Resuming Punjab's Prosperity The Opportunities and Challenges Ahead Poverty Reduction and Economic Management Sector Unit South Asia Region The World Bank 2004 ABBREVIATIONS AND ACRONYMS APDRP Accelerated Power Development & Reform O & M Operation & Maintenance Programme OAP Old Age Pension ARR Annual Revenue Requirement OPD OutPatient Department ATI Administrative Training Institute PAC Public Affairs Center BDO Block Development Officer PA.C Punjab Agro .oodgrains Corporation BOT Built-Operate-Transfer PAU Punjab Agricultural University BPL Below Poverty Line PCB Pollution Control Board CEO Chief Executive Officer PCS Punjab Civil Service C. Contract .arming PERC Punjab Expenditure Regulatory Commission CII Confederation of Indian Industry P.C Punjab .inancial Corporation CIS Common Wealth of Independent States PHC Public Health Center CPSU Central Public Sector Undertaking PHSC Punjab Health System Corporation CSA Competent State Authority PIDB Punjab Infrastructure Development Board DEO District Education Officer PII. Punjab Infrastructure Initiative .und DIT Department of Information Technology PLA Personal Ledger Accounts DRDA District Rural Development Authorities PNDT Pre-Natal Sex Determination Test DSP Deputy Superintendents of Police PPSC Punjab Public Services Commission .CI .ood Corporation of India PRI Panchayat Raj Institutions .D .inance Department PSEB Punjab State Electricity Board .IR .irst Information Report PSIDC Punjab State Industrial Development .OI .reedom of Information Corporation .RBM .iscal Responsibility and Budget PSU Public Sector Undertaking Management Act PTA Parent Teacher's Association .RP .inancial Restructuring Plan PUDA Punjab Urban Development Authority GoI Government of India PWD Public Works Department GoP Government of Punjab RBI Reserve Bank of India GP Gram Panchayat RTI Right to Information GSDP Gross State Domestic Product RTO Regional Transport Office HMIS Health Management Information System SC Scheduled Caste IAS Indian Administrative Service SDP State Domestic Product IG Inspector General SEB State Electricity Board IIPA Indian Institute of Public Administration SERC State & Expenditure Review Commission ITI Industrial Training Institutes S.C State .inance Commission MDG Millennium Development Goals SHO Station House Officers MKSS Mazdoor Kisan Shakti Sangathan SIDBI Small Industries Development Bank of India MLA Member of Legislative Assembly SP Superintendent of Police MMR Master Manpower Register SRO Sub-Registrar's Offices MoU Memorandum of Understanding SSC Subordinate Services Commission MSP Minimum Support Prices T & D Transmission & Distribution MT.P Medium-term .iscal Program T.P Total .actor Productivity MT.PS Medium-term .iscal Policy Statement UPSC Union Public Services Commission N.HS National .amily Health Survey VEDC Village Education Development Committees NGO Non-Government Organization VRS Voluntary Retirement Scheme NOC No-Objection Certificate WAN Wide Area Network NSSO National Sample Survey Organization ZP Zilla Parishads ACKNOWLEDGMENTS T he Report has been prepared by Vikram K. The team undertook a wide range of consultations Chand and Deepak Mishra, with significant at various stages of preparation of the Report with the contributions from the following Bank staff and Government of Punjab and other stake-holders. The consultants in the form of Technical Notes : team would like to especially thank the Chief Minister Deepak Ahluwalia (Agriculture), Paolo Belli Captain Amarinder Singh, Finance Minister Surinder (Health), Bhavna Bhatia (Power), Parminder Singla and Chief Secretary J. S. Gill for their cooperation Brar and Papia Bhattacharya (Financial and guidance during the preparation of this Report. In Management), Prema Clarke (Education), Luis addition, the team would like to thank the following Constantino (Decentralization), Bishwanath current and former GoP officials: S.C. Agrawal, B. R. Goldar (Productivity), Sumir Lal (Political Bajaj, Rupan Deol Bajaj, Anjali Bhawra, A. K. Dubey, B. Economy), Syed Mahmood (Investment Climate), C. Gupta, D.S. Guru, Mukul Joshi, Nirmaljeet Singh Rinku Murgai and Radhika Nayak (Poverty), Kalsi, Ravneet Kaur, Sarvesh Kaushal, J. S. Kesar, K.R. Mona Prasad (Fiscal), M. Govind Rao (Tax Lakhanpal, Vini Mahajan, R.C. Nayyar, Y.S Ratra, D. P. Policy), Ismail Radwan and Jet Riparip (Health), Reddy, Kusumjit Sidhu, Himmat Singh, Jaspal Singh, Deepa Sankar (Education), N. C. Saxena Tejveer Singh, A. R. Talwar, Jaspreet Talwar, G. (Governance), S. K. Sudhakar (Health), Narayan Vajralingam, and P. K. Verma among others. The Valluri (Tax administration), C. Veeramani generosity of the Government of Punjab in sharing (Productivity) and Varalakshmi Vemuru (Gender). information and images that have been used in this The team was assisted by Vidya Kamath and Report is gratefully acknowledged. We also acknowledge Shahnaz Rana. The work was carried out under the use of photographs taken by Pallava Bagla. the direction and management of Sadiq Ahmed, Michael Carter, and Ijaz Nabi. Saumitra The design of the cover page, layout of the inside Chaudhri, Indermit Gill, and Homi Kharas pages, editing and print production was carried by provided insightful comments on the manuscript. Macro Graphics Private Limited, New Delhi. Table of Contents EXECUTIVE SUMMARY 1 PUNJAB'S DEVELOPMENT: PER.ORMANCE AND PROSPECTS 11 A Brief History of Punjab 14 Millennium Development Goals: Levels and Trends 15 Employment and Social Structure 20 Migration: A Two-Way Boon 21 Economic Growth, Investment Climate and Productivity 22 State .inances: Breaching Sustainability 26 Tax Policy and Administration 30 Infrastructure : Power and Road Sectors 31 Service Delivery and Governance 33 MAJOR CHALLENGES TO PUNJAB'S PROSPERITY 37 The Debilitating Impact of Civil Strife 39 Improving the Working of the Civil Service 42 Enhancing the Quality of Service Delivery 47 Contents Corruption 50 A Growing Culture of Populism: Subsidies Have Crowded-out Public Investment 51 Investment Climate: The Problem of Regulatory Burden and Infrastructure 54 Weak Policy-Making and Managerial Capacity 57 THE GOVERNMENT O. PUNJAB'S RE.ORM PROGRAM 59 of .iscal Policy and .inancial Management 61 Power Sector Reforms 62 Administrative Reforms 63 Tackling Corruption 64 Reforms to Improve Service Delivery 66 Reforms to Improve the Investment Climate 68 Diversification Program in Agriculture 71 Overall Assessment of the Reform Program 71 REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES 73 Measures to Restore .iscal Balance 75 Measures to Improve the Investment Climate 78 Improving Governance and Service Delivery 82 Table Implementation Challenges 89 TECHNICAL NOTES PREPARED .OR THE PUNJAB DEVELOPMENT REPORT 91 DATA APPENDIX 93 Executive Summary EXECUTIVE SUMMARY PUNJAB'S DEVELOPMENT: only 874); and although it has a growing and large PER.ORMANCE AND PROSPECTS middle class, the quality of public services remains A successful past, but an uncertain future stubbornly poor. Punjab's fortune also seems to be at P unjab is India's most prosperous and developed variance with the rest of the country: The state grew state with the lowest poverty rate. At the end of rapidly (6 to 7 percent per annum) when much of the 1990s, more than 94 percent of Punjab's citizens India was wedded to a low rate of growth of 3 were above the poverty line, 70 percent were literate, percent per annum and it's economy slowed down 94 percent of the six year olds were enrolled in after the mid-eighties when the rest of India took-off primary schools, 72 percent of children under twelve on a higher growth path. 3 months were immunized, 99 percent of households had access to safe drinking water, and the average life Not surprisingly, given the mixed results, there expectancy of its citizen was 68 years. The remarkable is a sense of uneasiness regarding what the future development record of Punjab can also be inferred holds for Punjab. Concerned citizens of the state from the fact that it has already achieved, or is well on wonder whether the younger generation will grow up track to achieve, most of the Millennium in the most affluent and developed state in the Development Goals (MDGs). According to India's country like their parents and grandparents once did. National Human Development Report (2001), Will the heady days of the 'green revolution' ever Punjab was ranked second only to Kerala in terms of return to Punjab? Will the state be able to hold on to the overall level of human development among the the impressive gains made on the socio-economic major Indian states. Most citizens of Punjab have thus fronts? Such anxieties are not without reason: the already achieved a level of socio-economic status that state's public finances are under severe stress, the the majority of Indian citizens are unlikely to economy has stagnated, employment opportunities experience in their lifetime. are shrinking, the quality of public service delivery is deteriorating, interest groups are growing in Yet in many ways, Punjab's development influence and human development indicators are experience is paradoxical: Its private sector is one of beginning to languish or even deteriorate. the most prosperous in the country, but its government is highly impoverished; it has virtually Three areas of concerns: growth slowdown, eliminated the gender gap in primary education, yet fiscal crisis and deteriorating public services suffers from the problem of widespread sex-selective After a spectacular growth rate during the sixties abortions and female infanticide (the gender ratio is and the seventies, the Punjab economy began to slow RESUMING PUNJAB'S PROSPERITY down in the late 1980s and decelerated further during subsidy. As a result, state finances are now bordering the 1990s. Its per capita income grew at an annual on bankruptcy. average rate of 2.1 percent during the 1990s - significantly below the national average and the third Punjab's tax performance compares unfavorably lowest growth rate among major Indian states. Much with other Indian states, both in terms of the level of of the growth slowdown originated from the revenue raised and in its growth. Its tax revenue to agriculture sector - its output grew at a trend rate of GSDP ratio (around 7 percent) is lower than the 2.6 percent per annum in the 1990s compared to the average for both the high- and middle-income states all-Indian average of 3.2 percent, and almost half the and only marginally higher than the average of the low- growth rate of 5 percent per annum in the 1980s. income states. The buoyancy of its tax revenue is the Worse, current agricultural practices seem to be lowest among the major states except West Bengal. The environmentally unsustainable: Punjab now has the annual compound growth of its tax revenue is lower highest percentage of groundwater exploitation in the than the average of the low, middle or high-income country and also the largest percentage of over- states. There also appears to be substantial under- exploited and dark blocks. Extensive use of registration of dealers in Punjab and the reported nitrogenous fertilizers and pesticides has led to turnover by dealers appears to be systematically increasing nitrate concentration and accumulation of suppressed. If the average turnover of dealers in pesticide residues in soil, water, food, feed and other Karnataka is assumed to be a fair value of the actual agricultural produce, often above tolerance limits. turnover of dealers in Punjab, the extent of under- Industrial growth has remained largely between 5 to taxation in Punjab could be as high as 50 percent, i.e., 6.5 percent during the last decade and half, a whopping Rs. 1,500 crores each year. An alternative 4 considerably below the performance of some of the measure of under-taxation shows that, in comparison more industrialized states in India. Punjab's share in to Haryana, the annual sales tax revenue shortfall in India's total foreign investment is a meager 0.7 percent Punjab could be nearly Rs. 700 crores. and the state has clearly lagged behind other high- income states in creating a healthy investment climate. Despite its high per-capita income and very high per capita expenditure levels, Punjab does not Punjab has the dubious distinction of being the score well in terms of service delivery outcomes. A most prosperous as well as one of the most indebted recent perception survey by the Public Affairs Center states in the country. Its government-debt to Gross (PAC) places Punjab in eleventh place in the quality State Domestic Product (GSDP) ratio, at 42 percent of service delivery across 16 major Indian states. In in 2002/03, is 163 percent of the level in Haryana most services, Punjab has been ranked lower than all and 235 percent of Maharashtra, two states with the middle and high-income states and even worse similar per capita income as Punjab. Its hidden than some of the low-income states like Madhya liabilities - arrears, delayed payments, unfunded Pradesh and Uttar Pradesh. In education, where it liabilities and contingent liabilities that are likely to was ranked at the bottom of the group, the poor be realized in the medium-term - are estimated to be quality of the government system is evident from the around 20 percent of GSDP. According to the weak performance of public school students in the Government of Punjab (GoP)'s White Paper on State Board Examinations. Only 53 percent of students Finances (2002), the Government has been were successful in the Class 10 exams in 2002. Public borrowing primarily to finance its current school students perform worse than their consumption, i.e., to pay for the growing salaries, counterparts in private schools at all levels of the pensions, interest payments (which together have system. Similarly, households surveyed in the 1998- accounted for all revenue receipts since 1996/97) and 99 National Family and Health Survey (NFHS) EXECUTIVE SUMMARY consistently rate the quality of public health services decelerated as well, and fell by half, between 1987/88 lower than the care provided by the private sector. and 1992/93. Even the agricultural growth rate Absenteeism among educational and health workers plummeted from around 6 percent per year to 2 is a serious problem in Punjab. On an average, on percent during this period due to decline in long- any day, 36 percent of Punjab's primary school term investment associated with the uncertainty teachers and 39 percent of doctors are absent from surrounding militancy activities. Our calculation their workplace. Poor supervision, inadequate shows that the output loss suffered by Punjab on incentives, and lack of penalty mechanisms for errant account of militancy activities could be as large as Rs. service providers are to be blamed for such high levels 13,000 crores in today's prices (equivalent to 29 of absenteeism. percent of today's GSDP). MAJOR CHALLENGES TO The impact of insurgent activities on the fiscal PUNJAB'S PROSPERITY situation was felt through three channels: Some of the developmental challenges facing expanding state apparatus and rapid growth of state Punjab are common across many Indian states. The administration, mounting revenue expenditure to perceived decline in public services, the maintain law and order, and the inability on part of administrative and governance challenges, the the government to enforce effective tax problems associated with the power sector and the administration, given the deteriorating law and growing culture of appeasement (through across the order situation, especially in rural areas. The board subsidies) by the political class are some of the government's desire to expand job opportunities challenges that Punjab shares with other Indian during a period of social turmoil led to a major states, though even here the extent and nature of the spurt in the size of the civil service: it expanded by 5 problems vary greatly in Punjab. more than 3 percent each year between 1987/88 and 1992/93. The growing bureaucracy and higher But at the same time there are certain elements expenditure had its toll on revenue expenditure, of uniqueness to its problems. Punjab has had a which shot up by 2-3 percentage points of GSDP turbulent history: Its borders have been redrawn during this period. The rising expenditure was twice in the modern era; it has been under financed by additional borrowing from the Centre President's rule longer than any other Indian state; and by the time Punjab returned to normalcy, its and it has been a witness to three wars, one of the interest payments as a ratio of GSDP had doubled. bloodiest ethnic conflicts in India's history and Even to this day, an amount close to Rs. 8,000 decade and a half of terrorist activities in its fifty crores is still on the accounts of GoP, which were years of life. It is also disadvantaged by its location as borrowed to fight militancy in the state. a frontline state on an often hostile border and for being land-locked. Key developmental challenges Punjab's civil services: The problem of low facing Punjab today are : productivity Punjab has one of the most over-staffed and Debilitating impact of civil strife over-paid civil services in the country. The ratio of Punjab is yet to heal from the deep scars left civil servants per 100 population is approximately during the militancy period on its growth and state 2.2 in Punjab, compared to 1.36 in Karnataka, 1.75 finances. The impact of militant activities on growth in Andhra Pradesh, 1.7 in Gujarat and 1.9 in Orissa. was swift, widespread and, in some cases, permanent: Two decades ago, Punjab had only one Inspector- The industrial growth rate halved, from 8 to 4 General (IG) of Police. Today there are 16 IGs, 13 percent; and the growth rate of services sector Additional Director Generals of Police, who RESUMING PUNJAB'S PROSPERITY supervise the work of the IG's, and one Director- situation but is also environmentally unsustainable. General of Police at the top. While such expansion At the time when subsidies were growing, the capital was justified to curb insurgency, this consideration expenditure to GSDP ratio fell from 3.8 percent in was no longer relevant after the state returned to 1990/91 to 1.7 percent in 2000/01. In priority normalcy. sectors like education and health, the ratio of capital to total expenditure has been less than one percent in Overstaffing is not limited to core government 2002/03. Such low levels of public investment in employees but is equally pervasive in public sector irrigation, agriculture, power, road transport, enterprises, especially in the Punjab State Electricity education and health sectors have done incalculable Board (PSEB). It has 16 employees to serve 1000 damage to the future growth prospects of the state. consumers as compared to national average of 8. As per official sources, the irrigation department and Corruption, state capture, and the weakening of PSEB together have as much 50,000 excess staff. At rule-based governance the same time, the pay scales of GoP employees, While the state's Vigilance Department has especially the Group C and D employees who make become more active under the current government, up 85 percent of the state's civil service population, Punjab's office of the Ombudsman (the Lok Pal), are significantly higher than many other Indian responsible for combating wrongdoing by Ministers, is states. Despite the generous staffing and pay scales, moribund. Nor has Punjab moved as fast as Karnataka the quality of public services leaves much to be or Tamil Nadu to pass a Transparency in Tenders and desired, underlining the low productivity of the civil Procurement law, although it has prepared a draft law services in the state. Service delivery is also on the subject; Right to Information (RTI) legislation 6 undermined by the frequent transfer of officers: The has been delayed after Punjab decided not to enact its average term for Principal Secretaries is 13 months in own excellent draft law and wait instead for the their current post and 16 months in their previous Government of India to make the national Freedom of post; the average tenure of deputy commissioners is Information (FOI) law effective. only 16 months in the current post and 22 and 14 months respectively in the previous two postings; The state has also become a soft target of and in police, the tenure of Station House officers special interest groups and lobbies who have (SHO's) is about 7 months. Moreover, GoP has yet managed to stall or rollback reforms that adversely to systematically apply information technology on a affect their interests, even though the policies are in large scale in its day-to-day operations. the greater interest of the state. Unwillingness to raise the sales tax rate on diesel and farm inputs to Subsidy crowding out public investment the levels recommended by the Empowered Punjab's subsidy bill has grown five fold while Committee on State Finance Ministers, rollback of its capital expenditure to GSDP ratio has fallen by policies aimed at enforcing better tax compliance half during the last ten years. The input subsides (i.e., (i.e., export-import forms), complete lack of power and canal irrigation) that are paid from GoP's progress in addressing overstaffing issues, budget have increased from Rs. 409 crores in reintroduction of non-practicing allowance for 1990/91 to nearly Rs. 2000 crores in 2001/02. doctors, growing cartelization of liquor sales in the Farmers in Punjab also benefit to the tune of state and collusion by truck operators to fix prices Rs.2,000 crores each year on account of subsidy from are manifestations of a deeper problem: the fact that GoI as price support for paddy and wheat crops and state policies are being systematically captured by Rs. 1,000 crores as part of subsidy for fertilizers. The special interest groups. This growing culture of large subsidy bill is not only a threat to state's fiscal populism has further narrowed the fiscal space of EXECUTIVE SUMMARY the government, squeezing capital expenditure to The urgency to reform and the hectic pace of dangerously low levels. policy making, unfortunately, appears to be fading away. The fiscal targets laid out in the FRBM Act for The failure on part of the Government to 2003/04 are unlikely to be met. Punjab is also likely comply with the various measures of its own Fiscal to fail to qualify for grants in the GoI's Fiscal Reform Responsibility and Budget Management Act Facility. There have also been a number of policy during 2003/04 and the earlier systemic diversion rollbacks, especially in the tax area. The budget speech of funds meant for procurement of foodgrains to delivered on June 21, 2004 conveys the government's meet its revenue needs, clearly indicate lack of positive intentions on the reform front: It reiterates compliance with rules and regulation on part of GoP's commitment to implement the Fiscal the government. Responsibility Act, improve tax compliance, introduce Value Added Tax (VAT), reduce theft in the THE GOVERNMENT O. PUNJAB'S power sector to 20% by the end of the Tenth Plan, RE.ORM PROGRAM continue debt swap arrangements, and promote the A promising start, followed by roll-backs widespread use of information technology in The new government that came to power in the government, particularly at the district-level. On the 2002 state elections started the reform process in other hand, the budget is silent on a number of key earnest. It abandoned the populist, but fiscally and reform issues, including (a) actions to reduce the size environmentally unsustainable, policy of free power of government (it does not reimpose the earlier ban and water for farmers. Punjab became the second on recruitment but instead makes new hiring state after Karnataka to have a 'Fiscal Responsibility contingent on the submission of a restructuring plan and Budget Management (FRBM) Act.' It came by departments); (b) the unbundling of the power 7 down hard on corruption and introduced politically sector; and (c) the re-introduction of the statutory difficult measures to restrain revenue expenditure export-import (EXIM) form for tax purposes, among including a number of tax policy and administrative others. The Medium Term Fiscal Reform Programme reforms to raise state's tax to GSDP ratio. The tabled with the budget does not appear to be revenue deficit came down sharply in 2003/03 as a consistent with the state's Fiscal Responsibility Act. percentage of revenue receipts. The Government The merger of dearness allowance into basic pay to constituted an Expert Committee to suggest the tune of 50%, also announced in the budget reform for the power sector. It passed the speech, will in particular place a greater burden on 'Punjab Infrastructure Regulation Act 2002' to Punjab's fiscal position. encourage greater private-public participation in developing new infrastructure. It accepted REVITALIZING RE.ORM: SOME the recommendations of the Disinvestment OPTIONS AND PRIORITIES Commission, which was set up by the previous Some of the standard policy recommendations government, came out with a well-articulated for restoring fiscal health, righting the power sector, disinvestment strategy, and had some initial and improving the quality of administration and successes. The Government undertook an ambitious service delivery apply to Punjab as well. Yet, the real contract-farming project to diversify the state's problem in Punjab is not articulating the reform agricultural base away from the paddy-wheat cycle. program but implementing it. This section first The government also announced its intention to elaborates some of the report's major undertake significant decentralization of primary recommendations and concludes with an analysis of health and education services with the aim to the critical implementation issues surrounding improve the quality of public services. Punjab's reform program. RESUMING PUNJAB'S PROSPERITY Policy Recommendations Improving governance and service delivery Three critical steps to restore fiscal balance The civil service is plagued by numerous To restore fiscal balance, the Government needs problems including overstaffing, fragmentation, to move on three things immediately. First, it needs frequent and politicized transfers, and weak policy- to comply with its own Fiscal Responsibility and making capacity. There is no single solution to these Budget Management Act. To be in compliance, it serious and deep problems, but they can be needs to budget more realistically to achieve fiscal significantly ameliorated by (a) re-imposing a ban on targets, create implementation committees to recruitment except in priority sectors, (b) establishing monitor fiscal indicators much more closely and a surplus pool to facilitate staff redeployment, VRS, take corrective actions promptly when necessary. or retrenchment within a finite period of time, i.e., six Second, it has to create 'fiscal space' by addressing months, (c) curbing premature transfers by overstaffing in government departments as well as in establishing an independent civil services board to the PSEB. Alternative mechanisms are needed to process transfer requests, creating quantitative ceilings deliver subsidies to farmers more effectively; the on transfers, and introducing computerized resultant savings can be used to increase public counseling in large departments, such as education investment in critical sectors like agriculture, and health, (d) grouping departments on sectoral irrigation, power, road transport, education and lines in response to the need to reduce cabinet size to health. Third, GoP has to aggressively pursue tax 15 percent of the legislature, and (e) improving policy and administration reforms, e.g., policy-making capacity through a mix of introduction of VAT, restructuring of the tax administrative decentralization and greater reliance administration department along functional lines, on specialists through lateral entry and/or outside 8 and computerization of the tax information system agencies. In order to improve transparency, GoP to generate additional resources to meet the state's should move forward to put in place both Right to growing public investment needs. Information (RTI) and Transparency in Tenders and Procurement laws on the lines of model laws in other Measures to create an enabling climate states (Maharashtra and Karnataka in the case of RTI for growth and Tamil Nadu and Karnataka in the case of Punjab can take a number of steps to create procurement). It is also essential to strengthen anti- an enabling climate for its private sector to grow corruption enforcement by appointing a new Lok Pal and prosper. It could streamline administrative (Ombudsman) to the currently vacant post. Service procedures involved in establishing new businesses delivery can be improved by (a) promoting e- by creating a more transparent and time-bound governance through greater political ownership and system. It could streamline its inspection system cultivating agency reform champions, and (b) and simplify record keeping and submission of refining the current decentralization program to returns procedures for industries. GoP may wish ensure that teachers and primary health staff are more to introduce competition in agricultural fully accountable to Gram Panchayats (GPs) to reduce marketing by allowing private sector and grower the alarmingly high rate of absenteeism; this will also cooperatives to set-up market yards as has been necessarily involve an effort to strengthen the working outlined in GoI's model Act. It would need to take of PRIs as a whole by improving their fiscal and steps to reduce corruption, and strictly enforce administrative soundness, for example. contracts and laws of the land. The Government should continue its effort to unbundle the PSEB Implementation Challenges and introduce an open-access regime as indicated There is no shortage of good policy in the Electricity Act. recommendations for GoP when it comes to EXECUTIVE SUMMARY undertaking reforms in the state. A number of useful The role of GoI reports already exist, including the White Paper on The key to successful reform in Punjab lies not State Finances, two studies undertaken by National only with its own leadership, but also with the Institute of Public Finance and Policy (NIPFP, 1994 Government of India (GoI). In several ways, Punjab's and 1998), Report of the Punjab Public Expenditure situation is unique within India's federation. It has Reforms Commission (2002), the World Bank's unique disadvantages (the Rs. 8,000 crores of debt Note on 'Some Key Reform Challenges in Punjab' incurred during the fight against insurgency during (2003), Expert Group's Report on Power Sector the 1980s) and unique advantages (the Rs. 2,000 Reform (2003), the Bank Report 'Revitalizing crores of subsidy that Punjab's farmers receive Punjab's Agriculture' (2003) and GoP's Report on annually as minimum support price for paddy and Disinvestments (2002) to name a few. The problem wheat production). Whatever the precise means in Punjab, more than in other states, is one of through which these problems are solved, they can implementation. The report outlines six only be addressed by GoI. Without a resolution to implementation related issues that will help the state these issues it will be very hard for Punjab both to to move the reform agenda forward. return to fiscal sustainability and discipline, and to diversify away from the environmentally unsustainable An overarching vision for the state cropping practices. The government needs to craft an overarching vision for the state to guide reform, build public Grounding reforms in the local context and support for change, get political leaders to publicly using local knowledge is essential demonstrate their support for reform and motivate Successful reforms tend to be context-specific change agents in the bureaucracy by giving them and grounded in local knowledge. General 9 clear signals and supporting them in times of crisis. economic principles to accelerate growth and improve service delivery - e.g., market-based Punjab missed out on the liberalization trends competition, a healthy investment climate, that have influenced other parts of the country since appropriate incentives, sustainable fiscal policy, the early 1990s. It is now playing catch up. There is good institutions, protection of property rights, an awareness among the politicians, the bureaucracy, contract enforcement - do not necessarily map into media, as well as among economic interest groups standard policy packages. There is no necessary like farmers and industrialists that business cannot correspondence between the functions that good continue as usual. What Punjab lacks, and what the institutions perform and the particular form that reforming states of India have found, was a political such institutions take. The importance of local leadership that painted a future vision around which knowledge and context is critical in a state like people could rally, and then drew up a master plan Punjab, which is known for its conflicted and for the state's revitalization. unique history. Punjab's policymakers therefore need to creatively package economic reform Developing a consensus for reform principles into institutional designs that are There is a need to build greater consensus in sensitive to local constraints and take advantage of favor of reform among and within existing political local opportunities. parties in Punjab. GoP also needs to develop a larger public constituency for reform, among the press, Weak policy-making and managerial capacity NGOs, professional associations, trade unions, and Most high-level officials in Punjab are farmer organizations through a more effective overloaded with routine administrative tasks, ranging communication strategy, for example. from dealing with transfer requests, particularly in RESUMING PUNJAB'S PROSPERITY staff-intensive departments, such as health and ensure that these additional resources reach actual education to even appearing in court cases. The result users. Unless the Government ensures that the is a short attention span, made worse by the problem additional revenue collected is used for public of frequent transfers that makes both policy-making investment to improve services, there is a risk that the and management more difficult. If the Punjab civil reform program would become unpopular, and service is overstaffed, it is probably under-managed: ultimately derail. Among the many reforms discussed More needs to be done to improve capacity in critical in the report, the ones that perhaps need immediate areas, such as treasury. Neither the health nor the attention are: compliance with the Fiscal education departments possess a policy planning Responsibility Act, addressing the overstaffing unit, for example. Nor does Punjab have a strong problem, reorganization of the tax departments on network of training institutes, similar to AP's Center functional lines, liberalization of the agricultural for Good Governance or Karnataka's Administrative markets, implementation of the power sector reform Training Institute (ATI) that might bolster capacity. program, and decentralization of health and It is no accident that the reform program has moved education services. faster in areas like tax administration and the power sector partly because of the willingness to actively Action now will be less costly than action later involve skilled consultants. Until reform is put on the top of the agenda by all parties - with the support of key elements of civil Sequencing and prioritization of the reform society - the situation in Punjab is likely to continue program its downward spiral regardless of which party The Government needs to pay close attention governs the state. In the absence of reforms, Punjab's 10 to the sequencing of the reform program. For debt could climb to as much as 70 percent of GSDP example in critical sectors like power, irrigation and by 2009/10 and its interest payments would transport, efforts should be made to improve the consume almost half of its total revenue. And if the quality of service delivery along with the hike in user current growth slowdown persists for another charges. In priority sectors like health and education, decade, by the end of it, Punjab would no longer be where salary and pension payments to employees the most prosperous state in the country. At least take up 94-98 percent of resources, the Government four Indian states - Gujarat, Karnataka, needs to restructure the composition of public Maharashtra, and Tamil Nadu - would have a higher expenditure before allocating additional funds to per capita income than Punjab. Punjab's Development: Performance and Prospects PUNJAB'S DEVELOPMENT: PER.ORMANCE AND PROSPECTS A modest-sized state tucked away on the north- sports and the visibility of its diaspora both across the western border of the country with a population country and the world have lent Punjab a profile of 25 million (figure 1.1), Punjab has an uncommon higher than many of India's much bigger states. prominence in India. For more than four decades now, it has remained the most prosperous and Yet in many ways, Punjab's development developed state in the country with the lowest rates experience is paradoxical: Its private sector is one of of poverty. Its turbulent history, including redrawing the most prosperous in the country, but its of its borders at the time of independence, huge grain government is highly impoverished; it has virtually surpluses produced by its farmers since the Green eliminated the gender gap in primary education, yet 13 Revolution, which helped the country gain self- suffers from the problem of widespread sex-selective sufficiency in food, its location as a frontline state on abortions and female infanticide (the gender ratio is an often hostile border, its ability to bounce back to only 874); and although it has a growing and large normalcy and preserve its social gains following the middle class, the quality of public services remains violent separatist insurgency in the 1980s, its stubbornly poor. Punjab's fortune seems to be at contribution to Indian military, pop culture and variance with the rest of the country: The state grew .igure 1.1 Local Context: Political Map and Key Economic Indicators of Punjab PUNJAB Source: http://www.mapsofindia.com/maps/punjab/index.html. RESUMING PUNJAB'S PROSPERITY rapidly (6 to 7 percent per annum) when much of following an agitation for an exclusive Punjabi- India was wedded to a low rate of growth of 3 speaking state in India, the Hindi-speaking state of percent per annum and it's economy slowed down Haryana was carved out of Indian Punjab, while after the mid-eighties when the rest of India took-off several of its hill districts were merged with Himachal on a higher growth path. Pradesh. Today, Sikhs constitute 63 percent of Punjab's population and Hindus about 35 percent. Not surprisingly, given the mixed results, there However, there is a rural-urban divide with Sikhs is a growing perception that Punjab's dominance and preponderant in the countryside (about 72 percent) influence are waning in recent years and the state is and Hindus dominating the towns. Scheduled Castes lagging behind other states, especially the southern of both communities comprised 35 percent of the and western Indian states, in terms of growth and population in 2001 - the highest proportion in India. development. Concerned citizens of Punjab wonder whether the younger generation of Punjab would By the end of the 1970s, the Green Revolution grow up in the most prosperous and developed state had taken firm roots in Punjab. But the agricultural in the country like their parents and grandparents surpluses and rising incomes did not get converted once did. The fault lines are clear and visible: the into investment for industry, and unemployment state's public finances are under severe stress, the rose as did disparities in income. Socially and economy has stagnated, employment opportunities economically, the conditions were ripe for are shrinking, the quality of public service delivery is retrogressive ideologies with unemployed, non-rich not as good as in many other states and the human Jat youth particularly vulnerable to their lure. Politics development indicators are beginning to languish or also deteriorated. Extreme elements were able to turn 14 even deteriorate. a moderate political movement seeking greater state autonomy and share of water resources into a violent This chapter takes a closer look at Punjab's past struggle against the central government1. The state development record and its future prospects. The came under a prolonged spell of President's Rule turbulent history of the state, its success in achieving (direct rule by the Centre through the bureaucracy) a high level of socio-economic progress and its during 1983-92, except for a short-lived Akali Dal current difficulties in preserving the impressive government during 1985-87. achievements of the past are discussed. The chapter also discusses the consequences of not addressing the Competitive politics returned to Punjab in current problems of the state, particularly the impact 1992; by 1997, the political situation seemed stable on growth and service delivery. with a new Akali-led government coming to power in alliance with the BJP and with voter turnout A BRIE. HISTORY O. PUNJAB hovering at the 80 percent mark. Congress did well Punjab has had a turbulent past. It has been in the 1999 Parliament elections and returned to divided twice in the modern era. First, in 1947, when power in the state in 2002. A stable two-party the bulk of its original area along with its Muslim system thus appeared to be in place by the end of the population became the Pakistani province of Punjab 1990s, signaling the return of full political normalcy during the violence of partition. Then, in 1966, in the state. 1 The problem of inter-state sharing of water resources has recently resurfaced in Punjab after a Supreme Court ruling to expedite completion of the canal linking two rivers (Sutlej-Yamuna Link canal) and to release water to neighboring states as per The Reorganization Act, 1966, and the subsequent agreement in 1981. Following the court ruling, the Punjab legislature unanimously passed the Punjab Termination of Agreements Bill, 2004, annulling the water-sharing arrangement with neighboring states, thereby bringing the water dispute to the fore again. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS MILLENNIUM DEVELOPMENT sanitation, 99 percent of households had access to safe GOALS: LEVELS AND TRENDS drinking water, and the average life expectancy was 68 Punjab is on track to achieving its Millennium (top panel, figure-1.2). According to India's National Development Goals...... Human Development report, Punjab is ranked Punjab has a remarkable development record. It second only to Kerala in terms of the overall level of has already achieved, or is well on its way to human development among the major Indian states. achieving, most of the Millennium Development Goals (MDGs). At the end of the 1990s, more than ...... though the rates of improvement have 94 percent of Punjab's citizens were above the poverty begun to slow down line, 70 percent were literate, 94 percent of all six year But Punjab is finding it harder to maintain the olds were enrolled in primary schools, 63 percent of impressive level of human development it has achieved births were attended by skilled health staff, 72 percent so far. As shown in the bottom panel of figure-1.2, in of children under twelve months were immunized, 52 five of the twelve indicators, the rates of improvement percent of households had access to improved in Punjab have fallen short of the national average2. .igure 1.2 Punjab has achieved an impressive level of socio-economic development, though the pace has slowed down or deteriorated in a few sectors Selected Millennium Development Indicators in late 1990s / early 2000s - India vs. Punjab 15 Change in the Millennium Development Indicators during the 1990s (in %) - India vs. Punjab Source: 1998/99 and 1993/94 NSSO, 1992-93 NFHS-1, 1998-99 NFHS-2, 2001 Census, CSO and Bank Staff Estimates. 2 Since Punjab started with a higher base (in terms of the value of the development indicators), it is natural that its pace of change will be relatively slow compared to states starting with a lower base. RESUMING PUNJAB'S PROSPERITY One of the worrisome trends is in the health sector, find the poverty headcount ratio to be as low as 3 where the levels of infant mortality rate and the under- percent [Deaton and Dreze 2002]. There is also five mortality rate have increased between 1993/94 evidence of narrowing of regional disparities within and 1999/00, unlike the rest of India where they have the state during the 1990s. Rural poverty levels are fallen. Key education sector indicators, like the literacy comparable to those in urban Punjab, and the rate and primary enrollment ratio, have also slowed different estimates of poverty levels in 1998-99 all down during this period. The sex ratio in Punjab, point to a narrowing of the gap between the which was already at one of the lowest levels in the northern (traditionally richer) and southern regions country in 1991, has worsened further during the of the state. 1990s. The decline in the economic might of Punjab can also be seen from the fact that its economy grew at Not only has Punjab historically had the lowest 4.3 percent during the 1990s compared to 6.1 percent poverty rate, it has also experienced one of the for the rest of the country. sharpest rate of declines in poverty as compared to other states. Punjab performed particularly well Poverty Outcomes during the 1970s following the green revolution. The Punjab has the lowest poverty rate in the country rural headcount ratio declined by 12 percentage Poverty has fallen in Punjab during the 1990s points, from 28 percent in 1973-74 to 16 percent in and the regional disparities have narrowed. The 1977-78, at a rate that was much more rapid than most recent large-sample National Sample Survey poverty reduction in other states during the same Organization (NSSO) data from 1999-00 indicate period (see Box-1). that only 1.5 million of the 25 million people who 16 live in Punjab are below the official poverty line, Conflicting evidence about the rates of poverty compared to 260 million poor people in all of India. reduction over the 1990s This poverty headcount ratio (6 percent) makes There is no clear agreement among researchers on Punjab the state with the lowest poverty rate among whether Punjab has been able to maintain its the major Indian states and places it well above the impressive rates of poverty reduction in recent years. all-India average of 26 percent. Some other estimates Part of the difficulty in assessing progress arises because Box 1 What Explains Punjab's Remarkable Success in Reducing Poverty? Punjab not only has the lowest poverty rate but has also experienced one of the sharpest reductions in poverty rate among major Indian states during 1973/74 and 1993/94. Its impressive track record at poverty reduction has been a subject matter of much research. Evidence shows that this is attributable to new technological breakthroughs in agriculture, the diligence and entrepreneurship of its farmers, judicious public spending and favorable initial conditions in terms of more egalitarian distribution of income and assets and a considerably higher level of human development. Following the green revolution, between 1957-58 and 1990-91, Punjab had the most rapid and sustained growth in both agricultural and non-agricultural productivity among the major Indian states. Real agricultural output per hectare increased by 3.3 percent per annum while real non-agricultural output per capita increased by 4.5 percent per year. In addition, growth in the state was 'unusually pro-poor' during this period. Cross-state empirical work indicates that this was primarily due to the higher growth in farm yields and non-farm output and the high trend growth rate of developmental expenditure in Punjab. Second, the growth-poverty elasticity in Punjab was particularly high, reflecting its superior initial conditions in terms of the relatively equitable land distribution, low rural-urban disparity, and high level of human development in the early 60s. Source: Varshney 2003; Datt and Ravallion 1998; Besley and Burgess 2003. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS of the controversy around the poverty estimates the most impressive gains being in rural areas. released by Government of India (GoI) on the most Among rural boys, 89 percent of 7 to 12 year olds recent 55th (1999-00) round NSSO Consumer were in school in 1995-96 compared with 70 Expenditure Survey. While both official and other percent a decade earlier. The most dramatic estimates by Deaton and Dreze (2002) show that there improvement was amongst rural girls whose has been a decline in rural as well as urban poverty over enrollment increased by 27 percentage points, to 87 the 1990s, estimates by Kijima and Lajouw point to percent. According to the 2001 census, the more stagnant poverty levels over the 1990s in Punjab. proportion of children entering school (amongst 7 year olds) increased from 84 to 94 percent during It is difficult to be conclusive on this issue, since the 1990s, and attainments showed a marked changes in other determinants of poverty during the improvement: the percentage of 15-19 year olds 1990s also present conflicting evidence. Real who completed upper primary school rose from 57 agricultural wages have grown very little over the to 67 percent. Despite its unacceptably low sex ratio, period in Punjab - and at the lowest rate amongst all Punjab has virtually eliminated the gender gap in the Indian states. In addition, the main drivers of poverty enrollment ratio between boys and girls in rural reduction - growth in the economy and state areas and in the completion of upper primary government development expenditures - have slowed school. down during the nineties. Growth in real agricultural output per hectare has decreased from 3.3 percent per ... .... though there continues to be large year during the three decades leading up to 1990-91 to disparity across economic, social and regional 2.5 percent between 1991-92 and 1999-00. Annual groups growth in per capita state development expenditures Punjab's educational achievements, though 17 has also declined, in half, from 7.6 percent to 3.2 better than the all India average are considerably percent per year. Growth in non-agricultural below the levels achieved by other high-income productivity (as measured by real non-agricultural states. In 2001, Punjab's literacy rate was 70 percent state domestic product per capita) has been steady at placing it as the tenth-highest literate state in the 4.4 percent per year but has not increased to country. The two states with the highest literacy compensate for the slowdown in agricultural growth. rate - Kerala and Mizoram - exceed Punjab by 30 percentage points. Although the gender gap at lower Irrespective of the extent of poverty reduction levels of education has been eliminated, state averages during the nineties, it is clear that Punjab has had an in outcomes mask other inequalities within the state impressive track record of achieving low poverty - economic, social and regional - as well as gender levels rarely seen in developing countries. Given the gaps in higher education. low levels of poverty, the task of eliminating poverty in Punjab is now one of coping with localized There are large gaps in enrollment between impoverishment - in specific occupation and social children from poor and rich households. As figure- groups - and of recapturing high rates of economic 1.3 (left panel) shows, 99 percent of the 6 year olds growth to further raise living standards in the state. from the top quintile households are enrolled in school compared to only 66 percent form the bottom Education Outcomes two quintiles. These gaps are exacerbated when we Punjab has made considerable improvements in look at attainment rates: while 75 percent of children educational outcomes ... ... from the top quintile households completed the 9th Punjab has made substantial progress in getting grade in 1998/99, only 9 percent from the bottom children into school over the last two decades, with two quintile households reached the same level. It is RESUMING PUNJAB'S PROSPERITY quite worrisome to note that the educational grade, the proportion making it to secondary school attainment of poor households in fact fell between is abysmally low. 1992/93 and 1998/99 across all grades (right panel, figure-1.3). Health Outcomes Punjab's health outcomes are not commensurate Some disparities with regard to rural-urban and with its level of income inter-district differences are still evident. Literacy in Punjab has reasonably good health outcomes urban Punjab at 79 percent exceeds the rural literacy compared to the all-India average, although these are rate by 14 percentage points. At the district level, not commensurate with its level of per capita income while 81 percent of the population in Hoshiarpur and public expenditure, which are highest among the district is literate, Mansa district has a literacy rate of major Indian states. Other states with lower public 53 percent, well below the all-India average of 65 health spending and overall income (e.g. Kerala, percent. There is a geographic dimension, with north Maharashtra and Tamil Nadu) have better outcomes and northeast districts performing much better than in some key indicators such as infant and districts in the south and southwest. There are also child mortality rates, reproductive care, and social gaps in enrolment and completion, particularly immunizations (figure-1.4). at higher levels of education. In 1999-00, 73 percent of household heads among SCs in rural Punjab had The health indicators for the girls are a matter of below primary education compared to 58 percent for great concern non-SCs. The contrast between SCs and non-SCs is Punjab ranks second in the Human even starker in urban areas. While 74 percent of non- Development Index among Indian states, but ranks 18 SC household heads had completed primary school sixteen with respect to the Gender Empowerment or higher, only 40 percent of SC heads had achieved Index (GoI 2001). According to the 2001 census, the similar levels of education. The sharp increase in sex ratio in Punjab at 874 females per 1,000 males is dropouts after completion of primary school is lower than it was in 1991 (882), and is well below the another additional area of concern. Among the poor, sex ratio (933) for the country as a whole. The sex since only 40 percent are able to complete the first ratio of the 0-6 years population has declined more .igure 1.3 Considerable disparity in educational indicators across economic groups Source: 1992-93 NFHS-1, 1998-99 NFHS-2 and Bank Staff Estimates. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS .igure 1.4 Selected Health Outcomes Across States, 1998-99 Source: 1998-99 NFHS-2 and Bank Staff Estimates. drastically from 875 in 1991 to 793 in 2001 (figure In addition, girls who survive are more likely to be 1.5). The post-neonatal (1 month to 1 year) mortality underweight and severely stunted than boys. Nearly rate is almost twice as high for girls than for boys, and 13 percent of girls compared with only 5 percent of the child mortality rate is four times as high. The boys do not receive any of the required vaccinations. female to male ratio of no treatment for Acute Respiratory Illness or fever is 1.67 in Punjab, which There are not only social costs to gender ranks only above Rajasthan among the Indian states. discrimination but also economic ones. The gap in 19 .igure 1.5 Discrimination along gender lines is not just limited to the time of birth, but extends to childhood and to the work place as well Source: 2001 Census and Bank Staff Estimates. Note: AP-Andhra Pradesh, BH-Bihar, GJ-Gujarat, HY-Haryana, KN-Karnataka, KR-Kerala, MH-Maharashtra, MP- Madhya Pradesh, OR-Orissa, PJ- Punjab, RJ - Rajasthan, TN- Tamil Nadu, UP - Uttar Pradesh and WB-West Bengal. RESUMING PUNJAB'S PROSPERITY the work force participation rate among the men and EMPLOYMENT AND SOCIAL women, at 35 percent in Punjab is one of the highest STRUCTURE in the country (figure 1.5). The reasons put forward Punjab has the second lowest percentage of work- to explain the consistently low and declining sex ratio force dependent on agriculture after Kerala in Punjab include: (a) strong preference for a son for Punjab's employment structure has shifted away cultural and economic reasons; (b) sex selective from agriculture into the non-farm sector, with only female abortions, (c) female infanticide, (d) neglect 39 percent of its work force employed in agriculture in of the girls resulting in higher mortality at younger 2001, a drastic fall from 53 percent in 1991. Punjab ages; and (e) lack of proper implementation of the has now become the state with the second lowest Pre-Natal Sex Determination Test (PNDT) Act. percentage of work-force dependent on agriculture after Kerala. The occupational structure in rural areas As in other states, poorer households and has also changed considerably, with a large decline in scheduled caste households in Punjab tend to have agricultural laborers as a proportion of the total labor worse health outcomes. Children from both these force - Punjab is one of the four states that have groups have higher infant and child mortality rates, witnessed such a decline [Kijima and Lanjouw 2002]3. and are more likely to be under-nourished. Almost By contrast, employment in the rural non-farm sector one in two children from scheduled castes are less in Punjab has expanded rapidly over the 1990s, from likely to be fully vaccinated (on an average, 72 28 percent in 1993-94 to 39 percent in 1998-99, percent of children age 12-23 months are fully consistent with the slowdown in agricultural growth vaccinated). Women from these groups are less likely rates over the last decade (figure-1.6). to be covered by the recommended package of 20 antenatal care. Nutritional deficiency is particularly Aggregate changes, which mask considerable serious among disadvantaged socio-economic groups. disparities between different groups, do not necessarily .igure 1.6 Punjab employment structure has undergone a considerable change in the 1990s Source: 2001 Census and Bank Staff Estimates. 3 Agricultural labor in Punjab is also an important source of employment to seasonal migrant labor from states such as Bihar [Srivastava 1999]. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS indicate an improvement in the occupational status farm labor or own enterprises that rely only on family of Punjab's work force. The movement out of labor or specialize in the lower return occupations (e.g., agricultural labor has been more significant among the non-mechanized transport services such as transporting richest 40 percent of the population, while agricultural goods by animal carts, rickshaw pullers, etc).The returns labor remains the main source of employment for to education for SCs in Punjab are also found to be poorer households. The wage differential between the considerably lower than the non-SCs5. casual non-farm sector and agriculture has been quite small in Punjab, making it difficult to ascertain MIGRATION: A TWO-WAY BOON whether the agricultural labor is being pulled into Migration is an intrinsic part of life for most more productive non-farm employment opportunities families in Punjab. The state ranks, perhaps, behind or is being pushed out of agriculture in the context of only Kerala and Gujarat in terms of migration as stagnant output and increased pressure on farm land, measured by the number of People of Indian Origin or a combination and interaction of the two. (PIO) living outside India. Among the 20 million strong Indian diaspora, it is believed that 10-15 percent Punjab has the largest proportion of SCs in its are People of Punjabi Origin (PPO)6. It is generally population amongst Indian states believed that Punjabi migrants have a higher per capita Punjab has the largest percentage of scheduled income level than the average Indian migrant (the latter castes (Dalits) in its population amongst Indian in turn possessing a higher level of income than the states and this percentage is growing rapidly. The national average of their host countries), harbor a proportion of scheduled castes (SCs) in the total strong commitment to maintain their own cultural and population has increased from 28 percent in 1991, to linguistic heritage, and seek to preserve their links with 35 percent in 1999-00.4 Dalits in Punjab are the families in India. From humble origins, Punjabi 21 certainly not as poor as their counterparts in other migrants have risen to become one of the highest parts of the country. However, as in other states, they earning and best educated groups in their host have an average standard of living that is considerably countries and have achieved eminence in a variety of below the rest of the population. The overall poverty fields. Many wealthy PPOs have individual trusts and incidence among SCs (at 11.9 percent) is roughly charities for projects pertaining to health, education or five times that of non-SCs (2.4 percent). infrastructure in their villages in Punjab. Lower standards of living among SCs are in part While there are no official estimates of the explained by factors such as poor physical and human magnitude of remittances received by Indian states, capital endowment, types of employment and low return the abnormally high deposit to credit ratio and the on assets. Nearly 98 percent of SCs in Punjab own less growing interest of foreign banks in opening branches than 1 hectare of land, compared to 52 percent amongst in Punjab indicate that remittance flows to Punjab are the non-SC population. SCs are highly represented in likely to be considerable. Some experts informally agricultural wage labor activities and are particularly estimate the annual PPO remittance flow to be as under-represented among cultivators. In the non-farm high as US$2 to 3 billion per year, i.e., 12 to 18 sector, SCs are more likely to be engaged as casual non- percent of Punjab's GSDP. While it is difficult to 4 1991 and 1999-00 figures are from the Census and the 55th NSS Round data, respectively. 5 In recent years, we were told, increasing number of SCs from Punjab are migrating to foreign countries.The remittances sent by these migrants have given rise to a new class of affluent and empowered SCs that has become more assertive of its rights, e.g., in terms of participation in the elections of Gurudwara (Sikh temple) committees, which at times has resulted in growing frictions between SCs and non-SCs in the state. 6 Based on the Report of the High Level Committee on the Indian Diaspora and discussion with officials from different Embassies in New Delhi. RESUMING PUNJAB'S PROSPERITY estimate the economic impact of remittances on to slow down in the late 1980s and almost stagnated Punjab's economy, it is generally believed that the during the 1990s. With the onset of the 'green state's current economic problems would have started revolution,' Punjab surged ahead to become the much earlier and become more severe in the absence richest state in the country. Its economy grew at of the large flow of remittances from these migrants. almost 7 percent during the 1960s and 5.4 percent during the 1970s, almost one-and-half to two times Migration of a different nature has also become faster than the rate of growth in the rest of India (left a norm in Punjab, i.e., migration of manual labor and panel, figure-1.7). The onset of militancy in the blue-collar worker from poorer Indian states into 1980s, the sputtering of productivity growth in Punjab. The unwillingness of native Punjabis to work agriculture in the 1990s and the low level of public in farms has created a shortage of agricultural labor in investment due to misplaced fiscal policies in the last the state, which is being increasingly met by migrant decade seem to have played a role in the economic labor from poor Indian states, mostly Bihar and Uttar decline of Punjab. Punjab grew at an annual average Pradesh. While Punjab's prosperity has thus rate of 4.3 percent during the 1990s - significantly contributed to reducing poverty in these poorer states, below the national average and the third lowest it has also become a sore element in the relationship growth rate among major Indian states (right panel, between native Punjabis and the migrant laborers. figure-1.7 and Box-2). ECONOMIC GROWTH, INVESTMENT Agriculture: Growth Slowdown and CLIMATE AND PRODUCTIVITY Environmental Sustainability Punjab was one of the slowest growing Indian Agriculture brought prosperity to Punjab; it is 22 states during the 1990s now responsible for some of its miseries After a spectacular growth rate during the The pioneering role played by Punjab in sixties and the seventies, the Punjab economy began Indian agriculture is well known. With the ushering .igure 1.7 Economic growth has been on the decline since the 1960s, making Punjab one of the slowest growing Indian states during the 1990s (Punjab's real GSDP growth rate during the (Real GSDP Growth rate during the last four decades, 1965/66 - 2000/01) 1990s in selected Indian states ) Source: EPW, CSO, RBI Note: AP-Andhra Pradesh, BH-Bihar, GJ-Gujarat, HY-Haryana, KN-Karnataka, KR-Kerala, MH-Maharashtra, MP- Madhya Pradesh, OR-Orissa, PJ- Punjab, RJ - Rajasthan, TN- Tamil Nadu, UP - Uttar Pradesh, and WB-West Bengal. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS Box 2 Is Punjab's status as the richest state of India under threat? The answer to the question, unfortunately, is a Yes. Punjab's economy has been on a secular decline, with other states fast catching up with its high per capita income. Even prior to the Green Revolution, Punjab was one of the most well- off states in the country. With the onset of the Green Revolution, Punjab surged ahead to become the richest state in the country. A comparison with Maharashtra, the second richest state in India, shows that in 1972/73, Punjab's per capita income was 51 percent higher than Maharashtra (see figure below). Today Maharashtra and Punjab are, however, in the same per capita income league again. While Punjab continues to remain an agrarian economy, Maharashtra has diversified into industry and services and since the latter sectors tend to grow more rapidly than agriculture in the long run, it is certain that Maharashtra will grow more rapidly than Punjab in the coming years. Punjab's per capita income as a percentage of Per capita income across selected states Maharashtra's per capita income (constant prices) as a % of Punjab's income 23 If the current growth trend persists for another decade, by the end of it, at least four Indian states - Gujarat, Karnataka, Maharashtra, and Tamil Nadu - are likely to have a per capita income higher than that of Punjab7 (see figure above, right panel). Source: Central Statistical Organization (CSO), Census of India, Reserve Bank of India (RBI). in of 'green revolution technology' in the mid- farming population, Punjab today produces about 1960s, aided by public investments in 10 percent of the country's rice, 20 percent of its infrastructure and price incentives that encouraged wheat, and about 45 percent of all rice and wheat wheat and rice production, Punjab soon emerged as procured by the government. the dominant 'food grain surplus' state in the country, contributing significantly to meeting Despite, or perhaps because of, these national food security goals. With about 3 percent achievements serious concerns are now emerging of India's net sown area and 1.5 percent of its about the future prospects of Punjab's agricultural 7 The forecasts for 2010/11 are only indicative in nature. They are reported here to underscore the serious economic implications that could arise if the growth slowdown is not reversed immediately. The actual outcome could vary significantly from the forecast value. RESUMING PUNJAB'S PROSPERITY sector. Agricultural growth slowed substantially in cropping intensity, and the most intensive use of the 1990s - agricultural output grew at a trend rate of fertilizers, tractors, and pesticides. The impact of these 2.6 percent per annum in the 1990s compared to the input-intensive agricultural practices on the quality all-Indian average of 3.2 percent, and relative to a and quantity of the state's land and water resources has growth rate of 5 percent per annum in Punjab in the become a real concern. Of greatest concern is the over- 1980s. Productivity of rice appears to be plateauing. exploitation of groundwater resources of the state: As figure 1.8 (left-panel) shows, the total factor Punjab now has the highest percentage of groundwater productivity (TFP) growth of its crop sector fell from exploitation in the country, and also the largest 1.55 percent per annum in the 1980s to 0.05 percent percentage of over-exploited and dark blocks8 (right during the first six years of the 1990s [Kumar 2002]. panel, figure-1.8). Extensive use of nitrogenous The TFP growth in the southwest region was fertilizers and pesticides has also led to increasing negative (-2.04 percent per year) because of problems nitrate concentration and accumulation of pesticide in cotton. The main rice-wheat tract of central residues in soil, water, food, feed and other agricultural Punjab also experienced a decrease in growth, with produce often above tolerance limits. The 16 million TFP growth slowing down to 0.067 percent per tonnes of rice straw that is burnt every year result in air annum mainly due to negative TFP growth in rice pollution, creating suffocating smog-like conditions in [Singh and Hossain, 2002]. many parts of the state at harvest. Growing concerns about the environmental Industry: Growing, But Not .ast Enough impact of the current agricultural practices Punjab's industry has done well, given the adverse Among the main agricultural states, Punjab geographical and historical problems of the state 24 practices the most input-intensive agriculture. It has Because of the adverse geographical location (land the largest proportion of irrigated area, highest locked, border state, no significant natural resources) .igure 1.8 Punjab- .alling productivity and growing ground water exploitation Source: Revitalizing Punjab's Agriculture, The World Bank, 2003. 8Over-exploited blocks are those where groundwater extraction is more than 100% of recharge and dark-blocks are where extraction is between 85 - 100% of annual recharge. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS and turbulent history (partition, civil strife), Punjab's largely between 5 to 6.5 percent during the last decade industrial landscape is significantly different from that and half, considerably below the performance of some of the leading industrial states in India. Industries in of the industrialized states in India, but commendable Punjab are invariably small and specialize in low-end given the difficult conditions through which the firms consumer goods that use less capital and are low on operated during the eighties and early nineties. R&D. As of March 31 2000, there were 611 large and Punjab's share in total approved FDI to India is a medium enterprises in Punjab compared to 199,071 meager 0.7 percent or Rs. 1970 crores during August small firms. Small firms accounted for 99 percent of all 1991 to May 2002, though investment appears to have units, 80 percent of employment, 41 percent of output picked up in more recent months. and 20 percent of investment in Punjab's manufacturing sector. The average number of Productivity of Punjab's manufacturing firms employees per firm in Punjab was 48 in 2000-01 fall short of more industrialized states compared to the Indian average of 61. Punjab is less The average firm in Punjab is significantly less industrialized than the average Indian state with the productive than in India. In terms of output value, the share of manufacturing in state GSDP lower than the average net value-addition per worker in a firm in all-India average (15.9 compared to 17.1 percent). The Punjab was nearly 25 percent lower than the all-India important sectors in terms of production, investment average in 2000-01. A careful analysis of the registered and employment are bicycle and bicycle parts, manufacturing sector across major Indian states finds automobiles and components, agro/food processing, that the average productivity level in Punjab's textiles and hosiery, basic metal, metal products, manufacturing sector during the last decade is 102 machinery other than electric and electronics. compared to 103.5 in neighboring Haryana and 108.8 in Delhi (value normalized after indexing Maharashtra's 25 Following an impressive performance between the TFP in 1982/83 at 100, see figure-1.9).This implies that seventies and the mid eighties, manufacturing growth for the same level of factor inputs (labor, physical and slowed down in Punjab after the onset of militancy. human capital), a typical firm located in Delhi obtains The annual growth rate, in constant prices, remained 6.8 percentage points higher output per year than the .igure 1.9 Punjab firms are less productive than their counterparts in more industrialized states Source: ICRIER (2004). RESUMING PUNJAB'S PROSPERITY firm located in Punjab. Examination of TFP at more a and WB survey in 2000 and 2003, Punjab appears to disaggregated level shows that in certain sub-sectors, be in the middle of the league with some perceptions Punjab has considerably higher productivity, e.g., in food that the overall climate has improved in recent years products, cotton textiles, textile products, rubber, plastic (see figure- 1.10). In 2000, Punjab was in the bottom and petroleum, basic metal and alloy industries9. half of the league with six states scoring above it and three below. The number of responses identifying Studies show that the low level of productivity Punjab as the best state in terms of the investment of firms in Punjab can be attributed to a number of climate was slightly less than the number identifying it factors: smaller size, lower export-orientation, lower as the worst state. By 2003, perceptions about Punjab degree of technical ability and adaptation, limited had improved. The improvements in perceptions product innovation, poor quality awareness, little about Punjab's investment climate responded to signs pro-activeness in finding markets, inadequate sharing of a more investor-friendly policy stance by the new of good practices compared to firms in some of the government. The recent improvement in perception, more progressive states in India and lack of a healthy however, appears to be at odds with the actual investment climate in the state10. situation on the ground, which does not show any marked improvement between 2000 and 2003. Punjab's investment climate is perceived to be of moderate quality STATE .INANCES: BREACHING Punjab has clearly lagged behind other high- SUSTAINABILITY income states in creating a healthy investment climate A prosperous private sector and an impoverished for its entrepreneurs, which includes policy, regulatory government 26 and institutional factors that affect the expected The fiscal performance of Punjab is not returns and risks from investment. Based on the CII commensurate with its relative economic prosperity. .igure 1.10 Punjab's investment climate relative to other selected Indian states, 2000 and 2003 Source: FACS, 2000 and 2003. 9 ICRIER (2004). 10CII (2003). PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS Despite its high per capita income, Punjab is faced While Punjab has a history of running a high with a severe fiscal imbalance. The state's revenue level of fiscal deficit, the quality of its fiscal deficit and fiscal deficits are much higher than the all-state today is perhaps worse than in the past. In the late average and its capital expenditure to GSDP ratio is 1980s and early 1990s, the fiscal deficit to GSDP below the average. It has the highest per capita state ratio was even higher than it is today. But the bulk of government debt among the major Indian states, this deficit was due to an extraordinarily high level (by almost 181 percent of the level in Haryana, its the standard of Indian states) of capital expenditure neighboring state, 247 percent of Maharashtra, the (right panel, figure-1.11), which presumably state with almost the same per capita income as contributed to augmenting the productive capacity of Punjab, and 289 percent of the level in Uttar the state. Unfortunately, today the level of fiscal Pradesh, the state with the lowest level of per capita deficit is still very high, but it is not due to the high state government debt in the country (left panel, level of capital and developmental outlays, non-wage figure-1.11)11. According to the GoP's White Paper O&M or social sector spending. The state has been on State Finances (2002), the state government has borrowing primarily to finance its current been forced to frequently resort to ways and means consumption, i.e., to pay for the growing salaries, advances and overdraft facilities from the RBI and its pensions, interest payments (which accounted for all finances are bordering on bankruptcy. The problem revenue receipts since 1996/97) and subsidy, much of is attributable both to a poor record of mobilizing which are regressive and do not contribute to raising revenues and profligacy in spending. the productive capacity of the state. .igure 1.11 The magnitude of fiscal imbalance in Punjab is far greater than most other Indian states and is worsening by each passing year 27 Source: RBI, CSO, States Database, The World Bank. Note: AP - Andhra Pradesh, BH - Bihar, GJ - Gujarat, HY - Haryana, KN - Karnataka, KR - Kerala, MH - Maharashtra, MP - Madhya Pradesh, OR - Orissa, PJ - Punjab, RJ - Rajasthan, TN - Tamil Nadu, UP - Uttar Pradesh, and WB - West Bengal. 11The state government debt numbers reported here do not include off-budget liabilities whose interest payments are made from the budget. Punjab has no off-budget borrowings of this type. RESUMING PUNJAB'S PROSPERITY Hidden liabilities: The reported liabilities of PSEB on account of free power during 1997/98- GoP far exceed the actuals 2001/02 period and unfunded liabilities of Rs.5,500 Punjab's fiscal problem is far more severe than crores to PSEB employees as per the draft Financial what the budget numbers reveal. There are a large Restructuring Plan (FRP) of the power sector. amount of hidden liabilities in the form of arrears, delayed payments, unpaid and unfunded liabilities Issues of financial management and contingent liabilities that are not fully accounted GoP has reasonable general financial rules, for in the state's Budget (figure-1.12). Based on the treasury codes, rules of procedure and related information from GoP, we estimate the hidden regulations governing public financial liabilities to be around 20 percent of GSDP (nearly accountability and management. However, the Rs. 15,467 crores or Rs. 6,141 for every citizen of "public accountability and financial management Punjab), which is a subset of all the hidden liabilities system" has not been sufficiently modernized in that may have been accumulated by GoP12. The any substantive manner in Punjab for several power sector is the source of a number of these decades as elsewhere in India. It no longer liabilities, including Rs.3,242 crores that GoP owe to functions with the effectiveness as intended in the .igure 1.12 Hidden of liabilities of GoP (At the end of March 31, 2003) 28 Source: GoP, State Database, The World Bank. 12These hidden liabilities are different from hidden deficits. The latter is not included in the reported fiscal deficit number but is recorded in the government debt. The former is neither part of the deficit nor debt. It is in the form of arrears, delayed payments and contingent liabilities. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS Constitution of India. Almost all aspects from The fiscal situation appears to have worsened in budgeting, revenue collection to expenditure 2003/04 after showing improvement in 2002/03 control and audit are operating below par. For The fiscal situation had improved in 2002/03 example, the extent of overestimation of revenue on account of better tax collections and doubling of receipts in Punjab is twice the average of the major grants from the Centre. As per actuals, the fiscal states. The revenue expenditure estimates have also deficit fell from Rs.4,960 crores in 2001/02 to fluctuated widely, with large shortfalls or large Rs.4,410 crores in 2002/03 - a decline of 11 percent savings. The fiduciary risk for Punjab is - while the revenue deficit was constant in nominal significant. Annual accounts are not tabled on terms. The ratio of revenue deficit to receipts fell time, the executive frequently ignores audit from 42 percent in 2001/02 to 34 percent in reports and the legislature is unable to hold 2002/03. Unfortunately, the improvement may have hearings on a timely basis on serious irregularities been short-lived. Revised estimates for 2003/04 show in departments such as Public Works. Excess a further decline in the revenue deficit (to 26 percent expenditure is not regularized on a timely basis. of revenue receipts) but a worsening of the fiscal Instances of unauthorized diversion of funds were deficit (up to 7.2 percent of GSDP from 6 percent in observed including Rs 4,500 crores on the food 2002/03). The projections in the Medium-term account. The risk is even higher in autonomous Fiscal Restructuring Programme show the revenue bodies and local government where accounting deficit/revenue receipt (RD/RR) ratio further records are not maintained properly. Where declining to 22 percent in 2004/05, but then staying financial statements are prepared as in the case of at around this level for the subsequent two years. The public sector undertakings such as the Punjab fiscal deficit shows a marginal decline to reach 5 State Electricity Board they are heavily qualified percent of GSDP by 2006/07. This would imply that 29 by the auditors and in any case issued too late to GoP would fail to come close to meeting the deficit attract attention. targets set out in its own Fiscal Responsibility and Table 1: GoP's .iscal Performance in .Y2002-.Y2004 (in Rs Crores) 2004-05 BE 2003-04 RE 2002-03Act 2001-02 Act Gr rate: Gr rate: Gr rate: 2004/05 BE 2003/04 RBE over 2001/02 over2003/04RE over 2002/03 Total Rev Receipts 15,678 13,677 11,071 8,929 14.6% 23.5% 24.0% State's Own Tax Revenue 7,114 6,559 5,715 4,820 8.5% 14.8% 18.6% Sales Tax 4,025 3,575 3,072 2,684 12.6% 16.4% 14.5% Stamps & Registration 800 750 559 444 6.7% 34.2% 25.8% Central Taxes 865 752 645 607 15.0% 16.6% 6.2% Grants 1,617 1,596 676 537 1.3% 136.3% 25.7% Total Rev Expenditure 19,121 17,216 14,825 12,710 11.1% 16.1% 16.6% Capital Outlay 2,555 1,507 423 984 69.6% 256.6% -57.1% Revenue Deficit 3,442 3,539 3,754 3,781 -2.7% -5.7% -0.7% Fiscal Deficit 6,117 5,868 4,410 4,959 4.2% 33.1% -11.1% Revenue Deficit/Revenue Receipt 21.96% 25.88% 33.91% 42.35% - - - Source: Budget Documents RESUMING PUNJAB'S PROSPERITY Budget Management Act, 2003 (which requires ratio in 2001/02 was 7.0 percent, which was lower annual 5 percentage point reductions in the RD/RR than the average for both the high and middle- ratio until the revenue deficit is eliminated, and income states and only marginally higher than the nominal reductions of 2 percent in the fiscal deficit average of the low-income states (top-left panel, until it reaches 3 percent of GSDP). figure-1.13)13 . The buoyancy of tax revenue in the State during the 1990s at 0.9 was the lowest among TAX POLICY AND ADMINISTRATION the major states except West Bengal and 0.08 less than Punjab's tax performance compares unfavorably the average of high-income states (top-right panel, with other Indian states, both in terms of the level of figure-1.13). During the same period, the annual revenue raised and its growth. Punjab's tax to GSDP compound growth of tax revenue in Punjab at less .igure 1.13 Punjab's tax performance compares unfavorably with other Indian states 30 Source: Analysis of Tax Revenue in Punjab (Technical Note). 13In Punjab, proceeds of some of the taxes, like market (mandi) fee, rural development cess and the infrastructure cess, are kept outside the consolidated fund. Including those revenues are however unlikely to change the basic message of figure-1.12. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS than 12 percent was lower than average of either low, collection and estimated taxable capacity) is 111.8 middle or high-income states (bottom-left panel, compared to 91.5 for Punjab. In other words, if figure-1.13). Consequently, the tax - GSDP ratio that Punjab had put in the same level of tax effort as peaked in 1986-87 at 7.9 percent declined steadily to Haryana, its sales tax would have been higher by as 6.9 per cent in 1991-92 and further to 5.9 per cent in much Rs. 700 crores - which implies that the level of 1998-99 before reviving marginally to 7 per cent in under-taxation is nearly 25 percent. 2001-02 (bottom-right panel, figure-1.13). IN.RASTRUCTURE: POWER AND Not surprisingly, Punjab's actual tax collection is ROAD SECTORS found to be considerably lower than its estimated Punjab's power sector has achieved much taxable capacity14 and thus its tax effort index is also success ... ... relatively low. For example, Kerala, Haryana, Tamil All the villages in Punjab are electrified and 92 Nadu, Maharashtra and Gujarat had higher per capita percent households have access to electricity - the sales tax revenue collection in 2001/02 than Punjab, highest among all the states in India. The per capita despite having lower per capita income (figure 1.14). consumption of electricity in Punjab is 800 kWh per Haryana, a neighboring state and with a similar annum compared to the national average of 355 kWh economic structure as Punjab (i.e., agriculture (FY2000). All the consumers except agriculture are contributing to nearly 38-40 percent of GSDP), had metered and 54 percent of the total energy available a per capita sales tax revenue of Rs.1,428 compared to for sale is sold on metered basis - higher compared to Rs.1,125 in Punjab. More importantly, the tax effort several other states15. The electricity sector has been a by Haryana (defined as the ratio between actual tax major contributor to the growth of the agriculture 31 .igure 1.14 The actual and estimated sales tax revenue in selected Indian states, 2001/02 Source: Analysis of Tax Revenue in Punjab (Technical Note). 14Taxable capacity is estimated by regressing per capita tax collection on per capita income, share of non-agricultural output in total output and per capita bank deposit for 14 major Indian states for 2000/01 and 2001/02. 15Karnataka - 37%, Andhra Pradesh - 47 %, Tamil Nadu - 61%, Rajasthan - 44%; and Orissa - 52%. RESUMING PUNJAB'S PROSPERITY sector in the state, with about 8.6 lakh farmers out of percent peak deficit. While the hours of power supply the total 11 lakh landholdings dependent on to urban areas has been more or less maintained electricity for groundwater irrigation. The Punjab around 24 hours, daily power supply in rural areas has State Electricity Board (PSEB) is generally considered declined from about 21 hours in FY2000 to 16 hours among the financially better performing utilities in in FY200317. There are no announced power cuts on the country. It has maintained good collection large industrial consumers, but peak load restrictions efficiency, ranging between 96 to 98 percent. The are imposed. The financial performance of PSEB has PSEB has never defaulted on its payment obligations undergone a sharp deterioration in recent years, from to the other financial institutions/banks16. a net loss (excluding subsidy) of Rs 296 crores in FY1997 to Rs 2,251 crores in FY2002. The PSEB was ... ... though like in the rest of the country, its not even able to cover its operating costs - its earning performance has deteriorated in recent years before interest and depreciation declined from Rs 303 The growth of the power sector in Punjab crores in 1996/97 and became negative by 1998/99 slowed down considerably during the 1990s. (right panel, figure-1.15). Compared to 8 percent average per annum growth in installed capacity and 12 percent in energy available Partial financial recovery during 2002/03 during the 1980s, the corresponding growth rates and 2003/04 during the 1990s have been 3.7 and 4.3 percent Unlike in many other Indian states, the power respectively. During FY2000-03, the installed sector finances of Punjab have turned around in the last capacity increased by only 3.3 percent and energy two years. As per the provisional numbers, the financial available by 2.6 percent (left panel, figure-1.15). The losses (before subsidy) in 2002/03 were Rs 1,385 crores. 32 state currently faces a 14 percent energy deficit and 30 The GoP has provided subsidy support of Rs 950 .igure 1.15 The overall performance of Punjab's power sector deteriorated during the 1990s Source: Punjab Economic Reform Study: Note on Power Sector (Technical Note). 16Though the debt servicing on GoP loans were allowed to be retained by PSEB in lieu of subsidy receivable from the government. 17The farmers with whom the Bank staff met however insist that the actual duration of power supply is much lower than the official version and has fallen in recent years. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS (as committed under the ARR/tariff review for road network that provides good geographical coverage 2002/03). For 2003/04, the latest estimates indicate a throughout the state. The rural road network is unique loss of Rs 103 crores after accounting for Rs 857 crores in India, connecting essentially 100 percent of villages subsidy receivable from GoP. The two tariff orders of the with paved roads whose maintenance is funded from PERC have put the utility back on track towards the mandi tax at a rate of 4 percent of the value on crop improving its cost recovery and financial viability. In sales. Punjab has also an extensive National Highway 2002/03, the tariff was increased by 8 percent for Network (1720 km), in relation to its size, whose subsidizing consumer categories and 11 percent for non- maintenance is funded by GoI. However, the State subsidized categories, with the objective to narrow the main road network of about 7,000 km, which connects cross-subsidy. Tariff for agriculture consumers was rural roads to National Highways and also provides restated at Rs 0.57/kWh or Rs 60/HP/month. The cost intra and inter-state links, is under considerable strain recovery, thereby, has improved to 76 percent. In from increasing traffic and the cumulative impact of FY2004, the average tariff has been increased by 6-13 many years of maintenance under-funding. Fiscal percent for different consumer categories, except for the constraints have prevented the government from agriculture consumers. Partial restoration of financial maintaining and upgrading the road infrastructure in performance is a positive development, however there the state, in line with increases in vehicular traffic and are significant risks to the sustained viability of Punjab's therefore the road sector has not kept up with the power sector. Without a commensurate improvement in demands on it. Public enterprises operating in the road the quality of power supply and improved operational sector have been plagued by inefficiencies. efficiency, for which new investments are urgently required, it will be difficult for Punjab to sustain the SERVICE DELIVERY AND GOVERNANCE current power sector reform. Despite its high per-capita income and public 33 expenditure, Punjab does not score in terms of Road sector has not kept pace with the demands service delivery outcomes. A recent perception survey Punjab has one of the highest road densities in the by the Public Affairs Center (PAC) places Punjab in country, but is disadvantaged by its long distance from eleventh place in the quality of service delivery across ports. The state has a large and relatively well-developed 16 major Indian states (figure-1.16). Except in health .igure 1.16 Relative performance of public services in selected Indian states, 2003/04 Source: EPW, 2004. RESUMING PUNJAB'S PROSPERITY services, Punjab has been ranked lower than all the departments lack the champions to aggressively six middle and high-income states shown below and implement e-governance solutions in their domains. even worse that some of the low-income states like While some progress has been made in e-governance, Madhya Pradesh and Uttar Pradesh (not shown). In much more needs to be done for it to take hold in education, the poor quality of the government Punjab. In the social sectors, absenteeism remains a system is evident from the weak performance of major issue, seriously undermining the quality of the public school students in the Board Examinations. school and primary health system in rural areas. The Only 53 percent of students were successful in the government intends to reinforce local accountability Class 10 exams in 2002. Public school students in the health and education systems through an perform worse than their counterparts in private ambitious decentralization initiative. schools at all levels of the system. The poor quality of government schools is particularly problematic for The civil services face major challenges in the poor and disadvantaged castes who are much less Punjab including chronic overstaffing, political likely to attend private schools (Punjab HDR, 2003): interference, weak policy-making capacity, and Poorer districts tend to have fewer private schools; inefficient processes that stymie its working. The and the share of scheduled castes in government ratio of civil servants (core, PSUs, and local bodies primary schools is 44 percent, well above their share together) per 100 of population is approximately in the population, as children from other groups have 2.2 in Punjab, compared to 1.36 in Karnataka, 1.75 been moving out to private schools. in Andhra Pradesh, 1.7 in Gujarat and 1.9 in Orissa, and the all-India ratio of 1.4. Relative In several states, e-governance has proven to be to several major states and the country as a 34 one way of reducing corruption and improving whole, therefore Punjab is overstaffed. While services. There are several challenges confronting the downsizing may be difficult in the current political development of e-governance in Punjab. The environment, the government has also loosened the Department of Information Technology has been freeze on recruitment, which might have helped seriously hamstrung by the erratic release of funds for contain the long-term fiscal damage of its bloated some of its projects. It is also clear that many civil service. .igure 1.17 Average Percentage of legislators who found representation in the State Cabinet, 1967-94 Source: Data derived from Chhibber 'Democracy without Associations' 1999. PUNJABS DEVELOPMENT: PER.ORMANCE AND PROSPECTS There is also considerable scope for The frequent transfer of civil servants spawns rationalizing the structure of government and corruption and undermines service delivery. The reducing administrative fragmentation to improve average term for Principal Secretaries in their current performance. Punjab's 43 departments could benefit post as of October, 2003 was a mere 13 months from greater coordination amongst them. compared to 16 months in their previous post (this Administrative fragmentation has been fueled in excludes officers on deputation to GoI where terms part by the large number of Cabinet members tend to be longer). For Secretaries in their current post, relative to the size of the legislature: Between 1967 the average tenure was 17 months compared to 15 and 1994, 35% of the legislature found months in their previous assignment. Nor is the picture representation in the state Cabinet, the second any better at the district-level: The average tenure for highest of any state in India (figure 1.17). By 2004, deputy commissioners in Punjab's districts was only 13 the percentage of legislators finding a berth in the months for the current occupant in October, 2003 Cabinet had fallen significantly to 26%, but the compared to average of 22 and 14 months respectively problem of fragmentation remained largely for the previous two deputy commissioners. Frequent unaddressed. The new constitutional amendment transfers imply a weaker capacity to frame policy in limiting cabinet size to 15% of the strength of the departments; Secretaries often have only a few months legislature provides a further opportunity to to learn about a department before they are whisked off streamline departments in Punjab to promote to another position. Ironically, many Secretaries spend synergies and eliminate overlapping functions: a great deal of their time dealing with personnel issues, All states will have to comply with this law by such as transfers and appointments, rather than June, 2004. thinking about policy formulation and strategy. 35 Major Challenges to Punjab's Prosperity MAJOR CHALLENGES TO PUNJAB'S PROSPERITY A n average citizen of Punjab has already the extent and nature of the problems vary greatly achieved a level of socio-economic in Punjab. development that an average Indian citizen is unlikely to experience in her lifetime. This makes In this chapter, we take a close look at some of the nature and extent of Punjab's development the major challenges that are a key threat to challenge that much more unique and complex. To Punjab's long-run prosperity. The emphasis is on paraphrase, using language from the sports world, Punjab-specific factors and not on factors that are Punjab is a champion defending its title and not an common to all states and are thus well known in the underdog trying to win one. As the previous literature. Seven such factors have been identified 39 chapter demonstrated, Punjab's problems are likely below for in-depth scrutiny. to be different than those faced by other Indian states. Punjab grew rapidly when much of India THE DEBILITATING IMPACT O. CIVIL was growing at an anemic rate of 3 percent per STRI.E annum, but its economy slowed down when the The long bout of insurgency during the 1980s rest of India took-off. The growth slowdown in and early 1990s has left an indelible mark on the Punjab is primarily attributed to stagnant state, which it is still learning to deal with. The agriculture, while the growth slowdown in some of impact was felt on all fronts: investment and growth the high and middle-income Indian states is largely slowed down as investors stayed away, state finances due to the deceleration of the growth rate in deteriorated due to increasing expenditure on law industry. While the genesis of the current fiscal and order and the rapidly growing bureaucracy, woes in many states is traced to the Fifth Pay collecting taxes became an increasingly difficult Commission and declining revenue during the business, service delivery, particularly in rural areas, 1990s, the roots of the problem in Punjab go much suffered, and civil servants under President's rule further back in time to the period of militancy that became less accountable and potentially more prone erupted in the early 1980s. At the same time, there to corruption. are similarities as well. The decline in public services, the administrative and governance Extensive decline in the growth rates across challenges, the problems associated with the power all sectors sector and the growing culture of appeasing special The impact of militancy on growth was swift, interests are some of the challenges that Punjab widespread and, in some sectors, permanent. shares with other Indian states, though even here Although there was no flight of existing capital, RESUMING PUNJAB'S PROSPERITY surplus capital with Punjab's larger industrial houses Our calculation shows that the output loss suffered moved out to neighboring states18. Punjab's base of by Punjab on account of militancy activities could be small-scale industries began to stagnate. The as large as Rs. 13,000 crores in today's prices19. industrial growth rate halved, from above 8 percent per annum in the mid-1980s to 4 percent per annum Fiscal impact: The chickens came home to roost by 1991/92 (figure 2.1). The growth rate of the after a lag of several years services sector decelerated as well, and fell by half. While state finances were affected during Even the agriculture sector was not spared. Its growth militancy, much of the real damage was felt after the rate fell from around 6 to 2 percent per year, state returned to normalcy. The fiscal situation although it is unclear how much of this decline is due was affected by the expanding state apparatus, to insurgency activities and how much is due to mounting revenue expenditure to maintain law and diminishing returns on the green revolution order, and the inability on part of the government technology. The overall growth rate declined from an to enforce effective tax administration, given the annual average of 6 percent per annum to 3.6 percent deteriorating law and order situation, especially in during this period. While the industry and service the rural areas20. sectors have gradually bounced back to trend growth rates as normalcy returned to Punjab, the agriculture A major spurt in the growth of the civil services sector remains mired in a low growth trap even today. in Punjab occurred during the second spell of .igure 2.1 Punjab: The growth rate fell considerably during the period of militancy and President's rule 40 Source: Economic and Political Weekly; The State Live Database, The World Bank. 18Some of the prominent and successful Punjabi business houses that began investing outside of Punjab, mainly in Haryana and Delhi, during this period include the Munjals, Oswals and Mittals. 19This assumes that the economy would have grown at the pre-militancy trend growth rate during the militancy period. 20Bank staff was told by one official that, during the height of militancy, the government was effective only within a the 10 kilometer radius of the Grand Trunk road, the main road connecting all important cities of Punjab. The countryside, especially in the border districts, were off-limit to state government officials. MAJOR CHALLENGES TO PUNJAB'S PROSPERITY President's rule, from 1987 to 1993, with the core civil Indian states remain unchanged at 23.7 percent. The service growing by some 3 percent per annum (figure- interest payments on these additional borrowings 2.2). Most of the growth came from contingency and started to mount rapidly and Punjab's interest work-charged employees (22 percent per year) and payments more than doubled in 1993/94, from 1.6 Group A civil servants (16 percent per year). The rapid to 3.4 percent of GSDP and steadily increased there growth of contingency employment between 1987 after (figure-2.3)21. The rising interest bill today and 1997 partly reflected the government's desire to accounts for nearly 30 percent of the state's total expand job opportunities in Punjab during a period of revenue receipts and is one of the main causes of the social turmoil fed by militancy. low level of capital expenditure and the rising revenue deficit of the state. The fiscal cost of maintaining a large and growing bureaucracy had its toll on revenue An amount close to Rs.8,000 crores related to the expenditure, which shot up by 2-3 percentage points militancy period, generally referred to as the 'terror- of GSDP during this period (figure 2.3). The rising debt' in Punjab, is still in the accounts of GoP though revenue expenditure was financed by additional the interest payments have been waived off till 2004/05. borrowing from the Centre, resulting in a secular GoP has made a request to Government of India (GoI) decline in the state's capital expenditure and an to write-off the entire terror-debt and the Twelfth unprecedented increase in GoP's debt. As figure-2.3 Finance Commission (TFC) will give its view on this shows, Punjab's debt to GSDP rose from 26.1 matter when it submits its report later in the year. percent of GSDP to 36.3 percent in a span of six years (between 1986/87 and 1992/93), at a time Revenue mobilization also suffered during this when the average debt to GSDP ratio for other period and worsened as policy-makers, faced with the 41 .igure 2.2 Punjab experienced a major spurt in the growth of the civil services during President's rule Source: GoP, State Database. 21There was also a waiver on some of the interest payments during President's rule, which stopped following the latter's revocation. RESUMING PUNJAB'S PROSPERITY The fiscal cost of insurgency has been felt over time through .igure 2.3 higher interest payments and a lower revenue base and productivity (All variables are expressed as a percent of GSDP) 42 Source: GoP; The State Live Database, The World Bank. specter of insurgency, adopted populist policies. The But in a state like Punjab, where the salary per civil state, over time, became a soft target of special servant is one of the highest in the country (figure- interest groups. The state's own tax revenue to GSDP 2.4) and the quality of public services one of the fell from 7.9 to 6.9 percent of GSDP between poorest (figure-1.16), it can be said with some 1986/87 and 1992/93, though not all of it can be degree of confidence that the productivity of attributed to the militancy problem, as the tax to Punjab's civil service, however measured, is likely to GSDP ratio declined in other states as well during be quite low. The average salary per civil servant this period, albeit less rapidly than in Punjab. however masks inter-Grade disparity, e.g., compared to the pay scale of Tamil Nadu, Group C and D IMPROVING THE WORKING O. THE employees in Punjab are paid higher than their CIVIL SERVICE counterparts, while Group A and B actually receive The Problem of Low Productivity less (right panel, figure-2.4). The fact that Group C There is no simple and objective way to and D make up 85 percent of the state's civil service measure the productivity of a state's bureaucracy. in Punjab and are paid disproportionately more than MAJOR CHALLENGES TO PUNJAB'S PROSPERITY .igure 2.4 Average monthly salary of civil servants across states and across grades between states Source: GoP, GoTN, The State Database. their counterparts in other Indian states clearly Karnataka, 1.75 in Andhra Pradesh, 1.7 in Gujarat reflect that the mismatch between wage and and 1.9 in Orissa, and the all-India ratio of 1.4. productivity is likely to be far greater in the lower Relative to several major states and the country as a 43 than in the upper grades. whole, therefore Punjab is overstaffed (figure-2.5). The low productivity of civil services in Punjab The Punjab Expenditure Review Commission can be directly linked to chronic overstaffing, political (2002) report notes that senior positions in the interference, lack of accountability and absenteeism, bureaucracy have proliferated in recent years, and inefficient processes that stymie its working. triggering a concomitant expansion of subordinate staff as well: the number of Indian Administrative Overstaffing Service (IAS) officers increased from 165 to 206 Punjab has one of the most over-staffed civil between 1984 and 1998, while that of Superintendent services in the country of Police (SPs) and above increased from 112 to 237. According to GoP, the total size of the core civil Group A civil servants in absolute numbers grew from service in 2002 stood at about 376,222 employees of 612 in 1967 to 5,192 in 1992 and 12,156 in 2002. It which the most numerous were Group C employees is worth noting that the growth of the Punjab civil (67 percent) followed by Group D employees (18 services has an important historical dimension (figure- percent). If we add employees of PSEB and other 2.6). The first major spurt in growth in the civil PSUs (about 104,178), teachers in Grant-in-aid- services occurred from the late 1960s to the late 1970s schools (16,804) and local bodies (about 38,636), pushed forward by the Indian state's rapidly this number swells to 535,840. expanding role in the economy. Particularly notable during this period was the rapid growth of Group A The ratio of civil servants (core, PSU's, and civil servants, expanding by 58 percent between 1967 local bodies together) per 100 of population is and 1972 and another 39 percent between 1972 and approximately 2.2 in Punjab, compared to 1.36 in 1977. The next major spurt of growth occurred during RESUMING PUNJAB'S PROSPERITY .igure 2.5 Punjab's civil service is over-staffed compared to major Indian states Note: (i) Data pertains to 1999/00, except Gujarat, for which data is available for 1998/99. Total Public Sector Employment includes core civil service, work-charged and daily-wage employees, grant-in-aid institutions, state- owned enterprises, and local bodies. the second spell of President's rule in Punjab from increases decreed by the Fifth Pay Commission and 1987/88 to 1992/93. The growth of Group A extended by Punjab's Fourth Pay Commission to all continued unabated between 1992/93 and 1997/98 state employees. First, GoP, for essentially political registering an increase of 86 percent, while Group B reasons, allowed the number of Group A cadres to shrank by 35 percent with more Group B cadres being swell from just 161 in 1998 to 211 in 2001, resulting 44 reclassified as Group A by the leadership. Contingency in a major increase in the number of highly paid civil employment also increased between 1992 and 1997 servants in the state. Group B cadres registered a by 47 percent, but the overall size of the core civil moderate increase from 93 to 99, and Group C service expanded by only 7 percent. cadres fell from 314 to 258 in the same period. A typical example: agricultural inspectors, a Group C The problem of a ballooning wage bill has been cadre, were redefined as Group A officers in the late exacerbated by three factors in addition to the salary 1990s. Second, government servants under the .igure 2.6 Expansion of the Core Civil Service, 1967 through 2002 Source: Finance Department, GoP. MAJOR CHALLENGES TO PUNJAB'S PROSPERITY assured career progression program were guaranteed budget for salaries set by the National Police hefty salary increments, even if not promoted, after Commission. Estimates place the number of 8, 16, and 24 years of service respectively; this was surplus employees, in the Irrigation Department at compressed in 1996 to shorter time horizons of 4, 9, over 20,000. and 14 years, while the number of cadres falling under the program's ambit was widened significantly. Overstaffing is not limited to the core civil service Third, the pay scales of GoP employees are The Punjab State Electricity Board (PSEB) is significantly higher than those in neighboring one of the most bloated electricity utilities in India, Haryana and, crucially, the GoI, particularly for making it even harder to commercialize (figure 2.7). peons, teachers, doctors, and constables, who Employee costs in PSEB are substantially higher account for a large percentage of the state's total compared to other power utilities, and accounted for civil service. 19% (FY2002) of the total cost of power supply. During the period FY1997-2002, PSEB's employee Police and Irrigation seem to be particularly costs increased by 100% between 1997 and 2002, overstaffed. The police budget, only 3.53 per cent while the number of employees grew by merely 3%. of the total budget in 1980-81, has shot up to more While the utility has imposed a ban on recruitment than 8 per cent (Rs 1000 crores) today. Two and a freeze on new posts, there is no evident decades ago, Punjab possessed only one Inspector- improvement in the rationalization and efficient General (IG) of Police in Punjab, controlling the deployment of the employees in PSEB. The police force. Now there are 16 IGs, 13 Additional employee strength is large (about 85,000), there are Director-Generals of Police, who supervise the issues of skill mismatch, and the salary/benefits work of the IGs, and one Director-General of structure is among the highest compared to other 45 Police at the top. The force spends roughly 87% of power utilities in the country. PSEB has 16 its budget on salaries and the rest on other activities employees to serve 1000 consumers as compared to including maintenance and modernization; this the national average of 7.8 employees per 1000 contrasts sharply with the norm of only 70% of the consumers. Key reasons for such gross overstaffing .igure 2.7 PSEB is overstaffed relative to other SEBs, which adds to the cost of power supply Source: Annual report on Working of SEBs, Planning Commission, May 2002. RESUMING PUNJAB'S PROSPERITY include outdated work norms, minimal outsourcing their jobs in the Punjab secretariat does not seem to of the utility's functions, and the rapid creation of be more than a few months. The total period that posts. An internal review concluded that PSEB could Principal Secretaries and Secretaries had spent in profitably shed 10,000 posts in transmission and their posts as of October, 2003 is shown in distribution (i.e. 15% of the total employees in Table 2.1. T&D), while PSEB's Chairman stated that he had to contend with "flab" in excess of 30,000 employees. Of the five officers who had spent more than two years on their posts, four were holding posts for The Punjab Expenditure Regulatory which there is little competition, such as Principal Commission (PERC) in its FY 03/04 tariff order Secretary, Freedom Fighters; Principal Secretary, stressed the need to reduce employee costs and Programme Implementation; Secretary, Department allowed the utility to recover Rs 1250 crores in wages of Relief and Settlement; and Commissioner, through tariffs. However, employee costs in FY Departmental Enquiries. The more important 04/05 is estimated to be about Rs 200 crores higher. Secretaries were transferred before they could play a Subsequent to the directive of the PERC to reduce leadership role in promoting reform. The average employee costs, some measures22 have been initiated term for Principal Secretaries in their current post as but with only marginal effects so far. of October 2003, was a mere 13 months compared to 16 months in their previous post (this excludes Political Interference: The Problem of officers on deputation to GoI where terms tend to be Premature Transfers longer). For Secretaries in their current post, the Punjab suffers from the problem of frequent average tenure was 17 months compared to 15 46 transfers of officers, spawning corruption and months in their previous assignment. Nor is the undermining service delivery. Frequent transfers picture any better at the district-level: The average seem to be a particularly serious issue in large tenure for Deputy Commissioners in Punjab's departments, such as health, education, and police, districts was only 13 months for the current as well as revenue-generating departments, such as occupant in October, 2003 compared to average of transport and registration23. Leadership for reforms 22 and 14 months respectively for the previous two has to be provided by Secretaries of the key Deputy Commissioners. In the police, the tenure of Departments, for which they need a stable tenure. Station House Officers (SHO's) was about seven Unfortunately, at present the average time that the months, and just eight to nine months for Deputy Principal Secretaries and Secretaries have spent on Superintendents of Police (DSPs). Table 2.1 - Tenure in months/Senior IAS officers No. of months Less than 3 3 to 6 6 to 12 12 to 18 18 to 24 more than 24 No. of officers 18 20 5 3 6 5 22These measures include abolishing 1400 vacant posts at hydro-electric projects, and curtailing benefits such as telephones, staff cars, and house/conveyance advances (annual savings of Rs 35 crores). The utility is allowing long leave of five-years to work in the private sector and premature retirement. 23For example, the problem of deteriorating pupil-teacher ratios in remote or rural areas has been compounded, to a large extent, by the politicization of the process of assigning and transferring teachers across posts. The incentives to use political influence to secure a desirable urban posting can sometimes be overwhelming, resulting in higher-than-normal vacancies in less developed districts. Mid-year transfers, recently banned, have seriously disrupted the learning process for school children across Punjab. MAJOR CHALLENGES TO PUNJAB'S PROSPERITY Inadequate Use of Modern Lack of a computerized tax system and Technology and .ragmented administrative fragmentation have affected Administration state's tax collection On the whole, the Punjab Government has yet to Lack of a systematic method to gather economic systematically apply information technology on a large intelligence and the fragmented administrative scale. While the Secretariat does possess a computerized structure of the tax department have affected revenue file monitoring system in the office of the Chief collection in the state. Punjab has no institutional Minister, its use could be far more widespread than it is mechanism for sharing of information among sales / at present. The Government has computerized the commercial tax departments, except verification on a service records of all Secretariat officials but has yet to case-by-case basis from time to time. This is a matter implement a computerized human resource database of concern as Punjab levies sales tax at the last point, for which the software is already available. The unlike most Indian states that collect taxes at the first Secretariat's Manual of Office Procedure is in dire need point. Given that the information on the dealers is of revision to accommodate the greater use of weak and there has been widespread evasion of tax in information technology, administrative simplification, the last point system, over the years, the state has and public demand for access to information. shifted the tax to the first point in respect of a number of commodities. This however, has not More importantly, there is considerable scope for helped to improve revenue productivity, as the rationalizing the structure of government and traders seem to have managed to keep the entire reducing administrative fragmentation to improve chain of transactions out of the tax net. The performance. Punjab's 43 departments could benefit organization of the tax departments along the from greater coordination among them: For instance, geographical lines instead of functional 47 the Punjab Finance Department focuses only on responsibilities has also led to inadequate sharing of expenditure while revenue is a separate subject under a tax information across the geographical boundaries. Financial Commissioner, Excise and Tax. Punjab has 117 Principal Secretary and Secretary-level officers ENHANCING THE QUALITY O. from a total of 163 IAS officers; the ratio of IAS SERVICE DELIVERY officers to the population is highest in Punjab out of The Problem of Absenteeism fourteen major states; and for every single IAS officer Recent evidence from a survey of government in Punjab, there are 412 Group D staff (e.g., drivers, primary schools across Indian states shows that peons) compared to 352 in Tamil Nadu and 205 in teacher absence in primary schools in Punjab is Karnataka. The problem is not necessarily the large extremely high: on an average, on any one day, 36 size of the IAS cadre but the cascading effect that this percent of Punjab's primary school teachers are has on the proliferation of the civil service at lower absent from the school (top panel, figure 2.8). This levels. Currently, the state is organized into four rate is well above the 25 percent rate for All-India, divisions, 17 districts, 72 subdivisions, and 140 and third highest across Indian states, following development blocks; yet, in 1966, Punjab had two Bihar and Jharkhand. Compounding the problem is divisions, 11 districts, 37 subdivisions/tahsils and 117 the finding that even when teachers are present, only development blocks. It is not clear whether a small half (49.8 percent) are teaching. This is below the all- state, such as Punjab, needs four divisions or 72 sub- India average of 59.5 percent. divisions when the average number of development blocks in a district is just eight. This multiplicity of The same problem plagues the health facilities administrative tiers generates both confusion and as well. Nearly 39 percent of doctors and 44 delay, besides adding to the state's enormous wage bill. percent of other medical personnel are absent from RESUMING PUNJAB'S PROSPERITY .igure 2.8 A high rate of absenteeism among educational and health service providers is a major constraint to improving the quality of service delivery in Punjab (Teacher Absence and Teaching Activity in Government Primary Schools, by State) (Medical Provider Absence in Primary Health Care .acilities, by State) 48 Notes: The absence rate is the percentage of providers who are supposed to be present but are not on the day of an unannounced visit. Source: Provider Absence Project Research Team, World Bank 2004. their place of work (bottom panel, figure 2.8). Not understand the high rates of absence, as the policy all the absences can be explained by shirking. response depends on why absences occur. If Among doctors, of the 39 percent absence rate, 11 service-providers are absent for personal reasons, percent were absent without reason, 12 percent incentives for staff need to be changed. If were on authorized leave, and the remaining 16 institutional reasons are the culprit, the state needs percent were away on official duty. Among non- to re-evaluate the value of other requirements doctors, the corresponding breakdown is 9, 14, and that keep providers away from their jobs24. 20 percent. More work is needed to better Interestingly, Madhya Pradesh, which has been a 24Home visits could be a reason, but are likely not to be an overwhelming factor. Only 2% of women surveyed in the 1998-99 NFHS report having received at least one home visit from a health or family planning worker in the 12 months preceding the survey. MAJOR CHALLENGES TO PUNJAB'S PROSPERITY pioneer of decentralizing education and health patients from the primary health systems for services to panchayat raj institutions (PRIs), has a treatment in the more advanced public hospital much lower absenteeism rate than most states. systems leading to underutilization of PHCs (see Box-4). Underutilization of Primary Health .acilities Expenditure Restructuring in the The problem of absenteeism is partly to be Priority Sectors blamed for the gross under-utilization of health Disturbingly, 94 percent of the Medical and infrastructure across the state. Punjab has a large Public Health Department's budget in 2001/02 was network of centers (community health centers, spent on salaries and pensions to employees, with primary health centers, and sub-centers) in only a pittance left for maintenance, supplies and addition to hospitals, but within the public sector, materials, including drugs (figure 2.9). The the vast majority of services are provided through situation is even worse in General Education, where hospitals, whether in-patient or out-patient. the 98.5 percent of the budget amount is spent on Lower level public facilities perform a negligible employees. In effect, the public educational system role at the level of in-patient care, perhaps seems to have been captured by teacher unions for reflecting the lack of adequate facilities to take care the exclusive purpose of salary payments, despite of patients who are seriously ill. While PHCs the appalling high absenteeism rate. While Punjab account for a larger share (20 percent) of out- spends less money as a percentage of GSDP on patient treatments at public facilities, their share education than Kerala or Rajasthan, there is little in overall out-patient care is negligible compared point in expanding outlays unless it is to improve to the private sector. Paradoxically, the success of the composition of the budget to reduce the relative 49 Punjab's Health System Corporation has drawn salary burden. .igure 2.9 Composition of Expenditure of the Medical and Public Health Department, 2001/02 Source: Government of Punjab RESUMING PUNJAB'S PROSPERITY E-Governance/Citizens' Charters Procurement law, although it has prepared a draft law A number of challenges remain to be on the subject; Right to Information (RTI) legislation surmounted before e-governance takes off in Punjab. has been delayed after Punjab decided not to enact its The Department of Information Technology has been own excellent draft law and wait instead for the seriously hamstrung by the erratic release of funds for Government of India to make the national Freedom of some of its projects. It is also clear that many Information (FOI) law effective. departments lack the champions to aggressively implement e-governance solutions in their domains. There is widespread evasion of tax and no strong It is also important that e-governance be combined political support for tax reform with real business process re-engineering across There is considerable evidence of widespread agencies. The state has a great many initiatives evasion of tax in the state. Given the economic planned but it will be necessary to prioritize given characteristics of Punjab's economy (i.e., high per capita both resource and capacity constraints. income, last point sales tax, low rural-urban disparity, large and growing remittances from the diaspora Although GoP has citizen's charters in many abroad), one would expect Punjab to have a large departments, these are vague, and service norms are number of tax-paying dealers and high average turnover poorly defined. Grievance redressal mechanisms are per dealer. But Punjab had only 143,000 registered largely left unstated and no penalties ensue for breaching dealers compared to 384,000 in Andhra Pradesh, charter norms. It is not clear whether people are aware of 370,000 in Tamil Nadu, 350,000 in Uttar Pradesh and these charters, or whether any improvement in service 188,000 in Karnataka25. The problem of under- delivery has resulted from them. Charters appear to have taxation is also evident if one examines the average 50 been hastily prepared in most cases without public dealer turnover across selected Indian states. For consultation and little attempt to sensitize staff. example, if the average turnover of dealers in Karnataka is assumed to be a fair value of the actual turnover of CORRUPTION dealers in Punjab, the extent of under-taxation in the The long spell of President's rule in the 1980s latter is a staggering Rs. 3,316 crores each year, i.e., appears to have weakened accountability mechanisms, Punjab's estimated sales tax collection should have been fuelling opportunities for corruption and graft. While twice the actual collection (figure 2.10)! If one discounts no serious study has been conducted on the profile of the fact that Punjab has higher threshold for dealer corruption in Punjab, potential areas where the registration, lower average tax rate, and does not have opportunity for corruption clearly exists include additional tax in the form of turnover tax as compared recruitment and transfers (discussed in the previous to Karnataka, even then the extent of tax evasion could section), tendering and procurement and service be as high as Rs. 1,500 crores. delivery (e.g., the need to pay a bribe at the local regional transport office to secure a drivers' license). Several attempts to raise additional revenue and While the state's Vigilance Department has become reduce tax evasion have failed due to lack of adequate more active under the current government, Punjab's political support for such reforms. Raising the sales tax office of the Ombudsman (the Lok Pal), responsible rate of diesel from 8 percent (lowest rate among all for combating wrongdoing by Ministers, is moribund. states) to 16 percent has been attempted several times Nor has Punjab moved as fast as Karnataka or Tamil but has yet to clear the Cabinet. Certain revenue Nadu to pass a Transparency in Tenders and measures like discontinuation of the non-practicing 25Part of this could be explained by different turnover threshold for registration, which is Rs. 5 lakhs in Punjab. The corresponding thresholds are Rs. 3 lakh in Tamil Nadu, Rs. 2 lakh in Karnataka, Rs. 1 lakh in UP and zero for AP. MAJOR CHALLENGES TO PUNJAB'S PROSPERITY .igure 2.10 A measure of potential under-taxation in Punjab (in Rs. Crores), 2002/03 Source: GoAP, GoK, GoO, GoP, GoTN and GoUP. allowance for doctors and introducing sales tax in minimum support prices (MSP), under which GoI defense canteen stores have been announced and rolled through the Food Corporation of India (FCI), follows back after several weeks. The mandatory filing of an open-ended procurement policy and buys whatever 51 statutory export-import (EXIM) form at Information rice and wheat is offered for sale at the MSP (provided Collection Centers for inter-state transactions was it meets defined quality specifications). While in introduced in September 2003, but was withdrawn in principle, the MSP is a national price, in practice, January 2004, for political considerations. In the short because of the availability of a good procurement period when it was in existence, the measure did infrastructure, Punjab has been a major beneficiary increase revenue collections. These episodes show the from GoI price support operations. Over 90 percent of strong disinclination on part of the government to market arrivals of rice and wheat in Punjab are solve its fiscal problem by generating more revenue currently procured by GoI at the MSP (World Bank, through better tax policy and effective administration. 2003a). Since the mid-nineties, the MSP subsidy for farmers has increased rapidly as support prices for both A GROWING CULTURE O. POPULISM: crops have increasingly diverged from production SUBSIDIES HAVE CROWDED-OUT costs. It is estimated that rice and wheat farmers in PUBLIC INVESTMENT Punjab received a subsidy of nearly Rs 2000 crores in Punjab has been a major beneficiary of the food 2001/02 through this mechanism, over twice the total subsidy from GoI subsidy received by rice and wheat farmers in any Farmers in Punjab receive a range of subsidies other state (World Bank, 2004)26. The other subsidy from the state and central governments. One provided by GoI is on fertilizer, which amounted to important source of subsidy is through the policy of nearly Rs.1000 crores in 2001/02 for Punjab. 26The subsidy is calculated as the difference between the MSP and the C2 cost of production. The C2 cost includes all actual expenses in cash and kind including imputed costs for owned land, family labor, and capital. If benefits were computed on the basis of A2+FL costs (which do not include imputed capital and land costs), the benefits for rice and wheat farmers would be much higher. RESUMING PUNJAB'S PROSPERITY Input subsidies are nearly 10 percent of attention. For regulating power supply to agriculture agricultural output (official policy is 8 hours/day supply), while ensuring Apart from output price support, inputs, 24 hours power supply to rural areas for household, particularly irrigation and electricity supply, are also commercial and industrial purposes, PSEB has been subsidized and are provided by the state implementing a program to segregate agriculture government27. These are large subsidies: since 1997- loads in the rural areas28. 98, input subsidies received by Punjab's farmers have been around Rs. 2,000 crores annually in recent At the same time, public investments have years, which is over 10 percent of the agricultural fallen precipitously domestic product in the state (figure 2.11). GoP's capital expenditure in agriculture was around 1.9 percent of agriculture GSDP in 2000/01, The key challenge, thus, is to work out an less than the 2.2 percent average across all states in appropriate package of tariff/subsidy reforms and the country. Private capital formation, which is the improvement in the power supply conditions to build dominant source of investment in the sector (four to support among stakeholders (politicians, farmers and six times public capital formation), decreased in real the utility). Determining a fiscally affordable level of terms in the first half of the 1990s and stabilized at a power subsidy to agriculture (at present farmers are lower level in the second half of the 1990s. So in real provided 8 hours/day power supply), targeting of the terms, Punjab's total investment in agriculture today subsidy, and delivering it to the consumers without is same it was in the late 1980s. This relatively low affecting the commercial performance of the utilities level of investment is worrying since capital are important public policy issues that need urgent investments are a precursor to future growth. 52 .igure 2.11 Subsidies to power and irrigation now exceed the capital expenditure of the state Notes: Subsidies in current prices. Source: Technical Note. 27The fertilizer subsidy is shown in the GoI budget. Canal irrigation subsidy is estimated as the difference between O&M expenditures and revenue collected from water charges. The power subsidy to agriculture is calculated as the difference between the cost of supply (agricultural consumption times average per unit cost of supply) and revenue collected from farmers. 28In about 50% rural feeders agriculture load has been segregated to a separate feeder, and the investment cost for segregation in the balance 5000 villages feeders is estimated to be Rs 250 crores. MAJOR CHALLENGES TO PUNJAB'S PROSPERITY During the period FY1999-03 investments in investments in the transmission system have been the power system have been insufficient with respect particularly low resulting in overloading of the to the 7 percent average load growth. The system and operational constraints. Introduction of Box 3 Who Benefits .rom Agricultural Subsidies? Direct benefits of output price support and input subsidies naturally accrue to those agricultural households who cultivate some land29. Comparing the socio-economic profile of agricultural households to non-agricultural households shows that such subsidies are likely to be regressive as cultivators by and large are amongst the richer sections of the rural population. The finding that agricultural subsidies are likely to be regressive is not unique to Punjab (World Bank, 2003b). However, Punjab does stand out in comparison to other states because very few of Punjab's farmers come from disadvantaged socio-economic groups (see Table below). Characteristics of Agricultural Households across States Agricultural households as a % of: Punjab Maharashtra Gujarat Tamil Nadu Haryana Population 41.5 58.3 59.3 32.5 50.7 Poor 8.4 51.4 53.6 25.4 12.3 Scheduled Castes and Scheduled Tribes 6.5 44.7 53.5 17.6 8.3 How are price support and input subsidies distributed within the farming population?The figure shows the estimated transfers through the MSP, electricity, and canal irrigation subsidies. In each case, the distribution of benefits is regressive, with marginal farmers receiving a little over a tenth of the subsidies received by large farmers. The average input subsidies received by 53 Punjab's farmers are comparable, and in the case of the price support, much higher, than those received by farmers in other states. For instance, on an average, a rice farmer in Andhra Pradesh received Rs 164 in 1998, about one-twentieth the amount received by a rice producer in Punjab. Similarly, a wheat farmer in Punjab received nearly one and a half times the transfer received by a wheat producer in Haryana, and forty-five times the transfer received by a producer in Uttar Pradesh (Sur and Umali-Deininger, 2003)30. The coping costs are too high for poor and small farmers. A Bank study on Power supply to agriculture shows that motor burnout costs for marginal farmers accounted for 10 percent of gross farm income in Haryana and 7.7 percent in Andhra Pradesh. The corresponding rate for large farmer was 1.6 and 2.3 percent respectively in the two states. 29This ignores indirect effects on rural land, labor, and output markets. A priori, without further empirical work, it is difficult to predict whether accounting for indirect impacts would makes the subsidies more or less regressive. 30While it is clear that subsidies are regressive - the magnitudes reported in the figure are likely to be over-stated. Not the entire subsidy actually reaches farmers. For example, the supply of electricity to farmers reported by PSEB could be exaggerated to hide theft and technical losses. The PSEB estimate for average consumption by agricultural pump sets was 3021 kWh/kW/year in FY2000, and was restated at approximately 1800 kWh/kW/year in FY2002. The PERC in its first tariff order assessed consumption to be even lower, at approximately 1700 kWh/kw/year (PSERC Tariff Order, FY 2002-03). Using the regulator's norm of 1700 kWh for FY00, would lead to a drastic reduction in the agricultural power subsidy, from Rs 19.39 billion to Rs 10.9 billion. RESUMING PUNJAB'S PROSPERITY open access can result in additional power for the registration of a company with the Department of state. While there is an urgent need for investments Industries: (i) An entrepreneur has to get a provisional in the power system to reduce overloading, T&D registration from the District Industry Centre with losses and improving quality of power supply, it is proof of location (and large enterprises have to get important that these costs are adequately recovered registered with the GoI, Ministry of Industry, as well); through tariffs and do not result in additional (ii) The sponsor has to prepare a project report and financial losses for the utilities. A comprehensive apply for a no objection certificate (NOC) from the assessment and prioritization of investments based Pollution Control Board (PCB), following which the on the costs-benefits analysis should be undertaken. sponsors apply for a power connection from the PSEB. INVESTMENT CLIMATE: THE For certain types of enterprises, there are PROBLEM O. REGULATORY BURDEN additional requirements. For example, if the land is AND IN.RASTRUCTURE provided by the Punjab Urban Development The regulatory burden faced by entrepreneurs Authority (PUDA), the sponsor needs to get a in establishing a new business or running an existing building permit from it. For hazardous industries, one is an important determinant of the investment (the Factory Act of GoI identifies 19 hazardous climate of the state. Regulations by themselves are industries), the sponsor has to apply for a site not undesirable; indeed, regulations are needed to appraisal to the Competent State Authority (CSA)- clarify the rules of the game for business as well as cum-site appraisal committee. There are some local ensure that societal expectations about how restrictions regarding sites31. When construction is businesses should operate are fulfilled. Periodic completed and machineries are installed, sponsors 54 inspections by government officials may be needed to apply to the PCB for consent to operate. ensure compliance. The problems arise when regulations are onerous and stifling and when Complying with inspections, Record inspections are too frequent, and involve harassment Keeping and Submission of Returns and corruption. While the regulatory burden in According to the responses to the investment Punjab is not excessive and the inspection regime is climate survey, firms in Punjab face a relatively not too stifling, both leave much to be desired moderate inspection regime. An average firm in compared to other states. There are also certain Punjab is visited by government inspectors around 8 infrastructure constraints, especially in the quality of times a year, compared to an all-India average of 11. power supply and the cost of transport for its exports, However, in one sector, garments, the incidence of given that it is a land-locked state. inspections in Punjab is the highest in the country, i.e., 14 per year compared to an all-India average of 9. Administrative Procedures in Establishing a New Business Generally, small firms experience less inspection Administrative procedures involved in establishing than large firms (the all-India average number of a new business in Punjab requires several steps and inspections is 9 for small firms vs. 20 for large firms). clearances, but is not necessarily more cumbersome The firms exporting goods tend to be inspected than elsewhere in India. There are two stages in the much more (21 times a year) than the non-exporters 31For example, in a city with a population of more than 10 lakhs, no industrial unit can be set up within 25 kms. of the city limits without obtaining an industrial license from the GoI. This applies to all industries. Additionally, no industrial unit can be set up within 16 km. of Chandigarh. This is a state-imposed restriction. If the unit is located within the municipal limits of any town, then an NOC is needed from the municipal authority; this does not apply to industrial areas. MAJOR CHALLENGES TO PUNJAB'S PROSPERITY (6 times). Managers of firms in Punjab report 7.5 percent compared an all-India average for small spending about 12.5 percent of their time dealing firms of 10.5 percent. Only firms in four states with government regulatory matters; this is reported a lower incidence of excess employment33. marginally below the all-India average of 13.8 percent for small firms and 14.5 percent for all firms. Skills and training. Firms in Punjab suffer from skill shortages. Of the total educated job seekers in A recent review of inspections, maintenance of Punjab during 2000, only 24 per cent were records and filing of returns in Punjab and Haryana by technically qualified34. A recent study of the quality the CII reveals a number of problems32. Firms are of workers in Indian manufacturing found the quality required to maintain a large number of forms and of Punjab's work force to be low and declining over registers, especially under different labor laws. Many of time, relative to other states. Data for 1999/2000 these forms ask for the same information and different placed Punjab as 15th out of 18 states in the quality forms often appear similar, thus adding to the confusion. of its regular salaried urban manufacturing employees. Ten years earlier, i.e., according to data for Labor 1987/88, Punjab had ranked 12th35. Labor market flexibility. A relatively inflexible labor market has been one of the major weaknesses of The state has several industrial training India's investment climate. The Global institutes (ITIs). These institutes suffer from many of Competitiveness Report 2001 identifies restrictions on the deficiencies common to public sector training the hiring and firing of workers as one of the greatest institutes - outdated and irrelevant curriculum, challenges of doing business in India. India ranked inadequate facilities, obsolete equipment and 73rd out of 75 countries on this front in the survey shortage of trained instructors - all of which lead to 55 carried out for the report, with China ranking 23rd. skills that have little market demand. Not surprisingly, as reflected in employment exchange Firms in Punjab identify labor relations as one of data, a large proportion of the technically trained their less serious problems. One manifestation of a rigid manpower from ITIs remain unemployed or labor market is the incidence of excess employment. employed in trades unrelated to their training36. Firms operating in rigid markets have limited scope for adjusting the size of the workforce in the face of Level and Quality of Infrastructure changes in business conditions and this is sometimes Power. The adequacy, reliability and cost of reflected in excess employment. By this criterion, power supply are an important dimension of the Punjab's firms appear to be operating with greater investment climate. Enterprise surveys have identified flexibility than their counterparts in most states. The it as one of the most critical problem areas in many average degree of excess employment reported by the Indian states and Punjab is no exception. Firms in firms in Punjab (which are all small in the sample) is Punjab report an average of 25 power outages per 32Confederation of Indian Industry, Northern Region, Consolidation of Registers and Forms in Punjab and Haryana: A Potent Way to Simplify Procedures and Minimise Inspector Raj: A Note, December 2003. 33Interestingly the states that appear to perform better by this criterion are those that have an overall poor investment climate (e.g., Madhya Pradesh, West Bengal and Uttar Pradesh). 34Punjab Development Report 2002, Chapter 12. 35Suresh Chand Aggarwal, Labor Quality in Indian Manufacturing: A State-level Analysis, ICRIER Working Paper No. 126, April 2004. 36Punjab Development Report 2002, Chapter 12. RESUMING PUNJAB'S PROSPERITY month, nearly double the nation-wide average of 14 reduced substantially, about 40 percent of the and significantly higher than in states with better network will be approaching saturation by 2008. investment climates. Firms report losing almost 9 M Vehicles average 34 kmph with only 10 percent percent of their output due to power shortages, of the network having speeds greater than 45 compared to a nation-wide average of 6.5 percent. In kmph, reflecting the imbalance between traffic Punjab, which has the second highest incidence of flow and road capacity. generators among Indian states, firms obtain about 27 percent of their power from own-generators. Total vehicle operating costs are high, service standards low and they will deteriorate further unless Transport: Like their counterparts in other substantial additional road capacity is provided. Present northern states, firms in Punjab are disadvantaged by standards may be adequate for grain-based agriculture their long distance from ports. This is a particularly but it is difficult to envisage vehicle speeds of less than serious problem with regard to heavy weight or 35 kmph facilitating the attraction/development of a volume products, or where the delivery times are more diversified, higher value and more time sensitive stringent. A recent study indicates that: pattern of production in either agriculture or industry. M Pavement conditions are not perfect but, Industrial relations. Trade union activity has perhaps, reasonable by Indian standards: about been relatively less pronounced in Punjab perhaps 70 percent of the network has a riding quality because of the small enterprise dominated character which is at least 'fair.' of its industrial landscape. According to data reported M Over 500 km of the network has traffic in excess in the Punjab Development Report 2002, while the 56 of 15,000 PCU (passenger car units), but there number of "industrial disputes" increased more than are only 42 km of four-lane roads; the network four-fold between 1968 and 1999 (the index rose is almost entirely two-lane and intermediate lane from 100 to 441; figure 2.12), the number of work (5.5 m). Traffic has been increasing at 11 percent stoppages in 1999 was actually lower than in 1968. annually and, even if this rate of growth is Judged by work stoppages, industrial relations in .igure 2.12 Industrial disputes in Punjab: 1968-2003 Source: Punjab Economic Report: Investment Climate (Technical Note). MAJOR CHALLENGES TO PUNJAB'S PROSPERITY Punjab deteriorated in the 1970s and have, since budget and place before the Punjab Legislative Assembly then, progressively improved. However, while the the outcome of such reviews". No such reviews have been number of disputes has gone down, the number of prepared or placed before the legislature in 2003/04. man-days lost due to stoppages has increased nine- The Act states that, "Whenever outstanding guarantees fold, reflecting an increase in the average number of exceed the limits specified in clause (d) of sub-section (2) workers involved in each work stoppage. of section4, no fresh guarantee shall be given...." Our calculation shows that the guarantees have exceeded There have also been some changes in the causes the target by nearly 50 percent in 2003/04. of work stoppages since 1968. Disputes over wages, allowances and bonuses, once the most important The Government has also not taken prompt cause of work stoppages, are much less common now. action on a number of other fronts. While a VRS In 1999, for example, such disputes accounted for 40 order for surplus employees was issued on May 21, percent of the work stoppages, compared to 75 2003, the surplus pool is yet to be activated. The percent in 1968. On the other hand, issues such as enthusiasm to pass the Right to Information Bill and suspension and termination have become more of a Procurement Bill has also diminished. It has taken an bone of contention now than in the past; in 1999, unusually long time to prepare the Financial they accounted for one-fifth of the work stoppages Restructuring Plan for the power sector as difficult compared to just 3.5 percent in 196837. At the same issues remain unresolved. In the education sector, time, there has been an erosion in faith in conciliation adequate information and analysis of data on different as a means of settling industrial disputes. In 1999, aspects of service delivery are not easily available, only 8 percent of disputes were settled through this indicating only limited attempts to understand trends means compared to 28 percent in 1968. Adjudication and patterns in the sector. In agriculture, on one 57 continues to be the most important method, while hand, GoP encourages diversification, and on the voluntary arbitration appears to have gone out of use. other hand, insists on policies that are detrimental to One out of five industrial disputes are either pending diversification, e.g., pressurizing GoI to raise before the conciliation machinery or under minimum support prices (MSP) for paddy and examination with the government, indicating wheat, opposing private sector entry in building and inefficiency, or inadequacy, of the industrial dispute operating mandis, and showing an unwillingness to handling system. introduce participatory management in irrigation sector. The implementation of GoP's 2003 Industrial WEAK POLICY-MAKING AND Policy has also been slow; for example, proposals to MANAGERIAL CAPACITY replace octroi and entry tax with a single point local Despite the general consensus for change and area development tax and self-certification scheme for reform, GoP has not been very successful when it industrial units have not made progress. comes to formulation and implementation of policies. For example, more than a year after passage of the Frequent transfers of high-level officials imply a Fiscal Responsibility and Budget Management weaker capacity to frame policy in departments; (FRBM) Act, 2003, GoP is yet to implement certain Secretaries often have only a few months to learn about policies indicated in the Act. For example, the FRBM a department before they are transferred to another Act states that, "The Minister-in-charge of the position. Most high-level officials in Punjab are Department of Finance, shall review, after every quarter, overloaded with routine administrative tasks, ranging the trends in receipts and expenditures in relation to the from dealing with transfer requests, particularly in staff- 37Punjab Development Report 2002, Chapter 12. RESUMING PUNJAB'S PROSPERITY intensive departments, such as health and education to officials in the Finance Department (FD) are almost appearing in court cases. We analyzed some 115 requests fully occupied in day-to-day operations, e.g., managing filed with senior officials by a small sample of Members the overdraft position with the RBI, juggling resources of Legislative Assembly (MLAs) in Punjab from March from various sources to meet the wage and pension bill 1, 2002 through September 18, 2003. As illustrated in at the beginning of the month, spending substantial figure 2.13, of these 115 requests, 55 could broadly be time in approving individual transactions and enforcing construed as being related to the public interest (48 cash rationing, and thus are left with little time to percent). The remaining 60 requests dealt entirely with formulate strategies or implement the Medium-Term personal matters, including transfers (making and Fiscal Program. Because of the lack of qualified overriding them); appointments (making an manpower in the treasury and finance departments, the appointment or changing the terms of an appointment); accounting information produced is not being used for and benefits to individuals (withdrawing an FIR, land decision-making, which has weakened the budget allotments, and the like). Nearly 92 percent of all monitoring system. In the power sector, while GoP has requests were directed at high-level officials in the set up an Empowered Committee and Expert Group government. Because government officials have no to provide policy guidance on the reform program, alternative but to respond to these requests or risk being there are no dedicated teams for day-to-day interaction labeled as uncooperative and even transferred, an with the consultants and implementation of various inordinate amount of high-level official time is spent on reform actions. Similarly, the government and the fairly trivial matters, thus hurting the capacity of the Punjab Agricultural University (PAU) have limited government to formulate policy and think strategically. capacity to provide the necessary marketing, research and extension facilities which are consistent with 58 Key departments are constrained by their limited the government's ambitious agricultural diversification capacity to implement reforms. For example, the program. .igure 2.13 What keeps the GoP legislators and bureaucrats occupied? (Total number of requests from MLAs to bureaucrats analyzed = 115) (The subject matter of the requests) (To whom the requests were made) Source: GoP. The Government of Punjab's Reform Program THE GOVERNMENT O. PUNJAB'S RE.ORM PROGRAM T he new government that came to power in the disinvestment and fiscal policy, where blueprints for 2002 state elections started the reform process reforms already exist, their execution have been quite in earnest. It abandoned the populist, but fiscally and sluggish. In other sectors/areas, like health and environmentally unsustainable, policy of free power education, the pronouncement of strategies and ideas and water for farmers. Punjab became the second to improve service delivery have been rather slow. In state after Karnataka to have a 'Fiscal Responsibility a few cases, GoP has actually rolled back reforms that Act.' It came down hard on corruption and were beginning to show results. In this chapter we introduced politically difficult measures to restrain take a closer look at the major reforms announced revenue expenditure including a surplus pool to and implemented and policy reversals in Punjab 61 redeploy redundant staff and introduced a number of during the last two years. We also examine the tax policy and administrative reforms to raise state's prospect for reforms in the near-term. tax to GSDP ratio. The Government constituted an Expert Committee to suggest reform for the power .ISCAL POLICY AND .INANCIAL sector. It passed the 'Punjab Infrastructure and MANAGEMENT Regulation Act 2002' to encourage greater private- Fiscal Responsibility Act. Punjab has public participation in developing new demonstrated its commitment to fiscal reform by infrastructure. It accepted the recommendations of enacting the 'The Punjab Fiscal Responsibility and the Disinvestment Commission, which was set-up by Budget Management (FRBM) Act, 2003', on May 5, the previous government, came out with a well- 2003 (Punjab Act No. 11 of 2003). The rationale for articulated disinvestment strategy, and had some bringing such an Act, as stated by the government initial successes. The Government undertook an was, "... to ensure inter-generational equity in fiscal ambitious contract-farming project to diversify the management and long-term financial stability by state's agricultural base away from the paddy-wheat achieving sufficient revenue surplus, containing fiscal cycle. The government also announced its intention deficit and prudential debt management consistent to undertake significant decentralization of primary with fiscal sustainability through limits on the State health and education services with the aim to Government and conducting fiscal policy in a improve the quality of public services to its citizens. medium-term framework and for matters connected therewith or incidental thereto." While the just- The urgency to reform and the hectic pace of presented 2004-05 budget was accompanied by a policy making, unfortunately, appears to be fading Medium-Term Fiscal Reform Programme - as out. In sectors/areas like power, agriculture, required by the Act - overall the Act has not been RESUMING PUNJAB'S PROSPERITY given the attention it deserves and GoP is unlikely to reintroduced from November 2002. Two tariff orders meet any of the fiscal indicators stated in it. of PERC have been fully implemented. The Government has imposed a cess of Rs. 1 per litre on Ban on recruitment. A freeze on fresh petrol and is contemplating imposition of tolls on recruitments was imposed for vacant posts. With bridges and roads that have been completed by the natural attrition at 2.5 percent, the expectation was Punjab Infrastructure Development Board (PIDB). that there would be negative net growth in staff size Unfortunately, the increases in user fees have not in the current year. This ban has been in effect, off been associated with any perceptible improvement in and on, for the last ten years but the new government service delivery, making it difficult for GoP to further stated early on that it was serious about containing increase any user charges. recruitment. The ban, however, was lifted prior to the 2004 Lok Sabha elections. Although all requests Tax administration. In order to improve the to fill new positions will have to be approved by a quality and coverage of information on inter-state high-level committee chaired by the Chief Secretary transactions, the Excise and Taxation Department and departments will have to submit a restructuring had introduced the export-import (EXIM) form at plan along with its request, it is not clear in practice all the 35 check-posts (Information Collection how strict the committee will be in view of political Centers) in the state. After considerable delay, pressures. The most recent budget speech has also mandatory filling of the forms was introduced in announced the lifting of the ban on compassionate September 2003, but was withdrawn in January employment. 2004, for political considerations. In the short period when it was in existence, the measure did increase 62 Abolition of vacant posts. All vacant posts were revenue collections, but traders were successful in to be abolished after six months. Estimates placed the thwarting the move towards better enforcement of number of posts falling vacant during 2003 and the tax through the measure eventually. 2004 at 13,386 but it not clear whether any of these have been officially abolished. The total number of Financial management. To stem the misuse of vacant posts created through attrition is likely to be the food credit, a food account has been created 42,768 between 2002 and 2006, resulting in a outside the consolidated fund of the state budget. potential savings of Rs. 6.05 billion. A ban was Nearly 85 percent of treasury operations have been imposed on the creation of new posts that can only completed. A number of Personal Ledger Accounts be circumvented with the express approval of the (PLAs) have been closed. Chief Minister. POWER SECTOR RE.ORMS VRS and Pension Reforms. A VRS scheme for During the last two years several important both civil servants and public sector units including steps have been initiated in Punjab towards PSEB has been framed, but not implemented. With reforming the power sector. An "Empowered Group" effect from July 31, 2003, GoP has updated the headed by the Chief Minister and comprising four commutation factors for pension by using a higher ministers was set up in 2001 to take policy decisions discount rate of 8 percent. for implementing reforms. The GoP constituted an "Expert Group" in June 2001 to study the power User charges. User charges have been revised for sector and recommend key reform measures. The technical and medical education and rural water PERC, set up in 2000, is functional and its two tariff supply. User charges for canal water and power orders have been implemented by the utility. The supply to agriculture pump sets have been GoP has also signed a MoU with the Government of THE GOVERNMENT O. PUNJAB'S RE.ORM PROGRAM India (GoI) under the APDRP program to CPSUs has been accepted. GoP has signed an implement power sector reforms. Some of the agreement for settlement of outstanding dues of important reform measures initiated so far include: PSEB to CPSUs (NTPC, POWERGRID) and M Rationalization of electricity tariffs to improve has taken over the debt service liability. cover cost - Power utilities have implemented M Energy audit and metering - All the sub- two tariff orders issued by the PERC. In stations and 11 kV feeders (around 5500) have FY2003, tariffs were increased by 8-11 percent electronic meters. All consumers with a for different consumer categories, and connected load of more than 70kW are agriculture tariff of Rs 0.57/kWh or Rs provided with electronic meters. About 12 lakh 60/HP/month was introduced ending the five single-phase electronic meters are being year long free power regime. In FY2004, the procured in the current year for installation on average tariff has been increased by 6-13 percent new connections and replacement of about 10 for different consumer categories, except for the lakh old and slow meters. Consumer indexing agriculture consumers. Cost recovery has feeder-wise and transformer wise have been increased from 62 percent in FY02 to 75 completed. The ABT regime is operational at percent in FY03. the state level since December 2002. M Transparent determination of subsidy for M Unbundling and corporatization - To agriculture and residential consumers - PERC encourage investment and competition, the has set up a transparent process by which the "Expert Group" has recommended the government is required to explicitly commit the functional unbundling of PSEB and extent of subsidy it proposes to provide for implementation of a 'multi-buyer framework'. power supply to specific consumer categories. The "High Powered Committee" has accepted 63 The GoP committed to provide subsidy of Rs the recommendations of the expert group. It has 950 crores in FY2003, and Rs 857 crores in been agreed to unbundle PSEB into one FY2004 for power supply to agriculture and to generation, one transmission (wires only) and small households. The subsidy to agricultural three distribution companies. A holding consumers is based on fixed-rate tariffs and company is proposed to be put in place for a therefore the losses incurred by the PSEB are fixed period of time, with the objective of likely to be much higher than under a providing co-ordination support during the metered system. transition period. Consultants are assisting M Reduction in cross-subsidies - The extent of GOP to unbundle and introduction of open cross-subsidization among different consumer access in the power sector. categories has fallen moderately in recent years. In its last two tariff orders, the PERC has ADMINISTRATIVE RE.ORMS increased industrial tariffs at a lower rate than In order to combat overstaffing, GoP had for agricultural consumers. For FY2005, the announced its intention to set up a surplus pool as utility has proposed a reduction in power tariffs early as June 2003, but this has yet to be made for large industries from Rs 3.55/kWh to Rs operational. Part of the reason for the delay is the 3.25/kWh (and Rs 3.00/kWh for power debate over the rules governing the surplus pool. The intensive industries). first draft of these rules allowed surplus employees to M Securitization of dues to Central Power Sector remain in the pool for its entire life of five years until Undertakings (CPSUs) - The recommendation June, 2008 after which they would face retrenchment of the Ahluwalia Committee regarding a one- - the government is now considering reducing the life time settlement of outstanding dues towards of the pool to only two years to increase the RESUMING PUNJAB'S PROSPERITY incentives to accept either VRS or redeployment. in Tamil Nadu, which was led by a consummate Initially, the pool was meant to cover only core civil insider and former Finance Secretary who was able to servants but GoP now plans to extend this to include ferret out the necessary information on redundancy, PSU employees as well. The draft rules also require using objective criteria (e.g., compliance with departments to notify the Commissioner of the existing workload norms, changing workload norms Surplus Pool of any vacancies, so that surplus in the light of new technology; and the potential for employees get first preference in filling these posts. outsourcing). This spadework will have to be done, Employees will be declared surplus on the "last-in, especially in PSEB, before any serious right-sizing first-out principle" effectively discriminating against takes place in Punjab. younger employees, offered VRS, and, if they decline, transferred to the surplus pool for TACKLING CORRUPTION redeployment when an opening arises. GoP is still The Recruitment Process wrestling with the design of the surplus pool: The new government has moved aggressively to Obviously keeping the time in the pool to the barest improve the credibility of the Punjab Public Services minimum, preferably six months rather than two or Commission (PPSC), which handles recruitment to five years, is the only way to maximize incentives to over 17,000 posts in the Punjab Civil Service (PCS), accept VRS or redeployment. It is essential that GoP comprising mainly Class I and II bureaucrats, judges, undertake a serious assessment of redundancy using university and college lecturers, and doctors. In bona-fide criteria that will pass legal muster in order addition, the PPSC provides advice on promotion to shift people to the surplus pool and decide what and disciplinary cases. After repeated complaints and percentage of vacant posts are actually surplus in rumors of major corruption in recruitment, the new 64 nature. In the event that a sizeable number of government moved swiftly to remove and arrest the employees prefer to linger in the surplus pool, GoP former PPSC Chairman, who was charged with will have to show considerable political courage to serious irregularities, including possessing assets far retrench them at the end of the pool's life or risk in excess of his official income. The new Chairman, simply having them on the government's payroll for a highly respected, retired General, is now in the no work for an indefinite period. process of revamping the recruitment process by: More work will be needed to be able to M Improving the quality of the officers serving in effectively shed surplus staff. A Master Manpower the PPSC. Traditionally, the PPSC's key Register (MMR) has been developed to accurately divisions, including the exam wing, were headed estimate the number of employees on GoP's payroll by clerks - an IAS officer will now head the exam and the vacancies that will arise between 2002 and wing, as in Tamil Nadu, and PCS officers the 2006 but the MMR does not identify surplus posts wings dealing with scrutiny, promotions, and in any way. Identifying surplus posts requires access disciplinary cases. In addition, an IAS officer on to "inside" information that departments may often deputation will serve as Secretary. be reluctant to part with for obvious reasons. An M Defining roles and responsibilities more clearly attempt by the Indian Institute of Public to prevent the diffusion of accountability that Administration (IIPA) in 2001 to examine the pervaded the old structure of the organization. possibilities for administrative rationalization in The examination wing will now be clearly Punjab also failed to identify redundant positions in separated from all other wings, such as scrutiny, any systematic way. The only successful example of to prevent the possibility of collusion. identifying surplus posts comes from the work of the M Developing and publicizing rules of procedure State and Expenditure Review Commission (SERC) for the PPSC to reduce discretion; under the old THE GOVERNMENT O. PUNJAB'S RE.ORM PROGRAM structure, the rules were sketchy at best and not relating to policy-making will be made public well known by employees or applicants. after the process of policy formulation is M Using e-governance to provide information to completed and/or a decision taken. applicants on the internet about exam M Imposing penalties for officials, including a fine timings, posts, sample tests, and application of Rs. 100/day for failure to provide forms. Applicants will be able to take information within the stipulated time period preliminary exams on the internet and receive (24 hours for cases relating to life and liberty, their scores immediately; the seating plan for seven days when information is easily available, final exams will be arranged by computer to and 15 days in all other cases) and ensure that students taking the same exam do imprisonment for willfully failing to disclose not sit near each other; roll-numbers will be legally available information. generated by computer to prevent the M Requiring Departmental Information Officers assignation of fictitious ones; an electronic to furnish critical monitoring information to databank of questions will be created with the Government relating to number of requests questions being generated at random for received and met every year; the names of exams; and evaluators will mark particular officers denying requests; the number of appeals questions, not a whole exam. filed and their consequences; the fee schedule; and any internal departmental guidelines on Access to Information how to implement RTI. Punjab has drafted the Right to Information (RTI) legislation to facilitate greater transparency Procurement Reform and empower ordinary citizens in their dealings GoP has prepared a draft law "The Punjab 65 with the government. As currently formulated, Transparency in Public Procurement Act, 2002" to the draft bill contains the following features promote greater transparency in procurement. The including: bill is closely modeled on similar, well-regarded legislation in effect in Tamil Nadu and Karnataka. It M Requiring government departments to both provides for the creation of separate tender inviting catalogue and index records on a regular basis to and accepting authorities, the publication of a tender facilitate public access. bulletin containing tender notifications and M Making it obligatory for government to disclose decisions, along with a comparative explanation of all 'relevant' facts before initiating a project to the why a particular bid was successful. public, especially to those likely to be affected by such a project. GoP has also taken some steps to reform the M Providing for whistleblower protection for the procurement process administratively particularly first time in India, shielding officials who report in PWD, the Punjab Industrial Development wrong-doing in government in the public Board, and the Department of Information interest from any negative consequences. Technology (DIT). PWD has recently revised its list M Permitting relatively narrow exceptions only: of registered contractors, PIDB has introduced Cabinet deliberations (but not documents used third-party inspections for all major works, and by Cabinet for such deliberation) are closed for DIT has set up a high-level committee system to vet a limited time-period only; Cabinet decisions major procurement decisions, placed tender and the reasons for them, along notifications on the web, and made it easier to with key 'facts' and 'analyses', must be reported reward quality rather than just cost in technology immediately. Below Cabinet-level, information acquisitions. RESUMING PUNJAB'S PROSPERITY RE.ORMS TO IMPROVE SERVICE M Community Police Resource Centers: Punjab has DELIVERY pioneered what is probably India's finest effort E-Governance to improve relations between the police and Despite hurdles, progress is being made in local communities. In collaboration with the promoting e-governance in Punjab. The state has Ford Foundation, the Vera Institute of Justice, issued an overarching policy document for e- and the Institute of Development and governance and streamlined IT procurement Communication, the government has opened procedures for departments. There are several on- Community Police Resource Centers in most of going initiatives that are worth noting: the state's districts. These Centers provide a range of citizen services in a congenial M Municipal Corporations: The Ludhiana atmosphere: A crime counter provides copies of Municipal Corporation has made progress in first information report (FIRs) and tracks the computerizing some of its functions, including status of cases; a victim assistance unit provides the registry of births and deaths for the previous professional counseling and support including five years; salary payments for municipal advice on how to deal with the criminal justice employees; bill generation, collection, and system; a grievance redressal cell allows citizens' payment; and creating a data-base of properties to file complaints against the police without owned by the corporation. Further measures having to go to a police station. As registered will include computerizing the flow of mail, the societies, the Centers have the right to raise working of the Stores Department, and the money from external sources, although they are collection of octroi taxes, as well as tracking file staffed by a mix of NGO activists and police 66 movement electronically. Double-entry officers. accounting has yet to be introduced in Punjab's M Land Records: The computerization of land municipalities and will require a legal records is well under way, with data-entry amendment to the Municipal Accounts Code completed for almost all districts. The (1930). GoP intends to introduce one shortly. Commissioner of Land Records intends to M District Collectorates: Fatehgarhsahib was the replicate Karnataka's Bhoomi, but also to go first district to develop an IT-driven service further by networking land records and delivery initiative, designed to provide a basket registration. GoP will issue an order making the of services at a single-window, such as birth and use of manual records illegal once the system is death, domicile, and caste certificates; licenses; ready. and land records. An information kiosk offers M Stamps and Registration: All Sub-Registrar's access to land records, requirements to qualify Offices (SROs) provide for automatic calculation for government programs, and other data. of stamp duties and registration fees; digital Customers can now dial a number to get photographing of buyers and sellers to prevent information on whether their pensions have impersonation; and scanning of documents. On been deposited in their bank accounts. This the other hand, franking machines have still not initiative, labeled E-Sukhmani, has been scaled replaced stamp vendors, encumbrance certificates up to cover other districts in Punjab and is at are yet to be computerized, and key information, various stages of completion. In Kapurthala, for such as guidance values, and sample deeds have example, the E-Sukhmani center has teamed up yet to be placed on the internet. Property values with the regional transport office (RTO) to are set by district committees, rather than a issue drivers' licenses at the center, making a central valuation committee, and remain subject visit to an RTO office unnecessary. to manipulation. THE GOVERNMENT O. PUNJAB'S RE.ORM PROGRAM M Transport: The Transport Department is widely allowances and their salary will be Rs. 5000 a month regarded as prone to corruption, especially at for graduates and Rs. 4,000 for higher secondary the district level, using manual procedures for graduates. Teachers will be allowed 13 days casual all its main functions (issuance of drivers' leave and 3 days optional leave. They cannot be licenses, and registration certificates, and tax transferred across Panchayats. These para-teachers collection). The process of computerization in will receive far less remuneration than regular, the department has slowly begun, with an initial unionized teachers, whose starting salary ranges from pilot in Ropar. Rs. 10,000 to 12,000 plus benefits. It is also worth noting that Shiksha Sewaks are not subject to the In addition, Punjab intends to put in place a many demands of "authorized" leave imposed on wide area network (WAN) and develop a portal to regular teachers for election duty and other allow citizens to access information and forms, functions, which means that they are likely to have register grievances, and, over time, process significantly more time to spend in the classroom transaction on-line. year-round than their regular counterparts. Decentralization District and Block Education Committees, and GoP is in the process of introducing Village Education Development Committees administrative and financial decentralization of (VEDC) are to exercise oversight over education education. Teachers are to be placed on deputation across the three tiers of local government. The VEDC with the Zilla Parishad (ZP), and Panchayats will have is to consist of at least two panchayat members and administrative and disciplinary control over them up one female member from the local Parent-Teacher to the point of removal or dismissal. Removal and Association. VEDC's do not seem to be in place as 67 dismissal powers presently lie with the department of yet, while District and Block Education Committees education. All teacher vacancies are to be filled by the have not played a discernible role. Without ZP on the basis of rules and regulations framed by the meaningful participation, these committees - and the Department of Education. Teachers appointed by PTAs themselves - could end up as hollow shells. local governments are denominated Panchayat Shiksha Sevaks and their salaries, paid by the The reform in the Punjab Health System Panchayats, will be transferred as a grant from the Corporation has greatly improved service delivery in State government to the ZP. The responsibility for the Punjab (see Box-4). Recently, GoP has issued an order construction of new schools, their repair and transferring supervisory and monitoring authority maintenance, as well as teacher training will continue over Primary Health Care to PRI institutions. Zilla to remain with the Department of Education. Parishad's, for example, are charged with monitoring attendance by doctors and paramedics. Panchayat Teachers are to be recruited by a committee set Samitis are expected to monitor the quality of block- up at the ZP level. These teachers would be level health services, while mobilizing public health appointed to schools, after a two-month training campaigns is primarily the task of the Gram Panchayat period if necessary, initially for a contract period of (GP). Yet, the order does not vest PRIs with the power one year. At the end of the year, their performance to exercise authority over medical personnel in the would be assessed, and if satisfactory, reappointed for primary health-care system: Hiring and firing, another year, receiving a 15 percent salary increment disciplinary penalties, and salary disbursements during the second year. The policy on further remain the exclusive province of the health increments in subsequent years of service is not clear. department. The order is thus unlikely to carry Shiksha Sevaks will not receive any pension or other much weight. RESUMING PUNJAB'S PROSPERITY GoP has also announced plans to allow Gram Facilitator), the industrial facilitation unit of the Panchayats to distribute old-age pensions. The Department of Industries. Under the scheme, officials advantage of doing this is that panchayats will now be from the relevant government agencies are positioned involved in determining the accuracy of the old age in Udyog Sahayak to guide and facilitate pension beneficiary list which, according GoP entrepreneurs. The state government has established officials, has a high error rate; however, doing so in time schedules for making available the various cash is probably not desirable. The maintenance of clearances required in order to set up an industrial 864 village water supply schemes will be transferred unit. A committee, chaired by the Director of to the GP but paid for by the government; over time Industries, meets on a fortnightly basis to monitor more such schemes will be turned over to GPs. progress in the granting of approval of all applications, including those submitted through RE.ORMS TO IMPROVE THE Udyog Sahayak. Difficult issues are forwarded to a INVESTMENT CLIMATE higher-level committee headed by the Chief Secretary, Regulatory Burden GoP. District level single window committees have Single window clearance system. GoP also been set up under the chairmanship of deputy introduced a single window clearance system for commissioners in each district. There is some feeling industrial projects in May 1998. The system is that the monitoring system is working reasonably well administered by the Udyog Sahayak (Industry but no rigorous assessment has been done. Box 4 The Punjab Health Systems Corporation 68 With World Bank support, in 1996, the government of Punjab embarked on an ambitious program to improve the state's secondary health services. The project upgraded 156 secondary level hospitals (including Community Health Centers, Sub-division and District hospitals) and two training institutes. This added approximately 2,100 additional beds in the public sector and provided much needed equipment and medicines. User Fees: Revenues from user charges have risen by twenty-five times in the last seven years. The introduction of user- charges has coincided with a large increase in the number of patients in the PHSC run hospitals. User charges have allowed hospitals to raise their own funds for essential items such as drugs and routine maintenance insufficiently covered in the budget. Official fees may have partially substituted the informal payments which patients were accustomed to pay prior to the reforms. All below-poverty-line (BPL) households are provided with free treatment. Management and Training: With the computerization of the 50 larger hospitals and systematic record-keeping and data entry at other facilities, the corporation had the ability to monitor inputs and outputs of the system and help managers set basic targets for their facilities. Outsourcing sanitation has resulted in a dramatic improvement in the cleanliness of hospitals. Results are clearly impressive. The number of patients attending secondary care facilities has increased to 8.5 million out-patients each year. Patient satisfaction surveys illustrate that the prime reason that patients attend the PHSC facilities is the inexpensive cost (31 percent) followed by the availability of skilled doctors (23 percent). Moreover, 78% of the patients surveyed appreciated the availably of diagnostic facilities and 98%, the quality of buildings. The satisfaction rates were almost always higher for PHSC run hospitals than non-PHSC facilities. Improved public services are providing competition to the private sector. After first-rate diagnostic facilities were introduced in PHSC run hospitals, the market rates for common health checks and investigations fell: Market rates of ECG fell from Rs 120 to Rs 60; Ultrasounds from Rs. 450 to 150; and X-rays from Rs 100 to Rs 60. THE GOVERNMENT O. PUNJAB'S RE.ORM PROGRAM Self-certification scheme. In an attempt to lower flexibility in the labor market. Firms in the IT sector the burden of inspections, the Government of are now allowed to hire women workers at late hours. Punjab announced the introduction of a self- All firms are now permitted to hire people directly on certification scheme in the 2003 Industrial Policy. contract, but not through intermediaries. The According to the scheme, enterprises may engage requirement to have a full-time doctor for the night pre-qualified engineers, who have been conferred shift has been relaxed. A committee has been set up powers of an inspector, to inspect their compliance to look at the labor laws affecting industry. with various Acts. The policy provides for random audit of upto 5 percent of the units in any district. Truck union. The 2003 Industrial Policy noted The audits will be commissioned by a committee the role of truck unions in restricting the free consisting of senior government officials and movement of goods within and outside the State. industry representatives and carried out by randomly The unions have been charging unduly high freight selected officials from outside the district in which rates and other charges, although they do not have the enterprise is located. So far, the self-certification any authority to do so. This has put commercial scheme has not had many takers. The private sector transporters at their mercy and, according to the suggests that the scheme needs greater publicity and Industrial Policy document, has "severely hampered awareness building and an assurance that the the growth of industry in several parts of the State." government is serious about its implementation. In the policy document, the State Government committed to "suitable and effective measures to Infrastructure check exploitation of Industry by Truck Unions so Facilitating greater Private-Public Partnership. that the freight rates are market determined rather The Punjab Infrastructure (Development and than these being dictated by the truck unions." In 69 Regulation) Act, 2002 aims to attract and facilitate addition, industrial firms were to be given the private participation in infrastructure development. freedom to hire trucks of their choosing. It seeks to provide a level playing field for private participations; establish a transparent regulatory Access to .inance and Business framework governed by an autonomous regulator; Support Services and grant various concessions and incentives to make The government's efforts in this area have been the infrastructure projects and the investment confined to fiscal subsidies and a host of public sector opportunities viable and attractive. The Act provides industry support institutions. Together, these for the establishment of an independent regulatory government agencies, some of which are cross-sectoral authority, the Punjab Infrastructure Regulatory and some sector-specific, provide a range of services Authority. The Government has also established a including finance, technical consultancy, design, fund, the Punjab Infrastructure Initiative Fund development, manufacture, standardization and (PIIF), with a capital of Rs. 20 crores. The testing of machinery and equipment, testing of Government has taken a policy decision to engage products, training, extension and technical education. the private sector through BOT schemes in roads and bridges. A number of projects are already underway. Providers of finance include the Punjab State These include 1,000 km of state highways, and the Industrial Development Corporation (PSIDC), the bus terminals at Amritsar, Ludhiana and Jalandhar. Punjab Financial Corporation (PFC) and the Small Industries Development Bank of India (SIDBI). The Labor PSIDC provides financial assistance to projects Greater flexibility. The Punjab Government has promoted by private entrepreneurs through term taken some recent initiatives to introduce greater loans, equity participation and underwriting. The RESUMING PUNJAB'S PROSPERITY PFC provides medium and long-term loans for so far, the fiscal crunch has prevented the setting up new industrial units as well as for existing government from doing this. It is not clear that re- enterprises. The SIDBI is an apex financial capitalization is a desirable option given the past institution of GoI, established for the promotion, record of the PSIDC. financing and development of small-scale industries; it operates through a branch office in Chandigarh. Punjab has phased out sales tax concessions and interest subsidies. However, several other incentives Until the early 1990s, PSIDC's equity remain in place. The IP-2003 talks about a shift in the investment did reasonably well given the controlled role of the government from direct promotion and environment. These advantages were lost in the direct financial assistance to that of a facilitator. It 1990s. PSIDC did not have the capacity to make the recognizes that fiscal subsidies, an important element informed judgments about investment that is of past industrial policies, have not worked. Despite necessary in the liberalized environment. As a result, this, it retains fiscal subsidies for some categories of a large number of bad projects were financed which industrial units. For example, it proposes a capital has considerably weakened PSIDC's financial subsidy scheme to promote technology upgradation position. Many private promoters have failed to buy in small scale enterprises in four sectors (25 percent of back PSIDC's shares as was originally expected. The fixed capital investment, up to a maximum of Rs. 25 IP-2003 talks about re-capitalizing PSIDC although, lakh per unit), and a similar scheme for small Box 5 Attracting Private Participation in Infrastructure: Tamil Nadu 70 Tamil Nadu has been at the forefront of reforms aimed at increasing private participation in infrastructure service delivery. These reforms have shown that private sector participation under appropriate regulatory arrangements would not only help address the fiscal constraints of the state but also bring to the fore the benefits from increased efficiency in infrastructure financing, delivery and management. Summarized below are two reform cases. The Tirupur Water Supply Scheme is the first water sector project developed under the PPP framework in India. After a gestation period of almost 10 years, GoTN accelerated and completed legal, financial and management agreements in March 2003. The construction is on schedule. A total of Rs.45 crores equity and subordinated debt financing from GoTN has leveraged additional equity financing of Rs.217 crores and leveraged a debt of Rs.700 crores including financing from Tirupur Exporters Association and foreign investors. The project will supply water to the fast-growing garment export industry in Tirupur, domestic consumers in Tirupur Municipality and surrounding villages, as well as a sewerage system for the Tirupur Municipality and onsite sanitation facilities for slums. User charges are based on cost recovery with cross subsidies between industrial and domestic consumers. The East-Coast Highway Project. The Tamil Nadu Road Development Company (TNRDC) was set up in 1998 to catalyze private sector investment in the road sector and commercialize O&M. Its equity of Rs.10 crores was split 50:50 between public and private funds. The first upgrading project financed by TNRDC is the 113 Km. long East Coast Road (ECR) connecting Chennai and Pondicherry at a cost of Rs 60 crores. A Rehabilitate-Improve-Maintain-Operate- Transfer (RIMOT) framework was applied and commercial operations on the road commenced in March 2002. The RIMOT framework allows user charges to recover improvement and maintenance costs only, resulting in lower tolls; project returns are capped at 20 percent and surplus if any, is reinvested in the road sector in Tamil Nadu. The framework is a viable option compared to green field projects. Creative solutions in upgrading roads such as optimizing road space by paving road surfaces and effective segregation of traffic, helped mitigate the risk of low traffic density and high capital costs that normally accompany a four-lane option. THE GOVERNMENT O. PUNJAB'S RE.ORM PROGRAM industrial units set up in border areas (30 percent of of crops, development of a quick and effective fixed capital investment, up to a maximum of Rs. 30 contract enforcement and dispute resolution system, lakh per unit). In each case the total budgetary limiting fiscal risks to the Government from such an allocation for the scheme will remain fixed with arrangement, keeping the number of parties in individual grants reduced on a pro-rata basis if contractual arrangements to a permissible limit and demand exceeds the available funds, i.e., Rs. 25 crores developing farmers' organizations capable of per annum for each scheme. Together with the contracting with sponsors, with a view to reducing Industrial Dispute Act, which discourages expansion transactions costs, increasing information flow and of employment beyond a certain size in the registered improving farmers' negotiating position. sector as well as the SSIR policy, these schemes have built an "anti-growth bias" into the system. OVERALL ASSESSMENT O. THE RE.ORM PROGRAM DIVERSI.ICATION PROGRAM IN By the sheer number of measures announced AGRICULTURE so far, there is little doubt about GoP's intention to While GoP has yet to undertake any politically reform. But, unfortunately, its intentions have yet, sensitive reform program in agriculture, e.g., gradual in many areas, to be implemented on the ground. reduction in subsidies in favor of increased public In sectors / areas like power, agriculture, investment and income support schemes, it has disinvestment and fiscal policy, there already exist supported an ambitious contract farming program to blueprints for reforms. In other sectors, like health diversify the state's agricultural base away from paddy and education, the strategies are gradually and wheat. The Punjab Agro Foodgrains Corporation evolving. But where the government has been less (PAFC), a public sector corporation, has been assigned successful is in implementing the policies laid out 71 this task. PAFC has developed a five-year CF plan that in its strategy papers. In a few cases, it has actually aims to shift one million hectares out of rice-wheat done the opposite, i.e., rolled back reforms that cultivation to a variety of other crops including oilseeds, were beginning to show results, e.g., the maize, basmati rice, durum wheat, and cotton. For introduction of export-import forms were kharif 2003 the main focus was on basmati rice (target apparently yielding better compliance from the tax 34,000 hectares) and maize (target 20,000 hectares). dealers but was discontinued. The recent decision PAFC sees its approach to be that of a facilitator, tying to lift the ban on fresh recruitment has also sent a up farmers with agri-businesses that will supply quality conflicting signal about the government's intention seeds and technical assistance, and buy back the crop. to control its salary bill. GoP has also not adhered PAFC's venture into this field embodies a more market- to its own fiscal responsibility Act. In the case of oriented approach to agricultural development and a the power sector, preparation of the Financial significant shift away from the state's traditional focus Restructuring Plan for the sector has taken more on production as an end in itself. than a year. In agriculture, it has chosen the option of encouraging diversification without tackling the To be successful, however, attention will have to issue of agricultural subsidy, marketing, and other be paid to a number of aspects of CF, e.g., selection institutional reforms. Revitalizing Reform: Some Options and Priorities REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES A s indicated earlier, there is no shortage of the issue of sequencing and prioritization of the good policy recommendations for GoP, if it reform measures. wants to pursue reforms. A number of useful reports already exist, including the White Paper on MEASURES TO RESTORE .ISCAL State Finances, two studies undertaken by BALANCE National Institute of Finance and policy (NIPFP, To restore fiscal balance, the Government needs 1994 and 1998), Report of the Punjab Public to move on three things immediately. First, it needs Expenditure Reforms Commission (2002), the to comply with its own Fiscal Responsibility and World Bank's Note on 'Some Key Reform Budget Management Act. Placement of the Medium- 75 Challenges in Punjab' (2003), Expert Group's Term Fiscal Reform Programme along with the Report on Power Sector Reform (2003), the Bank budget, as required by the Act, is a good, albeit Report 'Revitalizing Punjab's Agriculture' (2003) belated start, and this needs to be accompanied by a and GoP's Report on Disinvestments (2002) to number of measures required by the Act: name a few. The problem in Punjab, more than in presentation of quarterly reviews, adoption of other states, is not articulating the reform program corrective measures, as required, and, most but implementing it. importantly, adherence to the Act's fiscal targets. Second, it has to create 'fiscal space' by addressing the In this section we begin with some of the policy overstaffing issue in government departments as well recommendations that arise out of this report's as in the PSEB, and by exploring alternative analysis. A large number of recommendations are mechanisms to deliver subsidies to farmers more presented as options for the government's effectively (say an idea explored in more detail later) consideration under three headings: restoring fiscal and using the resultant savings to step-up public health; strengthening the enabling environment for investment in critical sectors like agriculture, growth; and improving the quality of administration irrigation, power, education and health. Third, it has and service delivery. Many of the recommendations to aggressively pursue tax policy and administration are as applicable to most other Indian states as to reforms, e.g., introduction of Value Added Tax Punjab. What is more unique to Punjab is, as the (VAT), restructuring of the tax administration report argues, the nature of the implementation department on functional lines, computerization of challenges. The report therefore concludes by the tax information system, etc., to generate analyzing the critical implementation issues additional resources to meet the state's growing surrounding Punjab's reform program, including public investment needs. RESUMING PUNJAB'S PROSPERITY .iscal and .inancial Management GoP should set up a Guarantee Redemption Reforms Fund in line with the recommendations of the RBI Punjab already has a comprehensive strategy to and comply with the FRBM Act as far as issuance of address its fiscal problem in the form of Fiscal guarantees /contingent liabilities are concerned. Responsibility and Budget Management (FRBM) Act. The real challenge is to implement it and ensure The irregularities on the food account and the full compliance with all its elements. The first step to large arrears and hidden liabilities in the system have implement the FRBM Act would be to dovetail the eroded the credibility of the state's financial annual budget preparation exercise with its own management system. GoP should regularize all 'excess' Medium-Term Fiscal Program (MTFP). To do so it expenditure (which have not been approved by the needs to take the MTFP exercise more seriously. This legislature) incurred in previous years in accordance would involve preparation of a Medium-term action with the provisions of the Indian Constitution, plan for large spending departments, like education reconcile all major departmental accounts with AG and health, which will outline the goals and policies Accounts to eliminate any un-reconciled differences these departments intend to pursue, the outcomes to and restore the credibility of the Treasury. This would measure their performance by and the corresponding call for commitment at the highest levels of the resource needs to implement such action-plans38. To government, institutional changes to ensure that all incentivize the system, sectoral departments should public funds are part of the consolidated fund of the be allowed to identify, retain and carry over savings state and training of officials in the Finance department made in one year to the next. This will provide the on treasury management along with greater use of much needed stability and predictability to outside consultants with the right expertise. GoP may 76 departmental budgets. The state MTFP should then also wish to undertake a State Financial Accountability build on departmental action plans and, at the same Assessment (SFAA) for the state. time, adhere to the fiscal parameters outlined in the FRBM Act. A Committee consisting of senior The Government needs to modernize its Secretaries from various sector departments should financial management and accountability systems in be formed to monitor the fiscal indicators and take line with the best practice in India. Controlling corrective actions when necessary. officers should be held fully answerable for managing and accounting for appropriations more effectively Existing practices in revenue forecasting, and for reporting on variances between actuals and expenditure management and performance budget in the annual Appropriation Accounts. monitoring need to be improved. There is a need for Similarly, ways to improve government response to Punjab to have a modern revenue-forecasting model external audit observations should be explored. that will allow it to estimate revenue with greater Measures to improve the workings of the Public accuracy. Incentives need to be built into the Accounts and Undertakings Committees should be expenditure management system to ensure that there explored with the Legislature. is more balanced drawdown of funds. An effective performance measurement system that measures the There is a mismatch between the expertise and impact of development programs and provides resources available with the Local Audit Department accurate and timely feedback to decision-makers and the size of the task. Similarly the Internal Audit should be put in place. Organization does not have the expertise to effectively 38Given the limited capacity of GoP, preparation of the departmental action plans should not be a very formal exercise but kept to the bare minimum. Initially, this exercise should be limed to only the current year and later it could be evolved into a Medium-term framework. REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES discharge its duties. Both these organizations need a providing some of these subsidies. Income support large amount of capacity building, and their schemes, where farmers receive direct transfer responsibilities need to be matched with their payments from the government at regular intervals, capability. For the purpose of ensuring an effective and the amount declines gradually over time, could internal control system GoP may consider the option be one possibility. Another possibility would be to being pursued by the Government of Andhra Pradesh peg all user charges to the cost and give vouchers to of engaging professional accountants to conduct farmers equivalent to the subsidy amount, which can internal control functions. be used to pay for public services. Another alternative could be to raise user charges to cover the cost of Overstaffing providing services and to earmark the resultant In order to reduce overstaffing in government revenue to be spent in the geographical area where it and PSEB, GoP should operationalize the surplus is collected, primarily to improve the public services. pool with a life of no more than six months. An Better targeting of subsidy will not only be beneficial internal assessment should be conducted to from the fiscal perspective but also help Punjab to systematically assess redundancy using transparent diversify from the current agricultural practices that criteria. Surplus employees should be offered VRS or are environmentally unsustainable. redeployment, and if they fail to accept these two options, be subject to retrenchment when the surplus Tax Policy and Administration pool ceases to exist. The surplus pool should provide The medium-term reform in the case of sales for training to help employees improve their skills tax is to adopt the VAT. However, this will have to be prior to redeployment/entry into the private sector. calibrated on the basis of the collective decision of the States in the Empowered Committee and the Alternative Subsidy Delivery 77 facilitating measures taken by the Ministry of Mechanisms Finance, GoI. The latter in particular, has to facilitate A farmer in Punjab receives subsidies in at least the reform by ensuring a mechanism to deal with six different forms: minimum support prices, inter-state issues including the zero-rating of the subsidized power, subsidized canal irrigation, central sales tax and dispute settlement mechanism, subsidized fertilizers, extremely low tax rates on diesel sharing of the power to levy tax on services, and agricultural inputs, and subsidized credit to buy amendment to the declared goods list. Thus, the agricultural equipment. The total amount involved VAT in its pure form is likely to be only a medium- in these subsidies is likely to be Rs.3,500 crores or term reform. Rs.17,000 per cultivator. But since these subsidies are not properly targeted, the actual money received by The reform of the sales tax system however does the farmers is much less. There are many not have to wait for the decision to implement the intermediaries who benefit from these subsidies in VAT and should be taken up immediately. The the name of the farmers. The actual subsidy paid by existing levy with a mix of the first point and the last the government would be significantly lower if point incidence is found to be easy to evade. In the appropriate mechanisms were developed to target case of Punjab, the reform measure should start by subsidy better and exclude non-agricultural reducing the number of general rates from 6 into 4. beneficiaries (who are generally wealthier than This could be done by shifting all commodities average farmers). It is therefore important for GoP to presently taxed at 3 per cent to the 4 percent examine alternative mechanisms for delivering category, and all commodities taxed at 8 percent to subsidy to farmers in consultation with Government 10 percent category. An important measure in this of India (GoI), as the latter bears the cost of regard is in raising the rate of tax on diesel to the RESUMING PUNJAB'S PROSPERITY floor rate recommended by the Empowered MEASURES TO IMPROVE THE Committee of State Finance Ministers. The general INVESTMENT CLIMATE rate similarly should be increased to 10 percent, on Punjab can take a number of steps to create an par with the rate prevailing in neighboring states. enabling climate for its private sector to grow and Eventually, when the VAT comes into vogue, this will prosper. It may wish to streamline its administrative have to be raised to 12.5 percent. The tax can be procedures involved in establishing new business by converted into a multipoint levy with set off given to creating a more transparent and time-bound system. tax paid at the previous stage. Set off can also be It could streamline its inspection system and simplify given to the tax paid on inputs, thus bringing in the record keeping and submission of returns procedure VAT principles into the tax. The State is already for industries. It may wish to introduce competition geared to levy the VAT and the machinery could be in agricultural marketing by allowing private sector used to undertake the reform with a view to and grower cooperatives to set-up market yards as has eventually switch over to the full-fledged VAT. been outlined in GoI's model Act. It would need to take steps to reduce corruption, sanitize its policies GoP may also wish to reinstate the payment of from influence of interest groups and strictly enforce 50 percent tax payable on the sales in Canteen Stores contracts and laws of the land. It also needs to Departments and reintroduce export-import introduce greater competition in marketing of (EXIM) form at the integrated computerized centers agricultural goods at the wholesale level and (ICCs). It is important to restore the property taxes implement institutional reforms in agriculture. It on residential properties. This is the most important should aim to supply quality power at reasonable cost tax for financing urban services in all countries and to industries and farm sector. 78 its rightful role should be restored. Besides, Punjab does not levy the profession tax. This could be an Measures to Attract Investment important source of revenue. The state government Reducing regulatory burden. Punjab can build may levy and collect the tax and the proceeds may be upon the reforms carried out in this area, such as passed on to local bodies for financing urban services. the establishment of Udyag Shahayak in 1998, and This could provide another supplement in the effort introduce further actions to lower the regulatory of the State government in abolishing Octroi. burden on its private sector. Recommended actions are: (i) Introduce a composite application form for Rather than waiting for the introduction of the clearances as has been done in Tamil Nadu, Andhra VAT, the Government may wish to move sooner to Pradesh, Karnataka and Gujarat; (ii) Establish a reorganize the Excise and Taxation Department on legal framework for single window clearances, as the basis of functional distribution of responsibilities. has been done in Andhra Pradesh and is in the The current four-tier structure (i.e., Headquarter, process of being established in Karnataka (see Box- Division, Districts and Wards) could be compressed 6); (iii) Rationalize the maintenance of registers; to a three-tier structure along functional lines. This and (iv) Eliminate redundant Acts related to will reduce dealer-commercial tax officer interface reporting requirements. and make it unnecessary to locate a sales tax officer in every district or sub-district. The geographical Making the labor market more flexible. While the jurisdiction of the second-tier and third-tier of the Punjab government has taken some steps to make the commercial tax department should be redrawn to labor market more flexible, more can be done within reflect as closely as possible the operational needs of the parameters set by federal laws and policy and the department and to effectively and efficiently learning from recent reform efforts of other states. deliver services to the dealers. Some options to consider are: (i) Carry out a complete REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES Box 6 Andhra Pradesh's Single Window Clearance System The Government of Andhra Pradesh has enacted the "Industrial Single Window Clearance Act, 2002" to expedite the processing and issuance of various requests for setting up new industrial undertakings in the state. The government has constituted two nodal agencies, one at the district-level and the other at the state-level, to receive and process applications within a time-bound framework. The District Committee, chaired by the District Collector, approves undertakings with investment below one crores (i.e., small scale industry) and the State Committee, chaired by the Commissioner of Industries, approves applications with investment above one crores (i.e., large and medium scale industry). In case of rejections of clearances or approvals of large and medium units with modification under the state laws by the concerned authority, the District Committee forwards it to the State Committee and the latter may forward it to the Empowered Committee. The Empowered Committee, headed by the Chief Secretary to Government, passes appropriate orders referred to it by the State Committee and when necessary refers the application to the State Board for decision. The State Board, chaired by the Chief Minister, is the final authority on the matter and passes the appropriate orders on the application referred to it. The real benefit of the Single Window Clearance (SWC) Act is the provision of deemed approval and the time limits set under the Act for various clearances. For example, approval from the power company about the feasibility of providing power and the final power connection to the industrial undertakings has to come within 7 and 25 days, respectively, failing which it is deemed approved subject to payment of the required fees. The same condition applies to water supply. The clearances from GP and licenses from Municipality, if not made available within 7 days, are deemed to be cleared. Apart from the issue of acquisition and alienation of land, which has a set time limit of 45-60 days under the single window clearance system, the time limits for all other clearances are between 7 to 30 days. Source: Unlocking Andhra Pradesh's Growth Potential: An Agenda To Achieve the Vision 2020 Growth Targets, The World Bank, 2003. 79 review of the entire spectrum of labor laws governing philanthropic activities of its diaspora to the greater Punjab and the machinery needed to implement these benefit of the state. To do so, it may consider the laws; (ii) Simplify, rationalize and consolidate labor following steps: (i) Institute a single-window contact statutes. Prepare a single statute with different chapters mechanism for PPOs in the form of an autonomous, covering the various facets of employment; (iii) Further empowered and dedicated organization to handle the liberalize rules regarding use of contract labor and multiple issues generated by diaspora interactions with temporary worker; (iv) Establish an independent expert the state (see Box-7) and to allow this organization to body such as a Labor Regulatory Authority (similar in form a foundation to receive charitable donations and spirit to the independent regulatory authorities being generate funds through sponsorship from private set up in the infrastructure sector) which will hear individuals and corporations; (ii) Provide matching arguments of different parties in the event of proposed funds to complement the investment made by the lay-off, retrenchment or closure, and give a ruling that PPOs when the project is in state's interest; (iii) Work will be binding on all concerned parties. with GoI to provide dual citizenship to members of the Indian diaspora and to simplify the Foreign Giving the Punjabi Diaspora a Stake in the Contribution (Regulation) Act, 1976, to enable faster State's Development. The Government of Punjab can flow of remittances to the state; and (iv) Prepare a data play a vital role in strengthening links between PPOs bank of PPOs and establish direct communication and their families in Punjab and thereby leverage the links between the diaspora and GoP39. 39GoP has a department for Non-Resident Indians (NRIs), which is largely dysfunctional. RESUMING PUNJAB'S PROSPERITY Box 7 Addressing Diasporas: International Experience Many countries with successful diasporas have created viable structures to harness them for development. The Greek, Italian and Polish Governments have created well-staffed departments, usually housed in the Ministry of Foreign Affairs, to cultivate their diasporas. Poland's Parliament has committees dealing with diaspora issues. The Ministries of Culture and Education are involved in servicing the educational and cultural needs of the Polish diaspora. Japan has created a "Council on the Movement of People Across Borders" to advise the Prime Minister and the Minister of Foreign Affairs on the Japanese diaspora. Italy has devised supplementary mechanisms to strengthen links with its diaspora and is considering enabling legislation to give citizens residing abroad representation in the Italian Parliament. South Korea has created a 15-member ministerial "Committee of Korean Resident Abroad" headed by the South Korean Prime Minister, as well as parallel autonomous organizations. The Philippines, which has a large emigrant blue- collar population, has passed legislation, created new institutions, and boosted the strength of its overseas Embassies to woo its far-flung diaspora. Source: Report of the High Level Committee on the Indian Diaspora, 2003. Agriculture Sector Reforms reversing the decline in agricultural public Agricultural marketing. Modernization of the investment in R&D, rural infrastructure and human marketing system will require regulatory reforms as resource development (which, in turn, needs well as other facilitating actions and investments. reduction in subsidies to release resources for these The priority is amendment of the Punjab purposes), and institutional reforms in the research, Agricultural Produce Markets Act to allow private extension and irrigation systems40. 80 sector entry in establishment and management of wholesale markets. To promote agri-business and Power Sector Reforms high value agriculture, the mandatory requirement Implementation of PSEB's functional that all produce sold wholesale has to be sold through unbundling and restructuring plan. GoP is required regulated markets needs to be reconsidered. To to unbundle PSEB by June 2004, as per the improve farm profitability and also attract private Electricity Act 200341. This would involve taking a trade back to the state, GoP should reduce the decision on the number of new discoms, splitting various market fees and cesses, which at the moment assets, liabilities and employees among them, and are the highest in the country. An amendment of the putting in place a professional management structure Essential Commodities Act (ECA) has to be also based on a competitive selection procedure as has considered by GoI/GoP to permanently remove been done in some other states. It will be useful to trade restrictions related to storage and movement of create task specific "working groups" to implement agricultural produce. critical components of the reform process and to get necessary technical assistance to implement reforms. Institutional reforms. To create an environment where public services can work more closely with the Introduction of open access for large industrial private sector to respond nimbly to changing farmer consumers. GoP's decision to introduce open access is and market demands, Punjab would also need to a progressive step. One PSU has already submitted an institute a number of other important reforms: application to PERC to purchase power from outside 40For more detailed policy recommendations for the agriculture sector, see World Bank Report "Revitalizing Punjab's Agriculture, 2003." 41The newly elected government in the Centre has placed this provision in the Electricity Act under review. REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES the state. Punjab will need to define the rules and Rs 359 crores - an overall average tariff increase of 5.8 regulations governing open access; it will also need to percent. It is important that the revenue gap is fully identify any technical constraints to the covered for which further support from the implementation of open access and investments government and efficiency improvements will be required to overcome them. Other thorny issues required. A mechanism to temporarily adjust power include the extent of cross-subsidization under open tariffs to any sudden and sharp changes in the fuel access and the magnitude of the power subsidy. and power purchase costs should be explored. Successful implementation of open access will require a coordinated effort and decisions by the government, Eventual privatization of distribution business. the regulatory commission and the utilities. If efforts to restructure the PSEB under the existing structure fail, privatization of the distribution Financial Restructuring Plan (FRP). A credible business should be explored. The national Electricity FRP for the power sector is a must. The FRP should Act 2003 facilitates private sector participation in aim to remove all the past distortions in the financial distribution and the introduction of open access. The statements before unbundling, including treatment of state government should prepare a comprehensive past accumulated losses, receivables, unfunded strategy to commercialize and eventually privatize the employee and other liabilities. The FRP should distribution business. Privatization of commercially present a realistic assessment of the operational and viable parts of the distribution business may be financial condition of the new entities, and provide initiated to realize early gains. recommendations on the policy actions required to achieve financial viability. The FRP should present the Road Transport fiscal impact on the GoP during the transition period. Providing additional road capacity and 81 enhancing service standards on the core State Strengthening the regulatory capacity. PERC highway network could cost as much as Rs, 2,000 was set up in April 2001 with the primary role of crores. GoP is looking to the private sector to fund tariff setting. Under the national Electricity Act some of the heavily trafficked corridors on a 2003, the regulator has a much larger role and concession basis, as well as to take an increasing role responsibility in sector regulation, market in the maintenance of the network. Assured development and introduction of competition. There maintenance funding for the core network will be is an urgent need to strengthen the institutional essential to sustain standards and promote private capacity of the Commission to enable it to address sector participation. About Rs.85 crores is required important regulatory issues that are likely to emerge annually for the maintenance of the 7,000km with the implementation of the new Act. network42. The revenues from the Rs.1/liter cess gasoline and the Central Road Fund total over Continued progress in tariff rationalization and Rs.100 million crore, but are used exclusively for cost recovery for sustained improvement in the rehabilitation and/or improvement. Maintenance is financial viability of the power utilities. PSEB has funded from general revenues and, in the last two filed the application for a review of its tariff for financial years, only Rs.20 crore were allocated, well FY2005. The revenue gap, at the current tariffs and below the level needed for adequate maintenance. subsidy level, is projected at Rs 694 crores. To partly Expanding the capacity of the core network is cover this gap PSEB has proposed a tariff increase of important, but the development of an assured source 42 Maintenance funding for rural roads is probably more than sufficient, but excess funds cannot be transferred to maintain higher level roads. RESUMING PUNJAB'S PROSPERITY of funding for network maintenance, possibly administrative departments to promote synergies and through a cess on diesel sales, is critical. reduce overlapping functions. IMPROVING GOVERNANCE AND One might, for example, consider grouping all SERVICE DELIVERY urban-related departments (Housing, Local Improving the Working of the Civil Government, the Punjab Urban Development Service Authority, and the Punjab Water Supply and Transfers. Punjab needs to develop an effective Sanitation Board) under a single principal secretary and public database to track transfers by cadre, group, (and Minister) for Urban Development. Similarly, all and department over time similar to Karnataka's rural-related departments (Agriculture, Animal database (see http://vsb.kar.nic.in/dpar.htm). This Husbandry, Forests, Rural Development and will help Government monitor the problem of Panchayati Raj, and Cooperation) could be placed frequent transfers over time and raise public under a Financial Commissioner Rural Infrastructure consciousness about its negative effects. Punjab could and Development. also consider institutional solutions to checking politically-motivated transfers by creating a statutory All departments focusing on financial matters civil services board to authorize IAS and other including Planning, Program Implementation, transfers in an objective manner. For large Finance (Budget and Resources, Expenditure, and departments, such as Education and Health, the External Aid), and revenue-collecting agencies could government might consider introducing also be placed under the supervision of a single computerized "counseling" as a way to effect principal secretary for Finance and Resources. A 82 transfers: This has already been done in Tamil Nadu similar rationalization could proceed in the and Karnataka and the new system appears to be education sector by placing elementary, secondary, functioning well. Setting quantitative caps on vocational, and college education under a single transfers is also very effective: Karnataka has limited principal secretary for education as a whole; in annual transfers to no more than five percent of its health, one principal secretary could broadly core civil service and has managed to stay almost supervise the work of the public health, medical within this cap for the last two years. Maharashtra's health, and medical education departments. new law on transfers also establishes a cap on transfers. Clamping down on transfers will require In order to strengthen the capacity to that the Chief Minister exercise leadership in relation implement administrative reform, an Additional to his own MLAs to discourage them from putting Chief Secretary reporting directly to the Chief pressure on Secretaries to accede to their requests, Secretary could take overall responsibility for whether written or oral in nature. coordinating the work of the General Administration, Personnel, Grievances, E- Administrative Rationalization. The government Governance and Administrative Reform, and could focus more on restructuring departments to Vigilance Departments. A committee headed by the enhance their functioning. The passage of the ninety- Chief Secretary and reporting directly to the Chief first constitutional amendment restricting the size of Minister should oversee the process of overseeing the the Cabinet to 15% of the strength of the lower house regrouping of these departments. of the legislature provides a good starting point for this process (states have six months to comply, that is until Other steps to improve efficiency in the June, 2004). As a complement to paring down the size Secretariat might include revising the now out-of- of the cabinet, GoP could consider regrouping date Manual of Office Procedures to encourage the REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES greater use of information technology, more training combined with training officers in providing access and incentives to use the computerized file to information and wide publicity for the new monitoring system, getting the Human Resource measures to improve access to information. It should Database for Secretariat employees operational, and be noted that the new central government is encouraging and monitoring the implementation of committed to strengthening the central law further, devices to speed up file movement, such as the single- as per the Common Minimum Programme. file system. The draft law on procurement is clearly an Tackling Corruption important step forward towards a more transparent Enhancing Transparency. GoP should adopt process and could be strengthened further by: both its draft Right to Information and Transparency in Tenders and Procurement laws with necessary M Developing appropriate safeguards to ensure modifications and continue the cleansing of that the exceptions to the tendering procedure recruitment processes, especially now that the ban on (e.g., if supplies or additional supplies are new hires has been lifted, albeit with some restrictions. available from a single-source only or if contracts are below Rs. 5 lakhs) are transparently The draft RTI bill could be strengthened by: enforced to prevent abuse. M Extending the minimum time for submission of M Providing for an independent appeals process bids after notification to no less than 30 days for similar to the Maharashtra RTI law, which tenders less than Rs. 2 crores in value and 45 days allows for a first appeal to the Secretary of the above that amount. Department followed by a second appeal to the M Limiting registration of contractors to low-value 83 Ombudsman ("Lok Ayukta"). tenders only (e.g., below Rs. 20 lakhs). All other M Reforming GoP's conduct rules to mesh with tenders should be thrown open to all the changes proposed in the draft RTI Act. contractors based on specified, minimum M Establishing an independent Advisory Council, qualification criteria. similar to Delhi and Maharashtra, to monitor M Ensuring that financial bids are opened very the process of implementation, report to the soon after technical ones in the case of the two- legislature, and improve public awareness. cover system by placing a legal time-limit on M Promoting greater use of the internet to furnish doing so. important information routinely to the public. M Providing for an independent panel to hear Unlike Tamil Nadu and Andhra Pradesh, GoP's appeals to improve the credibility of the process. website lacks an inventory of relevant rules, Clarifying whether a fee is necessary for filing an circulars, and GOs; fails to provide most forms appeal in the rules. or applications on-line; and possesses very few interactive facilities that might allow for on-line Transparency in recruitment could be transactions (e.g., paying a utility bill) or enhanced by: viewing relevant personal information, such as the status of one's file in a department. M Expanding the use of e-governance in the Punjab Public Services Commission (PPSC). GoP need not wait for GoI to make the national M Extending the reform process to the FOI law effective. It could begin by implementing Subordinate Services Commission (SSC) as the central law administratively through circulars in well; the SSC deals with recruitment for Class major departments with large public interface III and IV members of the civil services. RESUMING PUNJAB'S PROSPERITY M The Chairman of the PPSC should be does the Lok Pal possess suo-motu powers, allowing appointed by a five-member panel consisting of him/her to investigate suspected abuses of power the Chief Minister, Leader of the Opposition, without a formal complaint: An attempt to further Speaker, Chief Secretary, and a member of the amend the Lok Pal Act to permit this in 1999 failed Union Public Services Commission (UPSC). to prosper. Strengthening Anti-Corruption Institutions The first two occupants of the office were Certainly, the current government has pursued largely inactive, choosing to pursue only a handful of corruption cases vigorously: 1035 such cases were cases against prominent public servants. The registered by the Vigilance Bureau in the first 18 appointment of a new activist judge in December, months of the current regime compared to 1289 cases 2001, Justice D.V. Sehgal, breathed some life into the for the 1997-2002 period. The Vigilance Bureau has institution: During Justice Sehgal's one-year in initiated investigations into 13,000 complaints in the office, some 336 complaints were registered last 18 months compared to similar action on 18,000 compared to just 24 during the previous six years. He complaints between 1997 and 2001. The Vigilance also disposed of some 59 complaints compared to 15 Bureau has also carried surprise checks of school and in the previous six years. Since his death in office in health facilities around the state, which revealed high December 2002, no successor has been named to rates of staff absenteeism. replace him; as a result some 12 pending cases filed against Ministers of the two major parties in Punjab The Vigilance Bureau is an integral part of the have seen no movement at all and the office as a government and there is the risk that some of its whole is moribund. Punjab thus has an active 84 actions, particularly when they involve high-level Vigilance Bureau that reports to the government but political figures, will be viewed as politically no functioning independent mechanism to check motivated. Punjab also possesses an independent wrongdoing in high-office. Ombudsman or Lok Pal charged with investigating complaints of corruption against Ministers, GoP should appoint a Lok Pal as soon as Members of the Legislative Assembly, and Chairmen possible to make the office fully functional. A public of Public Sector Boards. The Lok Pal has a checkered website should be created for both the Lok Pal and history in Punjab: The office was first established in the Vigilance Department to provide information on 1995 under the Lok Pal Act, 1995. A controversy the work and performance of these two institutions, over whether the Lok Pal ought to be a single or and make it easier to facilitate the filing and tracking multi-member institution led to a series of legislative of complaints. actions to repeal the Act and then re-enact it. The current law remains strong in principle: The Lok Agency Reform Ayukta has extensive powers to investigate and E-Governance: Develop capacity in departments; recommend action in complaints filed against ensure automatic releases of allocated funds for IT politicians including the Chief Minister. S/he is projects. Complete roll-out of E-Sukhmani across appointed by a consensus decision involving the districts; extend computerization to other major Chief Minister, the Chief Justice, and the Speaker of cities on the lines of Ludhiana; land records the House; once appointed the Lok Pal cannot be computerization networked with registration; scale-up easily removed during his/her four-year term. On the computerization of RTOs; and put WAN in place. other hand, unlike Karnataka, the Lok Pal does not possess his/her own investigating staff and must Citizens Charters: Design and widely depend on the Vigilance Bureau in this regard. Nor disseminate citizens' charters for departments with REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES large public interface based on stakeholder establishing an autonomous health policy institute, consultation and appropriate business process and contracting out specific work. The Department improvements. Conduct independent user of Health also needs to draft a policy paper for the surveys/report cards to benchmark progress in sector, focusing on the primary level, based on improving services across agencies and cities. widespread consultation and debate. Human Development: Health Transfers and Human Resource Management Better Expenditure Management. Current Issues. Drawing on its recent experience in secondary spending patterns show that too little money is being health reforms, Government needs to strengthen its spent by the state government on health care, overall performance management system. Transfers need to less than 4 percent of the total state budget. be depoliticized through the creation of cadre Moreover, the release of approved funds is often held management committees and/or computerized up due to overall budgetary shortages. Despite counseling. Top-level positions in the department allocating 55 percent of spending to the primary need to be filled with excellent managers, public level, the system of PHCs and Subcenters is not health specialists and health economists in addition functioning effectively. Part of this reason stems from to doctors. the distribution of spending where more than 93 percent of state health spending falls on salaries. Such Engaging the Private Sector. Most of Punjab's a high percentage of spending on salaries has health care is provided by the private sector. GoP squeezed spending on drugs, while the allocations to could consider involving NGOs and private for- maintenance, minor works and vehicles have been profit providers in primary health care delivery completely eliminated from recent budgets. through contracting models. Several Indian states 85 Increasing the overall health budget, while curbing and pilots in other countries have shown that salary costs and ensuring timely releases are key involving the private sector in primary health care reform steps that GoP could consider. A Medium- can lead to greatly improved efficiency. term Fiscal Plan (MTFP) for health could be developed to use health financing tools in a well- Primary Health Care. A recent evaluation planned and focused way to improve the priority reported that primary health care facilities suffered outcomes set out for the health sector. from high rates of absenteeism, frequent transfers, mismatched staffing, gross under-utilization of Strengthening Government's Oversight Role. facilities, and lack of basic equipment. Government The state does not have a long-term policy or should consider giving PRI's more authority to check articulated vision for the sector. Strategic planning absenteeism at the primary-level. This needs to be and stewardship over the whole sector are non- complemented by an effective mechanism to track existent outside the Corporation. The organizational the flow of funds, as well as the development of an structure of state Government of Punjab lacks a integrated district health plan and budget. strong unit that can analyze health system Panchayats' effective involvement in the process of performance and key health system strategies such as health planning and implementation should be health financing. There is also limited technical accompanied by increased financing responsibility. capacity amongst senior and mid-level officers to design, plan, implement, and evaluate major health Decentralizing Primary Health Care. The system innovations. Possible actions to rectify this current initiative to decentralize control over primary situation include developing a health policy and health care to PRIs is vague and unlikely to have planning cell within the Department of Health, much impact. In order to strengthen local-level RESUMING PUNJAB'S PROSPERITY accountability in the area of health, a much clearer Third, effective administrative decentralization plan needs to be adopted that spells out in detail the depends upon a collaborative relationship and exact powers of PRIs in the areas of recruitment and communication between line departments and the disciplinary processes for health officials. PRI staff. In some States, line departments have consistently attempted to subvert effective Secondary Health Care. There is an urgent decentralization. Since the District Education need to institutionalize the PHSC. The Corporation Officers (DEOs) and sub-district level line has been the main driving force behind improved department personnel fear a gradual decline of service delivery at the secondary level. The power, it would be useful to introduce a program that Corporation is due to be wound up as the project would remove apprehensions, facilitate collaboration that supported it closes in 2004. It is vital that the and promote the development of a shared vision successful innovations and reforms that the between the district line departments and local Corporation introduced are protected either governments. through a continuation of the Corporation or the adoption of the Corporation structure and modus Fourth, PTAs need to be closely involved with operandi within the Department of Health and any decentralization initiative. There are instances Family Welfare. where schools have engaged teachers locally and managed to pay them a lump sum out of PTA Human Development: Education contributions. If an enabling environment is created Reinforcing Teacher Accountability Through for the VEDCs and the PTAs to work together, it Decentralization. While the plan to decentralize could increase pressure on teachers and headmasters 86 teacher control is laudable, there are several issues to function properly. The VEDCs and the PTAs that need to be resolved. First, the selection could also motivate parents to pay closer attention to committee responsible for recruiting teachers is their children's educational achievement. controlled by the line department and does not involve PRIs or parents. It is essential that both the Improving Secondary Education. Improving local Village Education Development Committee access and the quality of instruction are the two main (VEDC) and Parents Teacher Association (PTA) be issues in secondary education. Increasing the number given an effective voice in the selection process. This schools does not appear to be a priority for Punjab would empower and give a sense of ownership to considering the low Pupil-Teacher Ratios and the VEDCs and the user groups, and furnish an expanding private sector; this situation could change incentive for them to become active. due to increase in demand for secondary education caused by increased elementary level output due to Second, the disciplinary and administrative the SSA interventions. GoP could also consider: (a) powers given to local governments need to be refurbishing existing schools, and (b) providing a clearly specified. Experience from other States science laboratory in each school, along with an strongly portrays the limited extent to which effort to increase enrollment in the science and Panchayats have been able to curb teacher commerce streams. absenteeism and improve educational performance. Local governments, preferably the Gram Panchayat Strengthening Planning and Enhancing (GP), need to be given the authority to remove Performance Management. GoP needs to regular teachers and Shiksha Sewaks, who fail to computerize and publish data on secondary perform their duties, including prolonged education, put in place mechanisms to promote absenteeism, or, at least, withhold salary payments. collaboration between institutions concerned with REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES education in the state, including a policy planning the failure to harmonize the work of the District unit, and provide training to staff to enhance their Rural Development Authorities (DRDA) with local managerial/planning capacity. Key priorities to representative government DRDAs in Punjab receive improve performance management include large amounts of money to fund centrally-sponsored systematic and timely evaluation for teachers, schemes in rural areas: While the ZP President chairs schools, and administrators, establishment of the DRDA of his/her district, in practice the DRDA mechanisms to monitor compliance at different is fully independent of the ZP itself. Merging the levels, and creating a credible system of incentives to DRDA with the ZP is an important priority of reward (punish) good (poor) performance. reform in the system of local government in Punjab: This has already been achieved in states such as Efficient Deployment of Teachers. Teacher Karnataka and Kerala. recruitment needs to become more systematic and need-based focusing especially on the weaker south Second, successful decentralization will entail and southwest districts. Transfers should be based on improving the revenue-base of PRIs. No government explicit criteria and affected primarily through can operate without some level of own revenues. computerized counseling. Teachers should be Own revenues provide local bodies with some redeployed from urban to rural areas, upper primary autonomy. Even more importantly they are a key to lower primary schools and better performing to factor for creating accountability because local lower performing districts. stakeholders have an incentive to monitor revenues raised directly from them. Local revenues could be Increasing Outlays for Secondary Education. particularly important in Punjab where villages are The overall expenditure on education in the State is richer than on average in India so there is some local 87 low at 3.1 percent of the State Domestic Product fiscal capacity. Field visits carried out showed that (SDP). Further expansion of the secondary school some Panchayats were able to generate significant system will depend on increase in plan expenditures. local revenues from land leasing. Reducing the relative weight of salaries is a priority. Unfortunately, the revenue powers devolved to Decentralization: Strengthening the Panchayats seem to be rather limited. The First Punjab Overall .ramework Finance Commission (1st SFC) recommended Decentralization is less likely to succeed without transferring to PRIs 20 percent of the net proceeds of attention to the overall context. There are several pre- five taxes: stamp duty, Punjab motor vehicles tax, requisites for successfully pursuing decentralization electricity duty, entertainment tax and entertainment in Punjab. First, it is necessary to endow local cinematograph shows tax, but the decision was only governments with meaningful functions, and avoid partly implemented and about 40 percent of the due functional overlap across different tiers of amount (Rs. 150.98 crores) from the budget outlay government. The Punjab Panchayati Raj Act places has yet to be transferred. The Second State Finance too many functions in hands of GPs and fails to Commission (2nd SFC) recommended that the house clarify the functional relationship between PRI's and tax levied by GPs be enhanced and the imposition of line departments. In order to promote economies of a land holding tax. In an agriculture-rich state like scale in service delivery (the population of the Punjab such a tax could be a major source of local average village panchayat in Punjab is just 1,150), the revenue to finance services that benefit farming state could consider facilitating associations of village households. The 2nd SFC also recommended a tax to panchayats, on the same lines as Karnataka. The pay for the cost of street lighting. No decision has been problem of functional incoherence is exacerbated by taken on any of these recommendations. RESUMING PUNJAB'S PROSPERITY Devolving revenue powers may not be enough members, and Panchayat leaders from neighboring though. Panchayats may have a hard time convincing districts might produce more reliable reports on the local constituents to pay taxes unless they can prove true state of affairs. The work of the Mazdoor Kisan first that they will deliver services. It is like an egg Shakti Sangathan (MKSS) in Rajasthan in promoting and chicken problem. It may be necessary first for the freedom of information at the local-level to check state to provide some funds to cover the initial costs corruption in public works has proved remarkably of service delivery, particularly for the poorer ones, effective over time. These changes need to be with provisions for Panchayats to increase their own complemented with timely releases of allocated funds, revenue mobilization over time. The system of simpler accounting rules and conventions for conditional grants proposed by the SFC intended to panchayats, computerization of accounts, and achieve precisely this and it should be implemented. mandatory public disclosure of panchayat finances on The other problem is that fiscal capacity is likely to a notice-board and/or through regular public hearings. differ greatly between richer and poorer Panchayats. The state would need to compensate for this to create Fifth, PRIs need to be given greater control over some degree of equity in service delivery. functionaries supervising local administration. While PRIs can criticize shortcomings in the working of Third, it is clearly important that Panchayats local officials, in most cases they do not have the receive a higher proportion of untied funds to allow capacity to remove them from service or even halt them to adjust spending to locally-determined salary disbursements. The Chief Executive Officer priorities. Most funding flows through central or state (CEO) of the Zilla Panchayat remains answerable in schemes corresponding to different panchayat the end to the Deputy Commissioner, not the 88 functions administered directly by line departments or Chairman of the ZP. Nor does the Panchayat Samiti implementing societies. Most Central and State have much control over the work of the Block Finance Commission allocations flow through Development Officer (BDO), the nodal officer for Panchayats, rather than to them, and are earmarked for schemes. Line departments exercise considerable specific purposes. In this sense, Panchayats operate far power over health workers and teachers, weakening more often as post-offices than critical nerve-centers of local-level accountability mechanisms in the process. local decision-making. Real empowerment will involve a substantial increase in untied funds - nothing, Finally, the crucial unit of local democracy in however, would prevent GoI or GoP from linking the Punjab, the Gram Sabha, seems to be inactive. The flow of untied funds to certain desirable outcomes, 73rd Amendment viewed the Gram Sabha, village such as increasing teacher attendance at school. assembly, as a key instrument to monitor the GP. So far attendance at Gram Sabha meetings in Punjab has been Fourth, it is essential to improve the audit thin. Since GPs have few powers and funds, and the use capacity of local bodies to prevent the possibility of an of the funds they do have has already been decided, increase in corruption as decentralization proceeds. there is very little for Gram Sabhas to do. Village The local fund audit has serious weaknesses: Audit assemblies tend to be poorly attended unless major reports are poor in quality and there is the general decisions are to be taken, such as replacing the impression that they can be bought for a price. Several Sarpanch. Government is thinking of amending the accounts have not been audited for more than ten current rules that require Gram Sabhas to meet once a years and only government servants can be held month rather than twice a year, as is the current norm, responsible for lapses, not elected officials. An external but this may be wishful thinking. Perhaps, it might be 'social' audit of panchayat finances and works better not to overdo the Gram Sabhas to avoid meeting conducted by a team of journalists, civil society fatigue and reduce attendance costs for villagers, but REVITALIZING RE.ORM: SOME OPTIONS AND PRIORITIES delegate to an elected committee the role of monitoring different elements of the reform program, get the GP between the bi-annual Gram Sabhas. In short, political leaders to publicly demonstrate their the basic pre-requisites for decentralization - functional support for reform, motivate change agents in the clarity, sound local revenues, control over staff, and bureaucracy by giving them clear signals and high local participation ­ have not been achieved in supporting them in times of crisis and focus on Punjab or, for that matter, much of the country. results on the ground. Empowerment Developing a consensus for reform The major areas for intervention with respect to There is a need to build greater consensus in favour improving the status of women include: (i) Legislative of reform among and within existing political parties. reforms: Changing certain provisions in the Punjab GoP also needs to develop a larger public constituency Land Reforms Act 1972, Punjab Tenancy Act 1887, for reform, among the press, NGOs, professional and the Hindu Succession Act 1956 that associations, trade unions, and farmer organizations. discriminate against equal inheritance rights by Reforms that enjoy greater public and political support, women; (ii) Effective implementation of the PNDT like improving service delivery, may have to precede Act: Statutory laws like the MTP Act, 1992, and politically sensitive and unpopular reform programs, like Prenatal Sex Determination Test Act and Rules, 2003 fiscal restructuring, although economics would dictate need to be strictly enforced; existing loopholes the sequencing to be other way around. should be plugged in the light of new technological developments and appropriate authorities set up Taking GoI along under the Act should be more proactive in The key to successful reform in Punjab lies not only implementing its provisions; (iii) Dealing with with its own leadership, but also with the GoI. 89 violence against women and girls by setting up of In several regards, Punjab's situation is unique within "fast track" courts or Nari Adalats (Women's Courts) India's federation. It has unique disadvantages (the Rs. to deal with violence against women and girls 8,000 crores of debt incurred during the fight against including rape, dowry, and honour killings. insurgency during the 1980s) and unique advantages (the Rs. 2,000 crores of annual subsidy that Punjab's IMPLEMENTATION CHALLENGES farmers receive as minimum support price for paddy and As already noted, implementation is the key wheat production). Whatever the precise means through challenge facing Punjab. To conclude the report, we which these problems are solved, they can only be outline six areas that the state needs to focus to move addressed by GoI. Without a resolution to these issues it its reform agenda forward: will be very hard both for Punjab to return to fiscal sustainability and discipline, and to diversify away from An overarching vision for the state the environmentally unsustainable cropping practices. Punjab's reform program is likely to bring about changes that would affect most of its citizens in one Grounding reforms in the local context and way or the other. During the transition, uncertainty using local knowledge is likely to increase and special interest groups may Successful reforms tend to be context-specific mobilize to oppose reforms and even seek to derail and grounded in local knowledge. General them. The fact that reforms may not deliver results in economic principles to accelerate growth and the short-run is likely to make the transition period improve service delivery ­ e.g., market-based even more testing for the leadership. It is therefore competition, a healthy investment climate, important for the state to craft an overarching vision appropriate incentives, sustainable fiscal policy, for the state to guide reform, build public support for good institutions, protection of property rights, RESUMING PUNJAB'S PROSPERITY contract enforcement ­ do not necessarily map into program, front loading it with reforms where some standard policy packages. There is no necessary progress has already been achieved, including correspondence between the functions that good compliance with the Fiscal Responsibility Act, institutions perform and the particular form that addressing the overstaffing problem, reorganization of such institutions take. The importance of local the tax departments on functional lines, liberalization knowledge and context is critical in a state like of the agricultural markets, implementation of the Punjab, which is known for its conflicted and power sector reform program, and decentralization of unique history. Punjab's policymakers therefore health and education services. need to creatively package economic reform principles into institutional designs that are Strengthening policy-making capacity sensitive to local constraints and take advantage of Most high-level officials in Punjab are local opportunities. overloaded with routine administrative tasks, ranging from dealing with transfer requests, Sequencing and prioritization of reforms particularly in staff-intensive departments, such as The Government needs to pay close attention to health and education to even appearing in court the sequencing of the reform program. In many cases, cases. The result is a short attention span, made the underlying policies to achieve these three goals are worse by the problem of frequent transfers that consistent with one another. For example, policies makes both policy-making and management more aimed at eliminating subsidies to the wealthy and using difficult. If the Punjab civil service is overstaffed, it the freed-up resources to increase public investment is probably under-managed: More needs to be done will stimulate growth, improve fiscal performance (by to improve capacity in critical areas, such as treasury. 90 generating more revenue from the increased growth), Neither the health nor the education departments and raise the quality of services. But at times, apparent possess a policy planning unit, for example. Nor conflicts may occur. For example, there is a clear need does Punjab have a strong network of training to raise public expenditure in priority sectors like institutes, similar to AP's Center for Good primary health and education. But at the same time, Governance or Karnataka's Administrative Training currently 94 to 98.5 percent of the expenditure in the Institute (ATI) that might bolster capacity. It is no health and education departments are spent on salaries accident that the reform program has moved faster and pensions. There is therefore a compelling need to in areas like tax administration and the power sector restructure the composition of public expenditure as partly because of the willingness to actively involve more funds are allocated to such departments. skilled consultants. Capacity gaps therefore needs to Similarly, when it comes to critical sectors like power, be filled by hiring consultants or specialists through irrigation, transport, efforts should be made to improve lateral entry. Over the longer-term, government will service delivery along with hikes in user charges, or else, need to find a way to create focal points for policy- the latter may turn out to be highly unpopular and making that feed directly into government through ultimately cause the derailment of the entire reform revitalized training institutions, policy planning program. There is also a need to prioritize the reform cells, and closer ties to academic/research agencies. TECHNICAL NOTES PREPARED .OR THE PUNJAB DEVELOPMENT REPORT Education Punjab Economic Report: Education Component - Prema Clarke and Deepa Sankar, The World Bank Financial Management Preliminary Assessment of the Public Financial Management System - Parminder Brar and Papia Bhattacharya, The World Bank. Gender Gender Inequities in Punjab - Varalakshmi Vemuru, The World Bank Governance and Service Delivery Improving Governance in Punjab - N C Saxena, Consultant. Health Punjab: Health Sector Assessment - Ismail Radwan, Paolo Belli, Jet Riparip, The World Bank; S.K. Sudhakar, Consultant. Investment Climate 91 Punjab Economic Report: Investment Climate - Syed A Mahmood, The World Bank. Political Economy An Introduction to the Political Economy of Punjab - Sumir Lal, The World Bank. Poverty Poverty and Social Outcomes in Punjab - Rinku Murgai and Radhika Nayak, The World Bank. Power Punjab Economic Reform Study: Note on Power Sector - Bhavna Bhatia, The World Bank. Productivity and Investment Climate Investment Climate and Total Climate and Total Factor Productivity in Manufacturing: Analysis of India States - C. Veeramani and Bishwanath Goldar, Indian Council for Research on International Economic Relations (ICRIER). Tax Administration Punjab- Tax Administration - Narayan Valluri, Consultant Tax Policy Analysis of Tax Revenue in Punjab - M Govinda Rao, National Institute for Public Finance and Policy (NIPFP) Note: The detailed bibliography of all the studies consulted in preparation of this Report is available in these Technical Notes. Anyone interested in getting a copy of one or more of the above Notes, may write to Deepak Mishra at dmishra@worldbank.org or Vikram K. Chand at vchand@worldbank.org DATA APPENDIX 3.26 2.31 0.06 99.47 61.61 37.86 37.98 38.18 37.00 91.74 37.11 26.57 35.65 47.92 25.25 3.3% 279.43 273.86 175.68 275.98 731.10 2002-03 28958.71 2.18 2.08 0.04 69.39 33.54 37.79 31.24 35.89 79.35 31.53 25.18 35.52 47.19 24.77 7.1% 280.86 276.60 172.00 102.93 254.65 707.51 28,559 2001-02 2.10 1.86 0.04 96.15 64.73 31.41 32.61 27.77 31.32 72.44 29.85 23.91 33.10 42.94 24.31 8.0% 270.35 266.39 156.57 233.57 660.49 27,170 2000-01 riginO 2.52 1.69 0.05 1999-00 89.99 60.86 29.12 28.13 23.53 28.42 66.95 28.17 22.83 31.29 39.07 23.85 9.8% 253.35 249.14 141.70 216.73 611.78 25,646 of ndustryI 1.11 1.59 0.06 83.91 56.35 27.56 32.90 22.01 25.44 60.40 22.49 21.56 28.76 35.15 23.41 1998-99 224.67 221.96 138.88 193.80 557.36 23,811 14.4% by Cost 1.09 1.18 0.07 73.27 48.21 25.06 25.95 14.02 20.83 55.24 23.68 20.48 22.01 26.64 22.97 204.87 202.60 113.30 168.87 487.04 21,204 10.2% prices) 1997-98 .actor at current 0.80 1.03 0.05 67.33 44.26 23.07 18.84 14.05 17.39 50.20 20.05 19.70 18.08 21.64 22.54 93 oductrP at 194.66 192.83 100.26 147.05 441.98 19,609 14.5% 1996-97 Billion 0.66 0.79 0.05 60.85 40.23 20.62 18.57 13.67 14.99 44.68 14.79 18.74 14.98 18.37 22.12 (Rs 166.47 165.03 93.14 126.54 386.15 17,459 12.9% 1995-96 Domestic State 0.66 0.68 0.04 52.90 36.51 16.39 14.05 10.28 11.88 41.28 11.54 17.59 13.10 15.54 21.70 153.97 152.63 77.27 110.94 342.18 15,766 13.1% 1994-95 Gross ndiaI of 0.40 0.57 0.04 7.70 9.63 45.45 31.73 13.73 12.68 10.03 36.58 15.06 12.26 13.54 21.30 139.51 138.54 65.87 97.10 302.48 14,203 1993-94 PUNJAB: ankBev eserR and vices APPENDIX supply ser ater oductrP rganization O communication W & allied estaurantsr ATA ying business and Rate A1 tatisticalS ande ed and omestic logging and e quarr D ed & gas, storage nsuranceI wnershipo (million) GSDP & t, & vices wthor y y uction hotels administration G Central estate, ellings ser tateS icultur egisterrn D ableT Agr Agricultur estrroF ining nufacturinga egisterR U apitaC ce: dw ishingF ndustrI M M Constr lectricityE vicesreS ransporT rade,T ankingB ealR of ublicP ther ossr O G opulationP erP GSDP Sour RESUMING PUNJAB'S PROSPERITY 0.56 1.98 0.00 25.2 65.86 42.40 23.46 22.94 10.89 29.44 57.51 25.14 18.38 19.76 17.69 1.2% 162.83 160.29 99.69 167.91 430.43 17,049 2002-03 0.66 1.78 0.01 24.8 70.75 47.53 23.22 22.65 11.12 23.76 54.14 20.81 17.99 19.91 17.19 3.5% 166.98 164.54 104.53 153.79 425.31 17,168 2001-02 0.58 1.60 0.01 24.3 67.13 44.90 22.23 20.78 10.86 21.45 51.53 19.88 17.59 19.25 16.87 3.4% 165.72 163.53 98.77 146.57 411.06 16,909 2000-01 0.54 1.45 0.01 23.9 64.05 42.83 21.22 19.05 10.82 19.93 49.69 20.31 17.20 18.81 16.55 5.3% Origin 160.96 158.98 93.93 142.49 397.39 16,659 1999-00 of 0.44 1.37 0.02 23.4 Industry 60.45 40.07 20.38 23.82 10.37 17.02 46.50 18.23 16.83 18.00 16.15 5.2% 150.04 148.24 94.66 132.73 377.43 16,124 1998-99 by Cost prices) 0.46 1.11 0.02 9.39 23.0 56.75 37.20 19.56 19.39 15.78 44.76 19.59 16.45 15.48 15.45 3.0% 145.59 144.02 85.55 127.50 358.65 15,614 1997-98 .actor '93-94 at 94 0.39 0.96 0.01 8.96 22.5 54.24 35.46 18.78 14.17 14.32 42.30 17.32 16.09 13.60 14.72 7.4% 152.46 151.11 77.38 118.34 348.19 15,448 1996-97 roductP constant at 0.41 0.79 0.01 8.33 22.1 51.26 33.76 17.50 15.49 12.54 39.36 12.48 15.74 12.33 14.33 4.2% 142.45 141.25 75.10 106.79 324.33 14,664 Domestic Billion 1995-96 (Rs State 0.38 0.73 0.01 8.06 21.7 48.10 33.04 15.06 12.82 10.83 37.17 10.59 15.39 12.09 13.96 2.9% 142.37 141.26 68.99 100.02 311.39 14,348 1994-95 Gross ndiaI of 0.40 0.57 0.04 7.70 9.63 21.3 45.45 31.73 13.73 12.68 10.03 36.58 15.06 12.26 13.54 139.51 138.54 65.87 97.10 302.48 14,203 1993-94 PUNJAB: ankBev eserR and vices supply ser ater oductrP rganization O communication W & allied estaurantsr ying business and Rate A2 tatisticalS ande ed and omestic logging and e quarr D ed & gas, storage nsuranceI wnershipo (million) GSDP & t, & vices wthor y y icultur egisterrn uction hotels administration G Central estate, ellings ser tateS ableT Agr Agricultur estrroF ining nufacturinga egisterR U apitaC ce: dw ishingF ndustrI M M Constr lectricityE vicesreS ransporT rade,T ankingB ealR of ublicP ther ossr O G opulationP erP GSDP Sour DATA APPENDIX 0.1% 0.5% 0.0% 9.9% 5.5% 5.3% 2.5% 6.8% 5.8% 4.3% 4.6% 4.1% 37.8% 37.2% 23.2% 15.3% 39.0% 13.4% 2002-03 100.0% 0.2% 0.4% 0.0% 5.5% 5.3% 2.6% 5.6% 4.9% 4.2% 4.7% 4.0% 39.3% 38.7% 24.6% 16.6% 11.2% 36.2% 12.7% 2001-02 100.0% 0.1% 0.4% 0.0% 5.4% 5.1% 2.6% 5.2% 4.8% 4.3% 4.7% 4.1% 40.3% 39.8% 24.0% 16.3% 10.9% 35.7% 12.5% 2000-01 100.0% 0.1% 0.4% 0.0% 5.3% 4.8% 2.7% 5.0% 5.1% 4.3% 4.7% 4.2% 40.5% 40.0% 23.6% 16.1% 10.8% 35.9% 12.5% 1999-00 100.0% ricesP 0.1% 0.4% 0.0% 5.4% 6.3% 2.7% 4.5% 4.8% 4.5% 4.8% 4.3% 39.8% 39.3% 25.1% 16.0% 10.6% 35.2% 12.3% 1998-99 100.0% Constant 0.1% 0.3% 0.0% 5.5% 5.4% 2.6% 4.4% 5.5% 4.6% 4.3% 4.3% 40.6% 40.2% 23.9% 15.8% 10.4% 35.6% 12.5% at 1997-98 100.0% shares 0.1% 0.3% 0.0% 5.4% 4.1% 2.6% 4.1% 5.0% 4.6% 3.9% 4.2% 43.8% 43.4% 22.2% 15.6% 10.2% 34.0% 12.1% 95 1996-97 100.0% GSDP 0.1% 0.2% 0.0% 5.4% 4.8% 2.6% 3.9% 3.8% 4.9% 3.8% 4.4% elativeR 43.9% 43.6% 23.2% 15.8% 10.4% 32.9% 12.1% 1995-96 100.0% 0.1% 0.2% 0.0% 4.8% 4.1% 2.6% 3.5% 3.4% 4.9% 3.9% 4.5% PUNJAB: 45.7% 45.4% 22.2% 15.4% 10.6% 32.1% 11.9% 1994-95 100.0% ndiaI of 0.1% 0.2% 0.0% 4.5% 4.2% 2.5% 3.3% 3.2% 5.0% 4.1% 4.5% 46.1% 45.8% 21.8% 15.0% 10.5% 32.1% 12.1% 1993-94 100.0% ankBev eserR and vices supply ser ater oductrP rganization O communication W & allied estaurantsr ying business A3 and tatisticalS ande ed and omestic logging and e quarr D ed & gas, storage nsuranceI wnershipo & t, & vices y y icultur egisterrn uction hotels administration Central estate, ellings ser tateS ableT Agr Agricultur estrroF ining nufacturinga egisterR ce: U dw ishingF ndustrI M M Constr lectricityE vicesreS ransporT rade,T ankingB ealR of ublicP ther ossr O G Sour RESUMING PUNJAB'S PROSPERITY -2.5% -2.6% 0.0% -6.9% 1.0% 1.3% -2.0% 9.2% 6.2% 2.2% -0.8% 2.9% 1.2% 2002-03 -15.2% 11.1% -4.6% -10.8% 23.9% 20.8% 0.8% 0.6% 12.8% 11.6% 5.8% 0.0% 5.4% 5.9% 4.5% 9.0% 2.3% 4.9% 5.1% 4.7% 2.2% 3.4% 1.9% 10.8% 3.5% 2001-02 3.0% 2.9% 9.0% 10.2% 5.2% 4.8% 4.8% 4.8% 9.0% 0.4% 2.9% 7.6% 3.7% -2.1% 2.2% 2.4% 1.9% 3.4% 2000-01 -32.8% 7.3% 7.2% 6.0% 5.9% 6.9% 4.1% 4.3% 6.9% 2.2% 4.5% 2.5% 1999-00 22.5% -0.8% 7.4% -17.0% -20.0% 17.1% 11.4% 5.3% atesR 3.1% 2.9% -4.9% 6.5% 7.7% 4.2% 7.8% 3.9% 2.3% 4.6% 1998-99 23.6% 4.1% 5.2% 10.6% -8.8% 22.8% 10.4% -6.9% 16.3% Growth GSDP -4.5% -4.7% 4.6% 4.9% 4.2% 4.8% 5.8% 2.2% 4.9% 1997-98 18.1% 14.8% 10.6% 67.6% 36.8% 7.7% 10.2% 13.1% 13.9% 3.0% 96 riceP 7.0% 7.0% -4.9% 0.9% 5.8% 5.0% 7.3% 7.5% 7.5% 2.2% 2.7% 1996-97 22.4% 3.0% -8.5% 10.8% 14.2% 38.7% 10.3% 7.4% Constant PUNJAB: 0.1% 0.0% 7.0% 8.4% 8.8% 6.6% 2.2% 3.3% 11.5% 16.2% 20.8% 6.8% 5.9% 2.2% 2.0% 2.7% 15.8% 17.9% 4.2% 1995-96 ndiaI of 2.1% 2.0% -3.6% 26.3% 4.7% 5.8% 4.1% 9.7% 1.1% 4.7% 3.0% 8.0% 1.6% 9.9% 2.2% -1.4% 3.1% 2.9% 1994-95 -77.3% ankBev eserR and vices supply ser ater oductrP rganization O communication W & allied estaurantsr ying business A4 and tatisticalS ande ed and omestic logging and e quarr D ed & gas, storage nsuranceI wnershipo & t, & vices y y uction hotels administration Central estate, ellings ser tateS icultur egisterrn ableT Agr Agricultur estrroF ining nufacturinga egisterR ce: U dw ishingF ndustrI M M Constr lectricityE vicesreS ransporT rade,T ankingB ealR of ublicP ther ossr O G Sour DATA APPENDIX BE 7.74 4.25 0.17 0.95 0.90 4.64 0.24 5.98 1.07 5.81 0.79 3.25 0.05 3.50 1.46 2.02 1.85 2004-05 46.34 27.45 44.05 23.60 98.96 38.72 16.57 40.19 191.21 RE 7.30 2.47 0.16 0.88 0.63 7.86 0.20 4.96 0.75 5.73 0.24 3.14 0.03 3.22 1.39 1.82 1.76 2003-04 43.45 23.95 32.27 14.19 94.68 37.37 15.78 38.31 172.16 6.10 2.26 0.15 0.49 0.54 1.54 0.21 4.30 0.39 3.59 7.52 0.23 4.82 0.00 2.24 1.33 1.71 2.21 32.22 20.92 23.10 90.72 34.34 14.19 39.15 2002-03 148.25 6.18 1.85 0.15 0.48 0.51 1.13 2.49 4.20 0.61 3.26 4.51 0.23 4.05 0.01 1.78 1.12 1.53 1.66 31.11 18.32 18.66 75.67 31.78 12.30 28.94 2001-02 127.10 6.38 1.53 0.15 0.46 0.53 1.34 0.96 4.48 0.67 3.16 6.05 0.29 4.47 0.02 1.87 1.07 1.58 0.89 2000-01 29.93 18.59 21.01 65.31 23.43 11.78 27.45 117.13 5.45 1.16 0.18 0.29 0.50 1.35 0.18 3.39 0.47 2.94 4.04 0.38 4.58 0.01 2.65 0.96 1.37 0.50 1999-00 27.16 18.05 18.46 55.82 26.37 10.91 16.22 101.95 5.16 1.23 0.22 0.48 0.61 1.03 0.51 3.47 0.54 2.90 0.01 0.38 4.17 0.01 1.31 0.96 1.56 7.27 0.73 26.40 17.16 12.80 43.91 23.17 10.96 83.84 prices) 1998-99 Expenditure 3.83 1.02 0.16 0.48 0.43 1.07 0.59 2.79 0.46 2.56 8.74 0.52 3.71 0.01 1.80 0.81 0.90 9.63 6.60 0.70 current 20.62 13.02 20.60 36.43 18.49 78.35 1997-98 at 97 evenueR 3.15 0.97 0.15 0.29 0.36 0.73 0.31 2.19 0.24 2.18 0.24 3.21 0.00 1.63 0.73 0.77 7.76 3.52 0.67 Billion 1996-97 16.39 10.43 23.08 13.39 29.12 16.34 69.26 Punjab: (Rs. 8.95 2.57 0.95 0.14 0.32 0.30 1.03 1.64 9.62 2.64 0.37 1.88 0.01 0.35 3.05 0.01 1.31 0.55 0.77 6.71 7.25 0.64 15.91 30.18 14.90 56.35 1995-96 7.66 2.26 0.67 0.12 0.39 0.27 0.52 0.43 9.61 1.90 0.18 1.68 0.01 0.41 2.72 0.01 2.70 0.50 0.79 6.69 0.48 12.32 38.02 12.44 17.60 60.43 1994-95 6.88 2.23 0.57 0.12 0.27 0.24 0.56 0.60 9.64 2.21 0.30 1.56 0.01 0.54 2.53 0.01 2.50 0.35 0.53 5.47 1.98 0.57 11.47 18.75 10.42 40.44 1993-94 unjabP of utrition N onment vices ser e OBCs nvirE elfar elopmentve ernmentvo e ande vicesreS ol G W anitationS D ands Contr elfar elfar and general ST W W Allied inerals isc. e amilyF & tment, rban & loodF M vicesreSe M U SCs, & Labor ande ENDITURE and tateS epar A5 and D vicesreS and upplyS ofe and t & ecurityS vicesreS elopmentve D y echnologyT vicesreS of vicesreS aymentP est xpenditurE EXP ducationE ealth tera ousing elfar H W H W Labor ocialS thers thers rgans O Agricultur Science, O eneral inanceF ableT ocialS conomicE uralR rrigationI nergyE ndustrI ransporT O iscalF nterI dministrativA ensionsP ther G O. VENUE ce: 1. II. III. IV RE Sour RESUMING PUNJAB'S PROSPERITY BE 0.00 8.11 0.11 8.00 0.00 4.65 0.00 2.75 0.13 1.25 4.93 0.00 2004-05 71.14 63.03 15.25 40.25 8.65 79.78 60.83 24.94 29.70 16.17 77.00 156.78 RE 0.00 7.60 0.10 7.50 0.00 4.50 0.00 2.59 0.15 57.99 15.00 35.75 7.52 1.17 3.78 0.00 2003-04 65.59 73.11 47.69 15.84 26.90 15.96 63.65 136.77 0.00 5.68 0.09 5.59 0.00 4.44 0.00 1.88 0.15 9.14 0.96 3.02 0.00 57.15 51.48 14.29 30.72 6.45 63.60 40.36 27.24 6.76 47.11 2002-03 110.71 0.00 4.53 0.09 4.44 0.00 3.18 0.00 0.03 0.15 5.53 0.77 3.02 0.00 48.24 43.71 13.50 26.84 6.07 54.31 29.60 20.28 5.37 34.98 89.29 2001-02 0.00 4.31 0.07 4.24 0.00 3.38 0.00 1.45 0.12 44.64 13.25 26.44 7.19 7.08 0.73 3.21 0.00 8.27 2000-01 48.95 56.15 29.35 18.32 37.62 93.77 0.00 3.30 0.05 3.26 0.00 3.21 0.00 0.76 0.10 36.17 12.32 19.77 6.39 5.44 0.70 2.84 0.00 5.20 1999-00 39.47 45.86 23.61 14.64 28.82 74.68 0.00 2.61 0.03 2.58 0.00 2.67 0.00 0.32 0.09 1.06 0.51 2.81 0.00 32.62 30.01 12.04 14.90 5.87 38.50 15.07 10.62 3.99 19.06 57.56 eceiptsR prices) 1998-99 0.00 2.37 0.04 2.34 0.00 2.16 0.00 0.38 0.09 6.57 9.86 0.52 2.65 0.00 2.93 98 current 30.45 28.07 11.44 14.01 37.02 23.57 10.53 26.50 63.51 1997-98 evenueR at 0.00 1.85 0.03 1.82 0.00 1.95 0.00 0.80 0.09 5.28 1.67 0.52 2.56 0.00 3.61 1996-97 27.35 25.49 10.01 12.65 32.63 19.45 14.70 Billion 23.06 55.69 Punjab: (Rs. 0.00 2.31 0.03 2.28 0.00 9.44 1.91 0.00 0.93 0.10 0.92 0.39 2.52 0.00 26.51 24.20 11.83 4.42 30.93 17.77 13.95 3.15 20.92 51.85 1995-96 0.00 2.49 0.04 2.46 0.00 8.83 1.78 0.00 0.87 0.05 0.89 0.50 2.56 0.00 25.99 23.50 11.96 4.24 30.23 20.04 16.08 2.74 22.78 53.01 1994-95 0.00 1.77 0.03 1.74 0.00 7.66 9.61 1.41 0.25 0.73 0.06 0.77 0.68 0.46 2.24 0.00 21.50 19.73 3.79 4.14 3.34 7.48 25.28 32.77 1993-94 e eesF ty ofitsrP & xpenditurE operrP assengersP lectricityE and on enueveR ividends enueveR and ty egistrationR ablev oods uties sexaT ax D e S G D on-T axT ncomeI operrP enueveR and mmoI Commodities cise Centr on A6 ex xaT ehiclesV vicesreS on on N and eceipts,R vicesreS on on on Central wno vicesreS vicesreS VENUE RE RECEIPT Own esxaT esxaT Land a. tampsS.b esxaT c. esxaT tateS a. alesS.b esxaT esxaT esxaT ther est omfr c. d. e. O.f ofe VENUE eneral AX G ableT tates'S A. B. C. harS RE tates'S nterI ocialS conomicE iscalF .A rants B. C. D. E. VENUE I. II. AXT G. III. IV NON-T RE DATA APPENDIX BE 3.4 1.2 24.8 59.7 13.9 24.0 26.3 23.6 25.2 25.5 38.7 2004-05 156.8 132.0 179.2 -22.5 -34.4 61.2- 459.4 630.6 171.1 RE 2.8 8.2 23.5 53.6 14.4 14.4 24.0 14.2 25.6 15.1 136.8 113.3 158.1 -21.3 37.4 -35.4 58.7- 2003-04 419.5 605.5 186.0 2.2 7.7 7.5 4.2 2.3 97.5 13.2 46.7 13.6 25.7 18.1 -9.8 34.3 110.7 120.5 -37.5 44.1- 368.5 538.9 170.4 2002-03 1.3 4.6 4.5 9.8 1.9 89.3 77.8 11.4 44.3 10.3 18.7 16.1 107.1 -17.8 31.8 -37.8 49.6- 324.9 482.4 157.5 2001-02 2.1 6.0 7.4 1.8 93.8 78.3 15.5 45.3 11.2 11.4 16.4 13.9 109.4 -15.6 23.4 -23.4 -39.0 2000-01 278.3 422.2 143.9 2.0 5.7 4.9 4.0 4.4 0.3 74.7 63.1 11.6 80.3 40.7 11.4 10.9 -5.6 26.4 -27.3 -31.9 1999-00 236.6 341.4 104.8 9.9 7.2 1.7 0.3 0.1 0.0 0.1 57.6 47.7 72.2 38.8 12.7 11.4 -14.6 23.2 -26.3 -37.8 89.7 208.7 298.5 prices) 1998-99 Summary 9.5 4.3 1.5 9.2 2.3 8.7 9.7 0.2 63.5 54.0 69.8 30.3 12.2 -6.3 18.5 -14.8 -24.8 64.6 current 172.1 236.7 1997-98 99 .iscal at 8.9 3.5 1.5 0.1 8.9 55.7 46.8 54.0 24.8 14.2 13.4 -2.4 3.5 1.7 16.3 -13.6 -14.6 27.3 Billion 1996-97 152.5 179.7 Punjab: (Rs. 7.6 2.8 1.4 0.4 4.5 0.0 6.8 2.4 1.2 51.8 44.3 50.6 20.4 12.0 14.9 -4.5 -13.6 33.6 136.3 169.8 1995-96 7.0 2.2 1.1 0.4 0.0 7.1 3.3 53.0 46.0 58.4 17.8 15.5 10.9 -5.4 12.4 -7.4 -17.9 25.6 121.5 147.1 1994-95 7.1 1.9 1.1 0.6 0.1 0.0 5.0 2.3 32.8 25.6 37.3 15.9 10.4 -4.5 10.4 -7.7 -14.9 16.5 105.0 121.5 1993-94 unjabP of (-) (-) e (-) es eficit eficit ernmentvo G eficit es e (+)/D (+)/D enueveR ces xpenditurEe xpenditurE (+)/D tment, uarantees A7 xpenditurE urplusS urplusS Po G G epar D VERNMENT Own esourR est xpenditurE y urplusS of and GO y ubsidyS ecurringR Lending aymentsP uarantees nterI ther et est tockS ebt G inanceF ableT TEA rimarP enueveR iscalF D ST enueveR tate'sS Central on alariesS ensionsP dministrativA ubsidiesS Lotter erwoP O Capital N o/w ce: oP N G nterI oP oP ebt oP G G D G Sour RESUMING PUNJAB'S PROSPERITY 8 0 81 999 1332 2130 1233 5702 40.9 21.6 4175 3567 8133 26.2 27.5 13650 29606 29606 105.15 29711 1185.5 28526 28421 95.68 171.1 4787.9 1123.8 619.85 1157.6 6041.5 2002-03 8 0 37 999 1330 2130 1233 5700 40.9 21.6 3672 3708 6694 25.6 23.2 14694 28805 28805 112.5 28918 1256.6 27661 27548 4380.7 965.78 631.82 1058.2 114.53 104.04 6049.4 2001-02 0 30 999 1315 2130 1233 5683 40.7 21.7 3868 3152 6862 24.7 24.2 14457 28369 28369 50.89 28420 1248.7 27171 27120 4224.1 911.42 648.72 1039.4 119.96 169.47 5869.8 2000-01 (PSEB) 66 0 20 Board 547 1289 2130 1205 5177 35.5 23.3 4450 3220 5988 27.9 21.8 13831 27509 27509 74.55 27584 1196.3 26387 26313 3779.5 799.19 644.29 1018.7 161.53 148.31 5524.8 1999-00 Electricity 40 34 547 1267 1710 1014 4538 22.3 4595 3026 9778 5046 22.5 135 805 5046 4770 22445 22445 27626 26821 26686 3082.4 633.59 644.09 837.38 100.21 255.35 State 1996-97 Punjab 516 533 1254 1280 3583 49.4 14.9 4097 2644 6514 2325 43.3 14.9 719 575 2325 1356 15580 100 of 15580 18624 18049 17330 268.95 456.77 620.41 2846.5 1989-90 Indicators 200 871 185 7.4 4.8 1254 2510 57.9 966 380 3592 2938 7876 57.9 380 907 340 7876 9163 8823 7916 134.2 386.3 1984-85 654.03 297.17 1625.6 39 0 990 454 70.5 485 287 5.2 287 846 152 Commercial 1537 3630 1143 5545 74.2 5545 6678 6526 5680 1979-80 386.86 110.36 257.36 252.33 911.22 and 39 0 11 19 613 172 878 80.4 483 203 228 1164 2078 79.3 228 660 2078 2966 2947 2287 70.15 91.62 1974-75 171.72 143.35 246.64 Operational NFL) BBMB clude states +NFL)t (ex ordy +steam +steam omfr o ailable TL- HT- A8 dr s ordy o state o dr s av other o NFL +NFLt impor TL HT apacityC hy diesel s dr hy diesel s y in (NRS) dr to consumption hy CPSU thers hy CPSU omfr y sale cial rew erw erw ­ ­ po po erw erw BBMB-H Own Own CPSU others total % % BBMB-H Own Own CPSU O otalT energ ss % % ts po (includes for po po ableT nstalledI eneration ossr G G mporI nergyE oss+imporr G uxiliarA et et omestic N N D commer small medium medium large large DATA APPENDIX 5.5 9.5 23.3 28.3 29.9 51.9 230.42 5818.5 511.32 20558 588.59 2002-03 5 28 9.2 22.5 31.6 51.0 486.2 250.63 5451.9 19493 633.39 2001-02 22 4.8 9.7 28.8 31.2 50.3 199.78 5534.4 467.58 19185 795.44 2000-01 (PSEB) 18 3.8 8.6 Board 8233 39.3 27.1 48.3 200.18 436.61 20946 689.54 1999-00 Electricity 3.7 6347 17.9 36.9 10.1 28.3 40.6 351.5 158.09 17180 419.19 State 1996-97 Punjab 2.4 9.6 12.1 46.1 25.3 34.9 5186.4 505.38 11240 787.7 of 1989-90 101 2.3 Indicators 2359 11.2 40.2 11.7 27.7 44.2 1984-85 405.46 5861.7 240.62 9.5 2.7 46.4 12.5 22.3 38.5 Commercial 1979-80 1896.2 269.46 4083.8 102.65 and 11 4.5 51 44.5 15.8 38.0 1974-75 695.66 145.66 1564.8 Operational d Boar (continued) lectricityE input states A8 state % % % tateS e other % cial %e %of y y +others sale ss within tot unjabP ed ableT ce: PWW Agricultur bulk otalT omestic expor D Commer Agricultur -industrTL -industr HT meter Sour