Abstract
In my study of the developing economies, I am often struck by the similarities of experience of economic growth between the Philippines and India. These parallels include the following. First, unlike most developed countries, the recent growth experiences of both the countries are driven by services sector, instead of manufacturing. Second, a large amount of the informal sector presently exists in manufacturing and agriculture. Third, the significant amount of market regulation had been imposed in both agriculture and industry, particularly in the form of agrarian and labour regulations, respectively.
In my interest to analyze these similarities, I have found the book Economic Transition of a Developing Economy: the Experience of Punjab, India, edited by Lakhwinder Singh and Nirvikar Singh, to be quite timely and useful. What this book uniquely offers is an incisive and comprehensive look at how economic transition, in this case, a service-led structural transformation, has affected a predominantly rural and agriculture economy. The book is organized in 21 contributed chapters and is systematically organized into seven sections. From the point of view of Punjab, India, the important points concerning the process of structural transition that emerged from the various chapters of the book can be cited as follows:
The first section of the book contains four chapters contributed by scholars such as K.N. Nair and Gurpreet Singh, R.S. Sidhu, Kamal Vatta and S.Z. Ali, Sukhpal Singh and Rita Pandey. The technical innovation emerging from the Green Revolution in agriculture which was introduced in the 1960s resulted in significant increases in agricultural productivity up to the 1990s; however, in recent years, the sector has experienced diminishing returns to scale and rising costs, resulting in a lower surplus. The increasing agrarian distress for farmers with small and marginal holdings and for rural labour followed from declining returns and rising costs, as well as the resultant reduced surpluses, causing decreased formation of human capital and lower economic capacity to generate sustainable livelihoods.
In wheat production, large-sized farmers achieved the highest frontier level of productivity compared with relatively low proportions of small- and medium-sized farmers, stressing the need for rationalization of cropping patterns especially for smaller farmers, while keeping in view the groundwater situation of the region.
With observed poor returns from diversification in small farms, the quasi-mono-culture of the wheat–paddy rotation of Punjab agriculture which is a highly specialized cropping pattern, adversely affected the groundwater balance and has severe environmental consequences, placing the sustainability of Punjab agriculture seriously under question.
Despite several regulatory instruments and economic sanctions to preserve the groundwater resources, Punjab has not been able to use such mechanisms optimally; on the contrary, it has encouraged over-exploitation of groundwater because of other interventions such as subsidized electricity and other forms of capital incentives.
The second section deals with agrarian markets and distributive justice and five scholarly chapters are contributed by H.S. Shergill, M.S. Sidhu, Anita Gill, Indervir Singh and Kamal Vatta and S. Pavithra. While the rest of India has been sticking to the traditional systems of tenancy as prescribed in the agrarian law, Punjab dramatically altered the course of its tenancy system to cash rent tenancy due to the adoption of a capitalist farming system with the land lessors comprising mostly small owners and absentee medium and big farmers and the lessees including medium and big farmers with modern capital-intensive techniques of production and appropriate expertise and capabilities to reap the highest benefits from high productivity from those plots of land.
The food procurement programme which is subject to the regulations including the widely implemented APMC Act of 1961 proved quite successful, with the construction of close to 2,000 purchase centres by 2014, thereby reducing the role of informal output markets and expanding the network of farm to market roads and reducing transaction costs in the post-harvest activities of farmers. However, a new class of middlemen emerged from the group of commission agents, acting as intermediaries, but was often involved in the money lending business and trapping the farmers in these interlinkage contracts to extract farmers’ surplus.
While there is a marked shift in the agrarian credit market from informal lenders to formal sources of finance due to various forms of government interventions, the informal lenders still remained active, and the extent of linking credit with other markets still persisted despite observed declines.
Recent high institutional loan default rates occurred due to repeated crop failures and farmers turned to commission agents, who with an eye on the land of borrowing farmers started lending without much screening and monitoring. When these agents used unfair practices to recover loans from defaulters, civil society organizations appeared on the scene to rescue the farmers. However, the involvement of civil society triggered further defaults, benefitting medium and large farmers rather than small and marginal farmers who became highly dependent on commission agents for meeting their credit needs.
Land remains the most productive asset available in the countryside. As per two primary surveys conducted in 2005–2006 and 2010–2011, access to land has increased for the top 10 per cent of farm households, but decreased for the bottom decile of farming households, resulting in increased Gini coefficients in land which means land inequality has only increased over time. It is also observed that education and income Gini coefficients have also increased, suggesting that these factors and land are closely related.
Aradhna Aggarwal, Varinder Jain and Inderjeet Singh contributed respect ively one chapter each in the third section. The structural transformation in India affected Punjab, causing a sharp decline in the agricultural sector’s contribution to the state domestic product, with the secondary sector maintaining its share but tertiary services fast gaining in share. Because of this, output in the state lagged behind relative to other states, and employment declined even in periods when growth was high.
Despite having a historical industrial base during the first decade of the twenty-first century, Punjab saw the more dominant role of the unorganized industrial segment, highlighting 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.
The gross state domestic product of the agriculture sector is losing importance while 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 as with respect to other states, Punjab is way behind in this shift. Agriculture is also seen to have very limited linkages with services which is the growth sector.
The fourth section of the book deals with an important theme of human deve lopment contains two chapters written by Jaswinder Singh Brar and Sukhwinder Singh. Despite its previous premier status as an agricultural region, Punjab, compared with major states of India in terms of literacy indicators, has been moving towards the bottom in terms of rates of improvement, lagging behind in terms of female literacy and literacy of the scheduled caste population. This was attributed to the state government’s neglect of the necessary infrastructure the quality of public schools.
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, allowing greater participation of the private sector in health and medical services. Consequently, with the rise of private health and medical services, the public health infrastructure has fallen behind due to deficiencies of public investment and other supporting services in public hospitals, adversely affecting the rural population in general and the rural poor in particular.
The fifth section has two chapters written by Shinder S. Thandi and Pritam Singh and examines the contribution of external factors in Punjab’s economic development. Agricultural growth remained heavily dependent on natural resources that have been over-exploited, resulting in an ecological crisis. The low level of investment was attributed to international border issues and the militancy movement of the 1980s. In effect, the Punjabi diaspora in various countries has thrived in professional, business and entrepreneurial activities, hence offering an alternative option for employment and contributing to the process of economic transformation of the Punjab economy if engaged through innovative policy initiatives.
The post-colonial economic development of Punjab has similarities with the British colonial period, mainly because of its role in providing for the national food requirements. The emphasis on agriculture, while directing government investment and enacting suitable institutional arrangements, was meant fundamentally to fulfil India’s need for attainment of self-sufficiency in food grain production. However, this goal has not been able to provide sustainable benefits to most of the poor population in Punjab.
A comparative analysis of fiscal policy presented in the sixth section contains two chapters contributed by Tapas Sen and Upinder Sawhney. Taking various indicators of fiscal health of the state’s economy and comparing it with other states, Punjab’s fiscal performance is poor given its higher level of per capita income and low level of poverty, exhibiting a perverse combination of a relatively high-income state with public finances that have been under stress for a long time.
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. 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.
In light of these assessments, the last two chapters of the book offered a set of recommendations that could rejuvenate Punjab’s economy. The chapter of Sucha Singh Gill points to the importance of inclusive growth by stressing the role of farmers’ movement in designing 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. On the other hand, the chapter of Nirvikar Singh calls for the formulation and development of an industrial policy that will complement the agricultural productivity in Punjab. More importantly, the issue is how the national programme of structural transformation can be modified in order to take account of the interest of agricultural states such as Punjab. According to the author, the negative effects of recent (as opposed to Green Revolution era) interactions between the centre and the Punjab government can be mitigated if the central government can provide political space the constituent states a less adversarial future.
The book’s main contribution is in enumerating all of these factors that can affect Punjab’s development. The book suggests that a thread that ties up all of these is the technology that underpins Punjab’s agricultural sector. The point is that the national structural transformation to be sustainable has to begin and end with the increase in the labour productivity of workers in the primary sector. Otherwise, the structural transformation that is being pursued nationally can cause distortions at the local level. Decisions that may be rational at the national level can be non-optimal at the local level, causing both inefficiency and inequality at both the central and state levels.
In order to ensure that the structural transformation does not cause any distortion in the economy, the process should lead to a convergence between the rural and the urban sectors and between the poor and the rich segments of the population. As history and portions of this book claim, it is necessary to integrate movements in the service sector with those of the agricultural sector. In order for this linkage to happen, technological innovation in the primary sector has to occur.
Economic development requires continuous introduction of new and better technology to an existing industry. Most households as in the case of India and the Philippines depend on agriculture for their livelihood. Improvements in agricultural technology are then necessary to increasing farmers’ income and reducing poverty. At the same time, economic development also requires continuous diversifying and upgrading from existing industries to new, more capital-intensive ones. A feature of development then is structural transformation that leads to a declining share of agriculture in value added in the economy (share of GDP) and employment (share of the labour force). Without such a structural transformation, the scope for sustained increase in per capita income will be limited. Hence, innovation and structural transformation are two elements of the same pod.
This book will surely benefit economists and researchers of countries whose structural transformation is still being designed. For the Philippines, which share many similarities with India, this book can be a good reference point.