The newly-formed NDA government is gearing up to present its first budget on July 23, 2024. This budget carries high expectations as it is anticipated to outline a five-year economic agenda and deliver substantial measures to meet the demands of stakeholders and states seeking assistance.
Discussions are underway regarding the reinstatement of special status for states like Bihar and Andhra Pradesh, with demands from the Janata Dal [United] and Telugu Desam Party (TDP) in exchange for their support for 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 infrastructure 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 landlocked border state? This expectation arises at a critical time when the state is experiencing a 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-nineties, neighbouring hill states like Himachal Pradesh reaped the benefits of a central special industrial package, while Punjab faced significant setbacks as many major players expanded and shifted their operations to these hilly states. The geographical disadvantage of being distant 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 industries have the potential to become an ‘engine of growth’.
Punjab inherited a fragile industrial base at the time of India’s partition in 1947, which was further eroded with the creation of Haryana in 1966. The 1980s and 1990s were tumultuous due to terrorism and social unrest, impacting industrial growth in the region. Currently, Punjab only accounts for 5 per cent of industrial units in the country, with a 3.6 per cent Compound Annual Growth Rate (CAGR) in the industrial sector over the last five fiscal years. In contrast, neighbouring states like Haryana have demonstrated higher growth rates at 5.9 per cent.
Punjab is positioned 10th with a score of 58.95 in the Export Preparedness Index (EPI) ranking for 2023, whereas Haryana holds the 5th position with a score of 63.65. It raises concern that 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, in terms of foreign direct investment (FDI), Punjab ranks 12th, having attracted only 0.49 per cent of FDI. This is in stark contrast to neighbouring Haryana, which ranks sixth with FDI equity inflows accounting for 4.17 per cent of the total inflows.
The erosion of industry is a pressing crisis in Punjab. Despite efforts by successive governments to attract investments, significant hurdles such as location disadvantage, law and order and frequent protests persist. One major issue is the location disadvantage, as Punjab’s distance from seaports makes its industrial operations non-competitive in the global market. Two years ago, CM Bhagwant Mann had announced in the Vision Punjab conclave of ASSOCHAM that Punjab aims to become the first state in the country to own wagons (Punjab on wheels), offering a potential solution to dilute the freight burden. However, the success of this endeavour depends on the support from both the Central and state governments.
Punjab is an exceptional hub for textile yarn, bicycles, hosiery, tractors, automobile components, sports goods, engineering goods, and leather. These industrial clusters possess immense potential and can be further strengthened. Ludhiana proudly leads as the top producer of blended yarn and hosiery, as well as the second-largest producer of polyester silk, fibre, and cotton yarn. It dominates woolen knitwear (95 per cent) and hosiery (65 per cent) exports, showcasing its strength in the global market.
Although China currently dominates the global export market with a 37 per cent share, India holds a 5 per cent share with significant potential for expansion in markets like the US, UAE, UK, Germany, France, and Australia.
Ludhiana also commands a remarkable 92 per cent of India’s total bicycle parts production and 75 per cent of bicycle production, securing its position as the leading exporter of bicycles from India with an 80 per cent share. While 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 burgeoning bicycle markets.
Jalandhar holds a solid 45 per cent share of the total production, with 75 per cent of the country’s sports goods being exported from the city. Despite China’s dominant position as the largest exporter of sports goods with a share of 42.2 per cent, India’s current 0.56 per cent share of global exports signifies the untapped potential for Punjab’s growth, with lucrative prospects in the US, UK, Brazil, Germany, Mexico, South Africa, Colombia, and Argentina.
Punjab plays a pivotal role, hosting one-third of total OEMs in the farm equipment segment and serving as the leading tractor manufacturer, contributing one-third to India’s production. With a commanding share in exports, Punjab stands tall as the largest exporter. Despite India’s current 2.2 per cent share, the potential for over two lakh tractors to be exported in the next three years to burgeoning markets such as Brazil, Argentina, Turkey, SAARC, and African nations is undeniable.
Wish List
Priority Focus on PLI: The Production Linked Incentives (PLI) scheme should be thoroughly re-evaluated to ensure that it delivers the intended impact on competitiveness and scale. Monitoring its progress closely is critical. The slow progress of the PLI scheme, especially in labour-intensive sectors like textiles, automobiles, and components, must be addressed urgently. To achieve broader goals such as enhancing exports, attracting significant investments, and generating employment, expanding PLI to new sectors like bicycles and sports goods is imperative to encompass the maximum number of MSMEs.
Assertive GST Rationalisation: There is an urgent need to rationalise the current GST structure to eliminate 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 farm implements is crucial to streamline the system.
Critical Focus on Logistics Cost: Competitive and efficient logistics are the foundation for industrial growth. Policy-backed support for state-owned wagons in landlocked border states like Punjab is essential to address the over-freight burden and provide a level playing field to manufacturing hubs. Incentivising labour-intensive and export-oriented industries in the upcoming budget is vital to drive the country’s economic growth and employment generation.
The author is vice-chairman of Sonalika ITL Group, vice-chairman (Cabinet minister rank) of the Punjab Economic Policy and Planning Board, chairman of ASSOCHAM Northern Region Development Council and president of Tractor and Mechanization Association (TMA). Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.
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