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Trend and Pattern of Structural Changes in Punjab and Indian Economy:

Policy Implications

    Punjab’s economic growth rate has been conventionally lower than of India over the past three decades. There has been improved growth in agriculture and industry especially manufacturing, but it is slumping in the tertiary sector. It need not unquestionably follow the growth pattern as of India which is service-led, but it is important that the state’s comparative advantages are diagnosed and better utilized. For that to happen, the State and the Union government of India needs joint efforts to abolish the constraints in realizing the potential. They need to deal with the complications posed by the functioning of the macroeconomic policies, i.e. monetary and fiscal policies. People want a corruption free state, increased transparency, equality, impartiality and rule of law and an accountable administration. The government’s role should be curbed to that of an effective facilitator and coordinator of the process of growth (good governance). Punjab economy has experienced deceleration of economic growth in the post-reform period as opposed to acceleration of economic growth of the national economy as well as majority of the major states of the country. The major constraints that have encroached upon the development process of the Punjab economy are structural rigidities, macroeconomic policies, low investment-GSDP ratio, human capital development, demand and supply factors and non economic factors such as social, political and an active international border.

    The government should aim towards the diversification of agriculture, as this is of considerable importance to Punjab due to its agrarian nature. Steps should be taken to rejuvenate the primary sector due to the crisis in the farm sector. Punjab is also deficient in primary resources. For example, there are no coal, mineral or fossil fuel deposits that can be tapped. The major industries are textiles and readymade garments, motor parts, cycle and cycle parts and manufacturing of various food products. The real growth potential in future is anticipated to be in agro-processing. Hence, the government should accentuate on the secondary sector of Punjab to lead the growth process further. A relevant institutional mechanism and financial institutions should be diversified to help the sick industrial units. The major deceleration in agricultural growth had a dampening effect on the industrial sector in Punjab in the 1990s. The primary challenge in the development of industry is due to Punjab’s land being highly fertile and expensive as compared to other parts of India, thus making this sector relatively uncompetitive. A number of existing industries in Punjab are dominated by the small scale sector. The industrial scenario in Punjab has suffered from the lack of modernization of the small scale units, which contribute about half of the total industrial production in the state. The Government of India should also set up special economic zones (SEZ), for association with the global market with focus on the export of industrial products. It is crucial to set up industries in the large and medium sector in the state for their balanced growth. Apt facilities and incentives should be provided to multinational companies (MNCs) to set up manufacturing facilities in the state, especially in agro-food processing, light engineering and electronic hardware industries. NRIs should also be encouraged to invest in the state.

    Regional disparities within the districts of Punjab should also be removed. There is growth potential in the services sector so opportunities should be tapped to stimulate income and employment.

    In conclusion, it may be stated that Punjab has to evolve a model of its own, based on its limited natural resources, ample human resources, wide base of agriculture and small-scale industries and with many opportunities available in the field of Information Technology. All the potential that exists can be realized with the help of clear policy directions, which are required to be given to tap these resources. Once this is mobilized, the sky is the limit.

Is MGNREGA really meant to reduce the inequalities in India?

MGNREGA, an acclaimed policy initiated in 2006 by the then UPA government (under the leadership of Congress); aimed to reduce the economic inequalities in India. It provided job to the rural people for a minimum period of 100 days in a year at a minimum wage rate. The job was principally for the unskilled labour to provide them with a source of living. However, there is ambiguity related to the policy actions: whether the policy has sincerely reduced income inequalities or increased them.

The intention of MGNREGA cannot be doubted. It is considerably a ‘positive step in a negative way.’ Positive step because it provides a means of livelihood to those who don’t have any. While on the other hand, nothing productive is coming out of it and hence increasing the pressure on the government.

MGNREGA has increased economic inequalities since the past few years, supported theoretically by economics. Unskilled job opportunities are put forth the people, thus this is not increasing their skills in any way possible. In other words, people are being paid for doing nothing productive. This results in increased purchasing power, with no increase in the supply of goods. The demand being greater than supply (excess demand), leads to a rise in prices, therefore there is a boost in the price level. This increase in the price level, commonly known as inflation, majorly hits the lower sections of the society. This brings us back to square one. Where the government assumes MGNREGA to be a very innovative policy, from an economist’s point of view, the situation has worsened.

MGNREGA, could have been initiated in a much productive way by helping the poor sections of our society. The concept of this act should merge with the concept of ‘on-the-job training’. In that way, it can provide the rural unskilled workers with training in a specialised skill, and also it can help people in gaining/acquiring a permanent job for not just 100 days in a year, but till the time he/she is willing to work.

Financial Inclusion: In a more enhanced way

Financial inclusion is being considered to be one of the most important pillars for the economic growth process in our country since the last one decade. The government of India and the Reserve Bank of India needs to take stringent measures to make our economy financially inclusive. For achieving the same, both quantitative and qualitative measures have to be undertaken; taking into consideration the diverse attributes of our nation.

The banks here have a very important role to play in such a strategy. However, they are usually hesitant in contributing towards the same, taking in view the risks associated with the micro credit services. Usually micro credit schemes are meant to enhance the economic position of economically weaker sections. As a result, the cost of providing them the service is much higher as compared to the other situations. Also, the authorities regulate the commercial banks regarding the interest rate caps, which may have a direct affect on their profitability. Such caps should be removed and instead a target should be given to the banks so that they can achieve that in their own way.

Also, various skill enhancement trainings and awareness programmes should be organised. The rural uneducated class can learn to accustom themselves to the formal sources of finance, rather than depending on the informal ones. Easy accessible and affordable “credit plus services” should be provided to the socially and economically excluded.

Due to the limited amount of transactions done by the poor, a ‘simple to use’ cash dispensing and collecting machines, similar to the ATMs (with clearly mentioned operational instructions) should be set up. This would enhance financial inclusion in rural and semi-urban areas.

Banks can facilitate the financial inclusion process by enrolling SHGs on a large scale. This can be done through bank linkage programme, designing appropriate product on the basis of requirement of a particular group of borrowers, BF and BC models should be used more rigorously and rural branches should be inspected more regularly.

To conclude, financial inclusion is a major step to reduce poverty in India. For doing this, banks and other financial institutions should be provided with more freedom to incorporate low income consumers and still earn profits. Financial institutions should also stress on financial literacy programmes to accelerate the financial inclusion strategy in the economy. The contributions by Government of India and all financial institutions would open gates to a far greater degree of financial inclusion and hence lead the country on the path of growth.

Aam Aadmi Party: From all Angles

The Aam Aadmi Party, a champion of the “common man”, has a determined objective to abolish corruption. The persisting inflation, nearly zero employment growth, crumbling infrastructure and investment growth have added discomfort to every man. Its abrupt popularity is threatening the dominance of the two main parties of India, namely, Congress and Bharatiya Janta Party.

The leaders of this party have started implementing their campaign promises- by granting increased subsidies for household electricity and water, and banning foreign investments in the supermarkets. Although they are not against Foreign Direct Investment (FDI), they want to allocate and exploit the existing resources efficiently in the economy. With the help of a government helpline, all corruption cases can be dealt with. Transport via the metro should be free for short distances.

Business leaders feel that this might affect the investment climate extensively; hence they are becoming agitated by the party’s leftist economic policies. All these demand colossal capital investments/ loans from nationalized banks. Consequently, infrastructure investments will slow, as will the economy.

AAP should plan to increase water for Delhi, and not make it cheaper. Acting on people’s wishes without proper planning is mis-governance. The party should show concern towards economic growth, jobs and sustainable prosperity along with investment in infrastructure, considering the current global situation.

AAP is also opting to work for reservations for the disadvantaged groups of the society, as reservations based on castes are extreme in India. But, India does not need more reservations and quotas; instead investments should be made in skill-building and mentoring. The caste and creed based reservation should come to an end and affirmative action has to step in to provide equal opportunities for everyone with merit as the sole criteria.

AAP prefers government ownership to give as many complimentary services as possible without considering the aftermath on the state finances and the state’s duty to build physical and social infrastructure while maintaining security.
The revelation of its national policies on several issues will create contradictions within their constituencies and will attract criticism from many quarters. What India needs is good governance. The corporate world is uncertain about how the political situation will play out.

The genesis of the AAP is gratifying because it brought out the disgust with corruption and the culture of entitlement among politicians. It might remodel our politics and politicians, as mainstream parties are compelled to embrace the AAP’s policies. But AAP will put the country back in its growth and development because of its illiteracy on economic matters.