Punjab vs Haryana: A Comparative Analysis of GDP Growth

Analysis of Indian States' Economic Performance by the PM's Economic Advisory Council. Our Analysis: A Comparative Study of Punjab and Haryana with Policy Recommendations for Punjab.

AI_generated toggled map.

Introduction to the Working Paper of PM’s Economic Advisory Council

The working paper titled "Relative Economic Performance of Indian States: 1960-61 to 2023-24", authored by Sanjeev Sanyal, Member of the Economic Advisory Council to the Prime Minister (EAC-PM), and Aakanksha Arora, Joint Director, EAC-PM, presents a comprehensive analysis of the economic trajectories of Indian states over the past six decades. The 19-page paper explores the evolving contributions of states to India's GDP, providing insights into regional disparities and growth patterns. However, it is important to note that the facts and opinions expressed in the paper are solely those of the authors, and neither the EAC-PM nor the Government of India endorses the accuracy of the data or the interpretations presented.

Summary of State GDP Performance

The economic growth and share of GDP among Indian states have shown distinct patterns over the decades. Based on data from 1960-61 to 2023-24, the performance of states reveals some key regional trends:

• Southern states: After the 1991 liberalisation, Karnataka, Andhra Pradesh, Telangana, Kerala, and Tamil Nadu emerged as leading economic performers, contributing around 30% of India’s GDP by 2023-24. These states diversified their economies with strong growth in IT, manufacturing, and services sectors.

• Western states: Maharashtra and Gujarat have consistently maintained their strong economic positions. Maharashtra held the highest GDP share for much of the period, while Gujarat’s share grew rapidly post-2000, reflecting its industrial growth and investment-friendly policies.

• Northern states: Delhi and Haryana performed particularly well, with Delhi's GDP share rising from 1.4% in 1960-61 to 3.6% by 2023-24. Haryana too saw a significant increase, while Punjab, once an economic leader, experienced a sharp decline post-1991.

• Eastern states: West Bengal witnessed a continuous decline in its GDP share, falling from 10.5% in 1960-61 to 5.6% in 2023-24. Bihar, after facing significant challenges, has seen some stabilisation in recent years, though its overall share remains low.

• Central states: Uttar Pradesh, India’s most populous state, saw its GDP share decline from 14.4% in 1960-61 to 8.4% in 2023-24, despite its vast population. Madhya Pradesh, after a period of slow growth, has shown improvement since 2010, but its overall contribution to national GDP remains modest.

Detailed Comparison: Punjab vs Haryana

GDP Share

Punjab:

• 1960-61: 3.2% of national GDP

• Peaked at 4.4% in 1970-71 during the Green Revolution

• Plateaued around 4.3%-4.4% until 1990-91

• Declined thereafter, reaching 2.4% in 2023-24

Haryana:

• 1960-61: 1.9% of national GDP

• Increased to 2.7% by 1970-71

• Continued rising, reaching 3.6% in 2023-24

Punjab’s once-dominant position in the national economy, driven by its agricultural success, has eroded over time, while Haryana has steadily increased its contribution, particularly after the 1991 liberalisation when it diversified into industrial and service sectors.

Relative Per Capita Income

Punjab:

• 1960-61: 119.6% of national average

• Peaked at 169% in 1970-71

• Declined to 106.7% in 2023-24, lower than the 1960-61 level

Haryana:

• 1960-61: 106.9% of national average

• Increased to 138.5% in 1970-71

• Rapid rise post-1991, reaching 176.8% in 2023-24

These figures underscore Punjab’s relative decline in terms of per capita income. Once ahead of the national average, Punjab is now only marginally above, while Haryana has surged far ahead, reflecting the state’s success in diversifying its economy.

Analysis: Why Punjab is Lagging Behind

Punjab's decline can largely be attributed to its over-reliance on agriculture. The state’s economy did not adapt to the changing economic landscape post-liberalisation as effectively as Haryana’s. Environmental degradation, water scarcity, and stagnating agricultural productivity have further compounded Punjab’s economic challenges. Additionally, Punjab has struggled to attract significant industrial and service-sector investment, unlike Haryana, which capitalised on its proximity to Delhi and built a thriving industrial base, particularly in Gurugram and Faridabad.

Prescriptive Policies for Punjab

To reverse the trend of economic decline, Punjab needs to focus on economic diversification, infrastructure development, and policy reforms. Here are key prescriptions for the state:

1. Diversify the Economy

Punjab must reduce its over-reliance on agriculture. Promoting manufacturing, IT, and service sectors will bring stability and growth. Setting up technology parks, attracting investments in the IT sector, and encouraging innovation hubs will create employment and spur economic growth.

2. Infrastructure Development

Punjab’s infrastructure requires urgent modernisation to support industry and attract investment. Investment in transportation networks, industrial parks, and special economic zones (SEZs) will create a conducive environment for growth. Upgrading power supply and expanding telecommunication networks, including high-speed internet, is crucial for modern industries and services.

3. Focus on Skill Development

The state needs to upskill its workforce through vocational training and industry-relevant education. Partnerships between educational institutions and industries will ensure job-oriented training. Entrepreneurship development programmes and incentives for start-ups can also help foster a new generation of business leaders.

4. Attract Investment

Punjab must simplify its bureaucratic procedures and make it easier to do business. Introducing a single-window clearance system, reducing red tape, and offering tax incentives for new industries will encourage both domestic and foreign investments. Strengthening law and order and ensuring a business-friendly environment are equally important.

5. Promote Sustainable Agriculture

Agriculture will remain a key sector for Punjab, but it needs to become more sustainable. Crop diversification, reducing reliance on water-intensive crops, and promoting organic farming are necessary steps. Agro-processing industries can add value to the agricultural output, creating more revenue streams for farmers.

6. Leverage Tourism Potential

Punjab has immense potential in religious, cultural, and eco-tourism. Developing infrastructure around major historical and religious sites, as well as promoting new tourist circuits, can generate revenue and jobs. Eco-tourism and adventure tourism also offer untapped opportunities.

7. Strengthen Fiscal Management

Fiscal discipline is critical for Punjab's recovery. Rationalising subsidies, improving tax collection efficiency, and focusing on capital expenditure over revenue expenditure will strengthen the state’s financial position.

8. Engage with the Diaspora

Punjab's vibrant diaspora is a valuable resource for investment and innovation. The state should develop targeted policies to attract NRI investments, facilitate knowledge transfer, and promote Punjab as a global business destination.

9. Develop Urban Infrastructure

Punjab’s urban areas, particularly its larger cities, require comprehensive development. Smart city initiatives, satellite towns, and improved urban services will help accommodate growing populations and economic activities.

Summing Up

The comparison between Punjab and Haryana shows the stark economic divergence between the two states over the past decades. While Punjab enjoyed early success, its failure to diversify and adapt has led to its economic stagnation. Haryana’s focus on infrastructure, industry, and investment-friendly policies has positioned it as a stronger economic player. By implementing the recommended reforms and diversifying its economy, Punjab can reverse the decline and reclaim its position as a dynamic state in India’s growth story.