficient idea of the underperformance of a relatively high-income state with low levels of human capital.

Brar has also provided evidence regarding the level of the skill base (measured by specific reading and arithmetic skill levels) in the relevant age group of the workforce, since the skill base ultimately allows the workforce to participate in economic activities. He had also made comparisons with high skill base states such as Kerala and Himachal Pradesh and shown that the position of Punjab is relatively low in terms of its skill base. The disaggregate analysis across farm size categories brings out the fact that small and marginal farmers are less skilled compared with the large size categories of farmers. The landless workforce also has a low skill base, reinforcing the impression that human capital planning has not been adequate. The chapter highlights that the quality of education in terms of abilities to reading, writing and solving arithmetic problems was slightly better than the national average, but much lower than the better performing states of India. There are also wide gaps between sexes and between the rich and the poor.

The dismal picture of Punjab’s education sector, as pointed out by the author, certainly owes something to deficiencies in public investment in education. The state government’s policy has included keeping teaching and administrative positions vacant in schools, neglecting infrastructural requirements in public schools and transferring efficient teaching staff from well-functioning public schools—allegedly in some cases due to pressure from private school operators. These policies, according to the author, have increased the burden of bearing the cost of education on households forced to rely on private schools of unreliable quality. The author has suggested a major reversal of policy towards public education in order to build Punjab’s human capital more effectively.

In Chap. 15, Sukhwinder Singh has scrutinized the relationship between economic development and the health status of the Punjabi population. On the basis of empirical evidence, the author argues that the adoption of the new economic policy in 1991 reduced public investment support to the health sector and increased the involvement of international agencies such as the World Bank. These agencies provided investment with a condition of allowing greater participation of the private sector in health and medical services. Consequently, the rise of private health and medical services has increased out-of-pocket health expenditure of households, which has made it difficult for the poor to access health and medical services.

Furthermore, the author has provided new evidence regarding the changing patterns of diseases in Punjab. The rate of growth of the population with documented ailments has increased in the post-reform period compared with the pre-reform period. A rise in the aged population, and modern lifestyle diseases reflect aspects of Punjab’s health situation that are similar to a developed society. The development pattern of Punjab has also been reflected in the emergence of deadly diseases like cancer and HIV AIDS. It is emphasized by the author that the public health infrastructure has fallen behind due to deficiencies of public investment, non-appointment of doctors, and withdrawal of free medicines and other supporting services in public hospitals. The decline in rural hospitals and deterioration of public health facilities have greatly affected the rural population in general and the rural poor in particular. An important finding that is reported by the author is that a lack of accountability of public health service providers has also contributed to these problems.

To make Punjab’s health sector more effective and equitable, the author has suggested an alternative approach to public policy based on three pillars, that is, raising the demand for ‘improved health’, improving the quality of public health services and making the health system more accountable to its users.

1.5 External Factors in Punjab’s Economic Development

Theories of long-run economic growth and transformation have considered a range of exogenous and endogenous factors that determine the nature and rate of development. In the case of Punjab, two mostly external factors, namely, the position of Punjab as a state in the Union of India, and substantial migration resulting in a significant diaspora population, have both been important. Papers assessing the impact of each of these factors on the long-run growth and transformation of the Punjab economy are included in this section.

Shinder S. Thandi, in Chap. 16, has examined the diaspora–development nexus with a view to seeking answer to the question of whether Punjabi diaspora has the capacity and potentialities to arrest the downturn of Punjab economy. An important contribution of this study is in terms of identifying the factors that have contributed to the relative regression of Punjab economy vis-à-vis other dynamic states of India. The author has explained the falling contribution of agriculture in the income and employment of the economy of Punjab. The crisis of agriculture is shown to have been reflected in the extreme form of suicides committed by the farmers in Punjab. Agricultural growth remained heavily dependent on natural resources that have been over-exploited, resulting in an ecological crisis. The paucity of investment for a desirable path of economic transformation was attributable to international border issues and the militancy movement of the 1980s. The nature of the Indian federation and resultant tenor of Centre–State relations have also impinged on the economic transformation of Punjab. Furthermore, Thandi has underlined the importance of factors such as the nature of economic and political governance that have led to the emergence of high state government indebtedness.

Drawing on various academic and policy debates, Thandi has outlined the potential contribution of diasporas to economic transformation. He has argued that diasporas can provide four kinds of capital—intellectual, socio/cultural, financial and political—to a nation state, which can be used for supplementing developmental activities. Furthermore, he has emphasized that the benefit of diaspora can be reaped in terms of raising productive capacity in terms of harnessing resources (FDI) and entrepreneurial capabilities.

The author has traced the progress and spread of the Punjabi diaspora both in developed countries and newly rich Gulf nations. According to him the estimated number of the Punjabi diaspora is around two million and out of that number, 75 % live in three highly developed countries, that is, Canada, USA and UK. The Punjabi diaspora in these countries has thrived in professional, business and entrepreneurial activities and has achieved considerable influence in economic and political spheres. Therefore, the Punjabi community has a substantive scope for contributing to the process of economic transformation of the Punjab economy if engaged through innovative policy initiatives. Thandi, while characterizing the past limitations of the Punjabi diaspora in its contribution to rejuvenation of the Punjab economy, has emphasized two significant channels—remittances and philanthropic—that each has enormous potential to contribute to successful transformation of the Punjab economy. He provides a road map for positive engagement of the diaspora and suggests a suitable policy framework for the government of Punjab to consider.

In Chap. 17, Pritam Singh has analysed the relationship between the role of central government and economic development of a sub-national/state economy. Firstly, the author has attempted to identify the external factors that shape the long-run pattern of economic development. Centre–State relations that shape the channel of engagement of the central government with the state government are considered by the author as a prime external factor in determining the evolution of Punjab’s economy.

The agricultural orientation of Punjab’s economy goes back to the colonial period. During the period of British colonial rule in Punjab, the needs of the British government determined the rate and direction of economic development of Punjab. The post-colonial economic development of Punjab has similarities with the British colonial period, mainly because of national food requirements. The emphasis on agriculture, while directing government investment and enacting suitable institutional arrangements, was meant to fulfil the nation’s need for attainment of self-sufficiency in food grain production.

The author has argued that if Punjab’s economy is to improve the rate of economic progress and change the structure of its economy, it has to dramatically shift its strategy and policy for a non-agrarian economic transition. To achieve this non-agrarian transformation of the Punjab economy, a reshaping of Centre–State relations is urgently required. Singh has suggested that Punjab would benefit from a more decentralized federal structure, allowing more flexibility in its path of economic development. While citing various international experiences of defying the force of global capitalism that promotes more dependent paths of economic development, the author suggests that decentralization within India will better support a path of development that is better suited to the internal needs of the Punjab, including the urgent concern of environmental sustainability.

1.6 Fiscal Policy of Punjab in Comparative Perspective

Fiscal policy is one of the most important dynamic policy instruments for developing countries, affecting public investment for economic growth and influencing the rate and direction of economic activities. It is a major policy for sub-national economies as well. The fiscal policy of Punjab played an important role in the development of the state’s economy during the early stage of Green Revolution but was disrupted during the period of political turmoil in the 1980s and early 1990s. Once fiscal policy became dysfunctional it remained so, despite the restoration of democratically elected governments. Two contributions included in this section discuss the state of Punjab’s fiscal policy, compare it with other states of India and draw lessons for revival of fiscal policy.

Tapas Sen, in Chap. 18, outlines the relationship between fiscal policy and economic development and notes that good fiscal policy can support growth. He empirically examines Punjab state’s fiscal position and compares it with other Indian states. While taking various indicators of fiscal health of the state’s economy and comparing it with other states, he finds that in general Punjab’s performance is poor given its higher level of per capita income and low level of poverty. The author argues that Punjab presents an odd combination of a relatively high-income state with public finances that have been under stress for a long time. This chapter looks at the trends in broad fiscal aggregates and a limited amount of disaggregated information to establish the pattern and locate the causes of the persistent stress. It examines fiscal balances, including receipts and expenditures, the link between fiscal balances and indebtedness, and the link between the stock of debt and revenue expenditures through interest liabilities. To establish a context, it also assesses the fiscal performance of Punjab in relation to other major states of India. It concludes with policy imperatives that have implications not only for the fiscal balances of the state, but also for the development of the real economy of Punjab.

In Chap. 19, Upinder Sawhney analyses the fiscal deterioration in Punjab since the early 1980s and the factors responsible for it. According to her, the fiscal crisis of Punjab state was caused by political, economic and administrative failure during the period of political turmoil in Punjab. The administration became non-functional, non-transparent and non-accountable, resulting in deterioration of tax collection and distorted expenditure patterns. She presents empirical evidence that Punjab state continues to falter on fiscal indicators and to borrow heavily to finance its liabilities. The rising debt burden and falling capital expenditure have reduced the capacity of the state government to direct economic activities and to provide basic social overhead capital, resulting in decline in the economic growth of Punjab’s economy.

The analysis of fiscal imbalances of Punjab shows how the fiscal performance of the state is lacking: except for fiscal deficit targets, the state has failed to achieve the targets recommended in its own fiscal responsibility legislation. Punjab achieved the debt targets in the last 2 years of the study period but only by excluding the share of contingent liabilities from the total debt. If contingent liabilities are included in the total outstanding debt the picture changes completely and debt including contingent liabilities was 50.74 and 49.75 % of GSDP for the years 2010–11 and 2011–12, respectively.

The continued deterioration in the finances of Punjab’s government is a worrisome feature and the author identifies the root cause in populist measures of successive governments such as irrational subsidies and discretionary distribution of grants. The author has suggested policy measures to fix the fiscal crisis of the Punjab government such as revenue augmentation, expenditure rationalization and inclusion of the revenue generated by the government from various fees and taxes in the consolidated fund. The suggestions made in the study are significant and show possibility for improvements in the state’s fiscal policy.

1.7 Perspectives on Rejuvenation of Punjab Economy

For quite a long period of time, Punjab’s economy has displayed a range of problems, including slowing growth, greater inequality and environmental degradation. Policy makers suggested dramatic changes in public policy to arrest the downturn of Punjab’s economy, especially after the mid-1980s. A major component of the suggested strategy was diversification of agriculture, but there have been other aspects of change that have been considered. The debate has involved economists across the spectrum and the government of Punjab has also sought the advice of experts from think-tanks and research institutes for economic policy innovation. However, these reports and individual suggestions have tended to gather dust in the corridors of power in the state. Twenty-two independent economists, who had been intensively involved in the economic analysis of problems of Punjab’s development experience, gathered at Punjabi university several years ago, arrived at a minimum consensus and suggested public policy measures for the rejuvenation of the Punjab economy (CDEIS 2012). But Punjab is a typical case of public policy paralysis. It is trapped in a vicious cycle. It seems that more forceful attempts are required to break this vicious cycle. In this vein, two contributions are included in this section, both of which seek to provide some strategic vision for reshaping policy and overcoming public policy paralysis.

Sucha Singh Gill, in Chap. 20, has examined the ineffectiveness of economic policy, identified obstacles and provided a strategy and vision for successful transformation of the Punjab’s economy. Firstly, the contribution of this chapter is that it brings out the factors responsible for agrarian distress. Both internal and external factors have been identified that have made the agriculture sector distress-prone. It is argued that frequent natural calamities, breakdowns of market clearing mechanisms, price volatility and absence of distress redressal mechanisms for the population engaged in agriculture have been the root causes of persistent agrarian crises. The existing system of compensation in terms of subsidies does not reach the distressed small and marginal farmers, but rather it is being captured either by well-to-do sections of rural society or by intermediaries.

Secondly, the author gives an account of the policy for diversification of agriculture recommended by three committees (Johl 1986, 2002; Kelkat 2013), shows how this policy was flawed and provides some reasons why it has not succeeded. The long-term involvement of the government and experts to fine-tune the public policy of diversification of agriculture of Punjab, combined with its ineffectiveness in delivering any tangible results, has been perceived by societal stakeholders as rhetoric. This resulted in credibility loss of both the experts who recommended the policy, as well as the government.

Thirdly, the chapter traces the history of the farmers’ movement for social mobilization to confront the problems faced by agricultural development and the articulation of the movement’s leadership to provide a vision for future of agriculture. An important finding that emerges from this discussion is that there has been a high-level consciousness of the farmers’ movement in innovating an agenda for farmers to involve themselves in production, processing and marketing of agricultural produce, and in linking agriculture with industrialization of the Punjab economy. The farmers’ organization (Bhartiya Kisan Union) has also been aware of the fact that it has to involve private sector firms and multinational corporations in the process of linking industry with agriculture. It has proposed that these agribusiness firms should be located in rural areas and provide employment to the local rural workforce. However, although this proposal was in consonance with national policy, local interests both in government and the bureaucracy did not create a supportive institutional framework and the proposed vision of the farmers’ organization could not be tried out.

Finally, the contribution of this chapter is in providing a strategic vision for future agriculture development policy. The author has argued that while formulating a future agriculture diversification strategy, farmers’ organizations should be treated as partners in formulation and implementation of policy and in designing supportive institutional mechanisms. It is, thus, suggested that the state’s political parties should awaken to the agrarian agenda, while farmers’ organizations must engage themselves in a strategy of struggle and reconstruction. To realize the goal of transformation of Punjab economy, it is imperative to build linkages between agriculture and industry while involving all the stakeholders in the state economy.

Nirvikar Singh, in Chap. 21, has provided a framework for envisioning Punjab in the twenty-first century. In his chapter, Nirvikar Singh suggests that Punjab is trapped in a political and economic equilibrium that, if not broken, will lead to environmental disaster and economic stagnation or worse. He discusses possibilities for creation of new industries and services in Punjab, and the role of some form of industrial policy. Any such path will require heavy investments in education. The discussion includes a consideration of the state’s political economy, including societal and cultural fault lines, which increases the practical challenges of formulating and implementing economic policies that may lead to positive changes.

In considering the possible future of Punjab’s economy, however, it is also important to consider the changing national context. For example, the national focus on “Make in India” and avowed goals of improving the environment for doing business might give Punjab’s state government some opening for changing how it addresses the problems that businesses in Punjab, whether manufacturing or services, have in getting started, growing, and reaching national and international markets. The new NITI Aayog, which has replaced the Planning Commission, might be able to provide additional expertise for infrastructure project planning. The explicit commitment in the last budget to creating a national agricultural common market may signal a willingness to change the system which supports, but also limits Punjab’s agrarian economy.

Nirvikar Singh’s chapter emphasizes the negative effects of recent (as opposed to Green Revolution-era) interactions between the Center and the Punjab government, but the new regime may provide political space for a less adversarial future. For example, the current Chief Minister of Punjab is heading a NITI Aayog committee to look at the question of making skill acquisition a fundamental right for everyone. There are obvious problems with this goal, but the participation of the Punjab CM in the national push for skill development is a potential positive signal. Similarly, the CM’s daughter-in-law, who is Minister for Food Processing Industries at the Center, is trying to spur a previously stalled effort to create large-scale food processing parks nationwide, including in Punjab. It is possible that these kinds of efforts will also just degenerate into the kind of rent-seeking that has plagued the Punjab economy over the past two decades, but there is also a possibility that national resources and expertise can be used more to aid in Punjab’s needed economic transformation.

Nirvikar Singh’s chapter suggests that radical and urgent policy actions are needed, and the two examples of Punjab politicians acting on the national stage may not be enough to represent the kind of significant change that is needed, of course. The apparent prevalence of drugs and alcohol in the state, and the cushion of remittances from non-resident Punjabis may also work against positive change. If the experience of other Indian states is a guide, however, more effective political competition at the state level, and a better articulated demand for economic progress from the state’s population may be the necessary condition for radical change in governance and in economic performance.

1.8 Conclusion

Punjab’s economy, for a significant period of time, has been trapped in relative economic stagnation, political apathy and public policy paralysis. The 20 following chapters in this volume present an authoritative assessment of the complex and multidimensional challenges of the Punjab economy. Each contribution provides scholarly analysis and offers policy solutions relevant to the ground realities. Overall, this volume articulates a consensus on the need for affirmative policy actions for an economic revival of Punjab, with ecological sustainability and political stability. This consensus envisions a Punjab for the twenty-first century and suggests the nature of the needed transformation of its economy and polity. However, the magnitude of the necessary changes is such that the state government alone is unlikely to have the requisite capacity. Therefore, the involvement of the Union government, private sector, civil society and even the diaspora is likely to be required. On its own, however, the state government can improve economic governance by removing destructive subsidies and rationalizing fiscal policy. It is also to be hoped that this book provides some more general perspectives on the challenges of overcoming roadblocks to economic transformation of a developing economy and that it will generate wider debate in some areas of development economics.