The first budget by NDA-3 is anticipated to address the demands of stakeholders and States seeking assistance to bridge regional disparities
The NDA-3 government is gearing up to present its first budget on July 23. This budget carries high expectations as it is anticipated to outline a 5-year economic agenda and is expected to deliver substantially 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 Janata Dal (United) and Telugu Desam Party (TDP) in exchange for their support for the BJP-led National Democratic Alliance government. Andhra Pradesh's CM, N. Chandrababu Naidu, has demanded Rs one trillion to support the state's industrial and infrastructure development. The demand for special category status for Bihar and Andhra Pradesh poses the crucial question of why a similar approach should 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 demand 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 the 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% of industrial units in the country, with a 3.6% 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%. Punjabis positioned 10th with a score of 58.95 in the Export Preparedness Index (EPI) ranking 2023, whereas Haryana holds the 5th position with a score of 63.65. It raises concern that Gujarat has the highest number of 8 districts among the top 25 districts in terms of export share, followed by Maharashtra with 5 districts, Haryana with one, and Punjab with none.
Moreover, in terms of foreign direct investments (FDI), Punjab ranks 12th, having attracted only 0.49% of FDI. This is in stark contrast to neighbouring Haryana, which ranks sixth with FDI equity inflows accounting for 4.17% 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 Maan 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 woollen knitwear (95%) and hosiery (65%) exports, showcasing its strength in the global market. While China holds a dominant position with a 37% share, India is positioned with a 5% share in the global export market, and there is huge potential for expansion in export markets such as the USA, UAE, UK, Germany, France, and Australia.
Ludhiana also commands a remarkable 92% of India’s total bicycle parts production and 75% of bicycle production, securing its position as the leading exporter of bicycles from India with an 80% share. While India lags behind China in bicycle exports, there is 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% share of the total production, with 75% 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%, India's current 0.56% share of global exports signifies the untapped potential for Punjab's growth, with lucrative prospects in the USA, 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% share, the potential for over 2 lakh tractors to be exported in the next 3 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 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 Rationalization: There is an urgent need to rationalize 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. Incentivizing labour-intensive and export-oriented industries in the upcoming budget is vital to driving 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. Views expressed are personal)
