Special to The Express: The collapse of belief behind Punjab’s economic slowdown

Punjab’s economic slowdown is usually explained through a familiar list: rising debt, stalled industry, drug addiction, migration, and a subsidy structure that has grown beyond what the state can reasonably finance. These issues matter, but they do not fully explain why Punjab feels stuck, or why repeated policy attempts over two decades have failed to shift its trajectory.

At the core of the stagnation lies a collapse of belief. A growing sense that Punjab’s future is narrowing has settled into public consciousness. Once that idea took hold, it began shaping economic decisions in ways that policy instruments struggle to reverse.

Expectations quietly govern behaviour. When families believe the best opportunities lie elsewhere, they plan for migration. When entrepreneurs expect regulatory uncertainty, they invest in other states. When political actors sense voters prioritising immediate relief over long-term reform, they respond accordingly. Over time, these choices reinforce one another until they appear structural rather than situational. Punjab today is locked into such a feedback loop.

To understand how this emerged, it helps to trace the state’s economic evolution. After reorganisation in 1966, Punjab entered the Green Revolution with significant natural advantages. Procurement-led agricultural growth created a perception of broad prosperity, but the gains were narrow.

The state did not build processing ecosystems, logistics capacity, export infrastructure, or research institutions needed to convert agricultural dominance into diversified growth. When economic liberalisation arrived in the 1990s and other states invested in industrial corridors and urban frameworks, Punjab remained anchored to procurement-driven agriculture.

The years of militancy delivered a deeper shock. Beyond the human cost, the period disrupted labour markets, eroded investor confidence, and weakened institutions. When stability returned in the late 1990s, Punjab had an opportunity to rebuild its administrative capacity and diversify its economy. Instead, political competition increasingly shifted toward distributive commitments. By the early 2000s, the state remained thinly diversified and increasingly watched its youth view opportunity through the lens of going abroad.

Today’s fiscal picture reflects those accumulated choices. Debt has hovered in the mid-40s as a percentage of the GSDP for several years, well above the trajectory of most states. Committed expenditure on salaries, pensions, and interest consumes about 74 per cent of revenue receipts. Capital expenditure, at roughly Rs 10,000 crore, remains inadequate for the scale of the required transformation. Power subsidies alone account for around Rs 20,500 crore, nearly one-fifth of revenue receipts. These figures are not abstract. They crowd out investment in industrial readiness, logistics, energy reliability, and human capital.

Industrial outcomes mirror these constraints. Manufacturing has stagnated as a share of the state economy. More troubling than the lack of new investment is the difficulty in retaining existing capacity. Medium and large firms have steadily shifted operations to neighbouring states that offer clearer regulatory pathways and faster decisions.

Entrepreneurs cite familiar concerns: delays in approvals, unpredictable enforcement, and inconsistent follow-through. As supply chains thin and managerial talent moves away, the industrial ecosystem loses resilience. These losses are gradual, but over time they show up in slower job creation and weaker competitiveness.

The labour market compounds the problem. Youth unemployment remains high, and labour force participation among young adults is below the national average. Migration is no longer a fallback option but the dominant aspiration. Families divert savings toward foreign education and immigration rather than local investment. Remittances help, but they do not compensate for the scale of human capital outflow. Punjab is losing not just workers, but the people who could build its next generation of enterprises.

Public health adds another drag. The opioid crisis has become a structural burden on productivity. Employers report unreliable attendance and inconsistent performance. Households expend time and income on treatment. The state allocates substantial resources to policing, prevention, and healthcare. These costs accumulate quietly, but their economic impact is undeniable.

Perceptions of law and order further shape investor caution. Isolated but high-profile incidents involving organised crime or political violence, along with prolonged disruptions, influence how investors assess risk. The farmers’ agitation of 2020, while democratic and rooted in legitimate concerns, also demonstrated that large-scale disruption can persist for months. For long-term investors, this recalibrated Punjab’s stability premium.

Political incentives continue to pull policy away from structural reform. Every government faces pressure to protect subsidies and expand transfers. Reforms that alter entrenched commitments carry high electoral risk. Immediate benefits are rewarded, while restructuring that pays off years later is not. The result is persistent deficits, constrained capital spending, and public scepticism toward reform announcements.

This is where narrative becomes decisive. When a state internalises the idea that opportunity is shrinking and governance is uneven, expectations harden. Families plan exits. Firms delay expansion. Administrators become risk-averse. Even positive signals fail to change sentiment because they are read against a backdrop of distrust.

Reversal requires more than new schemes. Punjab needs a credible medium-term fiscal strategy that clearly signals deficit reduction while protecting capital expenditure. Power subsidies require targeted restructuring, as universal provisioning is no longer fiscally viable. More than fresh incentives, investors need predictable regulation and consistent execution of existing policies.

Administrative reform is essential. Structures built for an earlier era no longer match the demands of a competitive economy. Clear accountability, performance-linked responsibilities, and modernised service rules would increase state capacity. Investors care less about slogans and more about whether land, power, and approvals arrive on predictable timelines.

Human capital is the hinge of recovery. Punjab needs stronger secondary and technical education aligned with future industries. Public health investment, especially in addiction treatment, must be treated as an economic imperative. Urban policy must shift from incremental repair to building towns that can retain skilled professionals.

Punjab still has strengths: strategic location, an agricultural base capable of supporting modern value chains, and deeply entrepreneurial communities. What is missing is confidence in the state’s ability to convert these assets into sustained growth. Restoring belief is not a matter of messaging. It requires disciplined fiscal, administrative, and institutional reform. Once that confidence returns, the broader development cycle will follow.

The writer is a political strategist and co-founder of MovDek Politico India.