Can Punjab Find a Way to Revive its Economy Amid Turmoil in AAP?

Once regarded as one of India’s most prosperous states, Punjab has been struggling with a severe financial crisis in recent years. The politics of freebies by Arvind Kejriwal’s Aam Aadmi Party (AAP) has worsened the financial situation inherited from the previous Congress government, pushing the state deeper into a debt trap.

While presenting the state’s annual budget in March, Finance Minister Harpal Cheema projected Punjab’s debt to reach Rs 3.74 lakh crore by the end of the 2024-25 fiscal. This would amount to over 46 per cent of the state’s total gross domestic product (GDP), estimated at Rs 8 lakh crore. Consequently, Punjab currently ranks among the top states with the highest debt-to-GDP ratio.

Economists argue that Punjab must adopt long-term measures to revive its economy and bring the state back on track. According to a recent paper by Sanjeev Sanyal, Member of the Economic Advisory Council to the Prime Minister (EAC-PM), and Aakanksha Arora, Joint Director, EAC-PM, among northern states, Delhi and Haryana have performed notably well, while Punjab's economy has significantly deteriorated since the economic reforms of 1991.

“Punjab and Haryana, which were once part of the same state, have experienced diverging economic trajectories. Punjab’s GDP share grew during the 1960s, mainly due to the Green Revolution, but then plateaued at around 4.3 per cent until 1990-91. It began to decline thereafter, finally reaching 2.4 per cent in 2023-24,” noted the paper. It also highlighted that Punjab’s heavy focus on agriculture contributed to a form of ‘Dutch disease’, hindering its transition towards industrialisation.

Rathin Roy, economist and former member of EAC-PM, echoes a similar concern. “Punjab is in a state of economic collapse, ever since it was cursed to become the provider of cheap food to the rest of India with the green revolution,” he says.

Given the situation, the Government of Punjab has been considering the enhancement of infrastructure in Amritsar, a city that attracts 3 crore visitors annually, to stimulate the state's economy. Despite its popularity as a tourist destination, the average spending per tourist in Amritsar is merely one-sixth of that in other tourism-focused states like Kerala.

A source involved in this initiative, who requested anonymity, informed Outlook Business that the state is optimistic about tapping into Amritsar's tourism potential to revitalise its economy. The government believes that with effective strategies in place, the city could play a significant role in Punjab's financial revival. However, the ongoing turmoil within the AAP government has led to a halt in these plans.

“Like every other state, Punjab is also conscious about its economic growth. The government was convinced about the idea of developing Amritsar into a tourist destination which can support the state’s economy. But the plan has been on hold after what happened in Delhi,” the source said.

The arrest of AAP’s face and leader Arvind Kejriwal in March dealt a massive blow to the party ruling both Delhi and Punjab. Kejriwal resigned earlier this month, just two days after being released on bail from jail in connection with the excise policy scam. In granting him bail, the Supreme Court has barred him from entering the Chief Minister’s (CM) office. Following his resignation, AAP member Atishi has stepped in to take his place in the office.

Due to this political crisis, the Punjab government is hesitant to take any major economic reforms at the moment, the source added.

Kejriwal is actively seeking public validation of his ‘honesty’ ahead of the upcoming Assembly elections in Delhi early next year, with his party shifting its focus entirely toward retaining power in the North. In such case, can Punjab navigate a way to address its economic woes?