The newly formed NDA government is gearing up to present its maiden budget on July 23, 2024. This budget comes with high expectations as it is expected to outline a five-year economic agenda and deliver substantial measures to meet the demands of stakeholders and states seeking assistance.
Talks are underway to re-impose special status on states like Bihar and Andhra Pradesh, with demands from the Janata Dal (United) and Telugu Desam Party (TDP) in return for their support to the BJP-led NDA government. Andhra Pradesh Chief Minister Chandrababu Naidu has demanded Rs 1 trillion in aid to support the state’s industrial and infrastructural development.
The demand for Special Category Status for Bihar and Andhra Pradesh raises a crucial question: why should a similar approach not be adopted to accelerate and expand the industrial growth of Punjab, a land-locked border state? This expectation comes at a critical juncture when the state is experiencing significant divergence in its industrial activities due to stagnant growth and reduced exports. These circumstances call for new measures to catapult the state to greater heights.
In the mid-1990s, neighbouring hill states like Himachal Pradesh benefited from a central special industrial package, while Punjab faced significant setbacks as many big players expanded and relocated their operations to these hill states. The geographical disadvantage of distance from seaports has led to certain investment disadvantages and stagnant growth in the industrial sector. Today, Punjab demands a level playing field to compete on an equal footing as its key manufacturing sectors have the potential to become ‘engines of growth’.
Punjab inherited a fragile industrial base at the time of the Partition of India in 1947, which was further eroded by the creation of Haryana in 1966. The 1980s and 1990s were tumultuous due to terrorism and social unrest, which affected industrial growth in the region. Currently, Punjab accounts for just 5 percent of the country’s industrial units, with a compound annual growth rate (CAGR) of 3.6 percent in the industrial sector over the last five fiscal years. In contrast, neighbouring states such as Haryana have shown higher growth rates of 5.9 percent.
Advertisement
Punjab ranks 10th with a score of 58.95 in the Export Preparedness Index (EPI) ranking for 2023, while Haryana ranks 5th with a score of 63.65. Worryingly, Gujarat has the highest number of districts, eight, among the top 25 districts in terms of export share, followed by Maharashtra with five districts, Haryana with one and Punjab with none. Moreover, Punjab ranks 12th in terms of foreign direct investment (FDI), with just 0.49 percent of FDI. This is in stark contrast to neighbouring Haryana, which ranks sixth with FDI equity inflows accounting for 4.17 percent of total inflows.
Industrial erosion is a pressing crisis in Punjab. Despite efforts by successive governments to attract investments, significant hurdles such as locational disadvantage, law and order and frequent protests remain. A major problem is locational disadvantage as Punjab’s distance from seaports makes its industrial activities uncompetitive in the global market. Two years ago, CM Bhagwant Mann had announced at the Vision Punjab conclave of ASSOCHAM that Punjab aims to become the first state in the country to have wagons (Punjab on wheels), which offers a possible solution to dilute the freight load. However, the success of this venture depends on the support of both the central and state governments.
Punjab is an exceptional hub for textile yarn, bicycles, hosiery, tractors, auto parts, sports goods, engineering goods and leather. These industrial clusters have immense potential and can be further strengthened. Ludhiana boasts of its leading position as the largest producer of blended yarn and hosiery, as well as the second largest producer of polyester silk, fibre and cotton yarn. It dominates the export of woollen knitwear (95 per cent) and hosiery (65 per cent), which shows its strength in the global market.
While China currently dominates the global export market with a 37 percent share, India has a 5 percent share and offers significant opportunities for expansion into markets such as the US, UAE, UK, Germany, France and Australia.
Ludhiana also accounts for a remarkable 92 percent of India’s total production of bicycle components and 75 percent of bicycle production, securing its position as the leading exporter of bicycles from India with an 80 percent share. Though India lags behind China in bicycle exports, there is a clear potential to aggressively expand global exports with untapped opportunities in the US, European countries and Africa as emerging bicycle markets.
Jalandhar has a solid share of 45 percent of the total output, with 75 percent of the country’s sports goods being exported from the city. Despite China’s dominance as the largest exporter of sports goods with a share of 42.2 percent, India’s current share of 0.56 percent of global exports indicates untapped potential for Punjab’s growth, with lucrative prospects in the US, UK, Brazil, Germany, Mexico, South Africa, Colombia and Argentina.
video carousel
Punjab plays a crucial role, accounting for one-third of all OEMs in the agricultural machinery segment and as a leading tractor manufacturer, contributing one-third of India’s output. With a dominant share in exports, Punjab is highly regarded as the largest exporter. Despite India’s current share of 2.2 percent, the potential for over two lakh tractors to be exported to emerging markets such as Brazil, Argentina, Turkey, SAARC and African countries in the next three years is undeniable.
Wish List
Priority focus on PLI: The Production Linked Incentives (PLI) scheme needs to be thoroughly reviewed to ensure that it has the intended impact on competitiveness and scale. It is critical to closely monitor its progress. The slow progress of the PLI scheme, especially in labour-intensive sectors such as textiles, automobiles and components, needs to be urgently addressed. To achieve broader goals such as improving exports, attracting significant investments and generating employment, it is necessary to extend PLI to new sectors such as bicycles and sports goods to cover maximum number of SMEs.
Assertive GST Rationalization: There is an urgent need to rationalize the current GST structure to remove the complex hurdles created by multiple tax slabs. Transitioning from the existing structure to a simplified two- or three-slab framework and providing exemptions for previously exempted items such as agricultural implements is crucial to streamline the system.
video carousel
Critical focus on logistics costs: Competitive and efficient logistics form the basis for industrial growth. Policy-backed support for state-owned railcars in landlocked border states like Punjab is essential to address the freight burden and provide a level playing field to manufacturing hubs. Promoting labour-intensive and export-oriented industries in the upcoming fiscal is vital to boost the country’s economic growth and employment.
The author is Vice-Chairman of Sonalika ITL Group, Vice-Chairman (Cabinet Minister Rank) of Punjab Economic Policy and Planning Board, Chairman of ASSOCHAM Northern Region Development Council and President of Tractor and Mechanization Association (TMA). The views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect the views of News18.
Punjab plays a crucial role, accounting for one-third of all OEMs in the agricultural machinery segment and as a leading tractor manufacturer, contributing one-third of India’s output. With a dominant share in exports, Punjab is highly regarded as the largest exporter. Despite India’s current share of 2.2 percent, the potential for over two lakh tractors to be exported to emerging markets such as Brazil, Argentina, Turkey, SAARC and African countries in the next three years is undeniable.
Wish List
Priority focus on PLI: The Production Linked Incentives (PLI) scheme needs to be thoroughly reviewed to ensure that it has the intended impact on competitiveness and scale. It is critical to closely monitor its progress. The slow progress of the PLI scheme, especially in labour-intensive sectors such as textiles, automobiles and components, needs to be urgently addressed. To achieve broader goals such as improving exports, attracting significant investments and generating employment, it is necessary to extend PLI to new sectors such as bicycles and sports goods to cover maximum number of SMEs.
Assertive GST Rationalization: There is an urgent need to rationalize the current GST structure to remove the complex hurdles created by multiple tax slabs. Transitioning from the existing structure to a simplified two- or three-slab framework and providing exemptions for previously exempted items such as agricultural implements is crucial to streamline the system.
