India’s Economic Empire and the Future of Punjab

Gurjot Singh

This article, originally published in Gurmukhi in August 2021, takes a closer look at one of the key structural factors underlying Punjab’s economic challenges today–India’s farcical federal structure. Gurjot Singh clearly outlines how the structural function of Indian federalism actually serves to subordinate state governments to Delhi’s imperial policy imperatives and ultimately leaves them dependent on the central government in order to function. In light of recent reports that PM Modi opened back channels to slash the share of central tax funds to be distributed to the states, this article provides an important perspective on the BJP-RSS’s current strategy to completely dismantle alternative power centres in the subcontinent in order to achieve Hindutva’s vision of transforming the region into a Hindu Empire. Demonstrating the centralization and personification of power that has characterized his tenure since 2014, Modi opened unofficial lines of communication to pressure the Financial Commission to drastically cut the states’ share for central taxes from 42% to 33%. Although unsuccessful in this initial attempt, Modi’s ability to dismantle various institutions and centralize powers has been facilitated by the preexisting structures of Indian “federalism”.

The arena for Punjab’s Vidhan Sabha (state level) elections has once again been erected [this article was originally published in 2021]. While every political party has intensified their activities, analysts interested in local politics are keeping a close eye on the different campaigns and promises being made by the various parties involved. Whether they want to or not, each party has been forced to superficially address the poor financial condition of the state government, debt, agricultural policy, unemployment and other social issues. Rather than actually identifying the root causes of this economic situation or showing any interest in proactive solutions however, politicians of every stripe are simply indulging in a blame game by throwing the responsibility of the current situation on each other. Despite the dire consequences of the current crisis, Punjab’s political class refuses to show any sincerity in genuinely addressing these issues. There is widespread consensus amongst serious thinkers however, that the only way to bring Punjab’s economy back on track is drastic structural changes that are not possible without finally implementing demands for the genuine decentralization of power throughout the subcontinent. 

Along with Punjab, the southern states and West Bengal have consistently been demanding changes to India’s economic and political structure which currently makes individual states completely dependent on the central government in Delhi. Tamil Nadu’s Finance Minister recently released a White Paper on the economic situation of the state. This White Paper revealed that the government of Tamil Nadu is facing a debt crisis that is the equivalent of imposing a debt of Rs 206,000 on each family in the state. While the white paper highlights serious issues with the central government’s behaviour, it also raises incisive questions about the current administration and future of India’s GST regime. The same discontent is also widespread in the state of Karnataka. According to the 2011 census, Karnataka’s total share of central tax funds dropped from 4.72% to 3.64% under the 15th Finance Commission. Although the six southern states account for the largest share of India's total taxes, they receive the lowest share in the whole country. While UP receives Rs 1.70 for every Rs 1 tax, Karnataka recovers less than half of 1 rupee–0.47 paise–for every Rs. 1 paid in tax. Punjab’s state government has also repeatedly raised issue with the central government’s decision to cut back Punjab’s tax share under the guise of family reform and population control policies but these calls have fallen upon deaf ears and outright ignored. Even today, Punjab's due share of GST is only released to the government after a considerable delay of several months which makes even operations difficult to sustain. 

After the implementation of the centralized GST scheme, state governments have only been left with the authority to collect tax on land, fuel, and liquor. As a result, states are increasingly structurally dependent on the central government in order to carry out their most basic functioning and administration. Punjab currently faces a debt of around Rs. 260,000 crore (2.6 trillion), which is forecasted to increase to Rs. 373,000 crore (3.73 trillion) in the next three to four years. During the 2021-22 fiscal year, the Punjab government will have to pay Rs. 20,135 crore (201 billion) in interest alone. According to this year’s budget, the state will have to borrow about Rs. 67,336 crore (673 billion) in order to cover its expenditure this financial year. Punjab’s political class needs to take cues from the initiative taken by the DMK government of Tamil Nadu to transparently present the realities and specificity of Punjab’s financial condition to the public. 

Punjab’s economy is prey to a dual attack; alongside bearing the weight of the Centre’s inequitable tax distribution to serve Delhi’s own policy priorities, Punjab’s own domestic revenue is being looted by various mafias and the political class itself. It is a great start that discussions about Punjab’s problematic power supply agreements have been percolating but it is clear that the issue of Punjab's waters, the need to shift Punjab’s agrarian policy, state autonomy over commerce and trade, as well as Punjab's cultural identity have all been pushed to the margins. Punjab’s entire political class is miles away from touching any of these issues. The Shiromani Akali Dal–that once upon a time engaged in active struggle and civil disobedience to address these very issues–now embodies a capitulating clientelistic politics that is nothing but shameful.

Without entering electoral politics, those genuinely committed to Punjab can play a meaningful role in forcing Punjab’s political class to directly confront these existential crises. Punjab’s recent history is full of examples where our mobilized masses stood on guard and exercised control over all shades of politicians and decision-makers–forcing them to address our collective priorities whether they wanted to or not. Those committed to Punjab’s future can play a similar role today. By committing their energy to ensuring these issues remain on the forefront of our agenda and collectively enforcing political accountability, Punjab’s mobilized masses can once again return to their role as the driver of Punjab’s politics and future.