Akalis have shown that a bankrupt state can win elections, but is this sustainable? Probably not

Manpreet Badal, former Punjab finance minister and nephew of chief minister P S Badal, broke last year with the Akali Dal, complaining that his entreaties for fiscal discipline were being ignored, and would lead to disaster. He looks foolish today after the re-election of the Akali Dal-Bharatiya Janata Party combine.

However, the Akali victory was not based on economic development, as claimed by deputy chief minister Sukhbir Badal. It won because of continuing populism: free electricity for farmers, the subsidised atta- dal scheme, free bicycles for girl students, shagun grants for poor girls.

The Akali-BJP combine actually lost vote share, from 45.4% in 2007 to 41.9% in 2012. This would normally have been fatal. But the Congress could not gain from anti-incumbency; its vote share fell too, from 40.9% to 40.1%.

Why so? Because Manpreet’s breakaway party garnered 5.17% of the vote. This took away enough anti-incumbent votes to deny the Congress a victory. Manpreet sought to damage the Akali vote by splitting away, but harmed the Congress vote much more.

Had Manpreet stayed in the Akali Dal despite his disagreements, the Akalis would probably have lost, and Manpreet would have won the internal debate with Sukhbir Badal. By leaving, he unwittingly handed Sukhbir victory in the elections and (for now) even in the fiscal debate. Yet, that debate is not over.

Punjab, once the richest and fastest-growing state of India, has fallen in state rankings. It once had the highest per-capita income among states, but is now down to fourth position (behind Haryana, Maharashtra and Gujarat). It used to grow faster than the national average, pulling it up. Now for two decades, it has grown below the national average, dragging it down.

Free electricity to farmers is the biggest culprit, and accounts for 90% of entire government debt, says agricultural guru S S Johl. Debt service swallows a third of the budget. Punjab now competes with West Bengal at the bottom of the state finances table, and is one of only three states with negative cash balances at the RBI. Punjab cannot even pay government salaries, and retirees are told to wait six months before they can collect money from the general provident fund.

Punjab Agricultural University, the proud institution that created new varieties for the green revolution, is unable to pay salaries. How then can it produce better seeds? Almost half vacant posts of teachers and doctors have not been filled for want of cash, and absenteeism is almost the highest among the states.

The Tribune reported in February that 840 headmasters were not receiving their salaries. The situation is as bad in medical colleges and health centres. Professor Surinder Shukla of Panjab University found in a study of Muktsar that most teachers were trying to migrate. Punjab has a TV channel devoted to migration. Whatever Sukhbir may call this, it is not a triumph of economic development.

Yet, his boast is not entirely empty, and has some substance. Punjab’s GDP growth accelerated under the Akalis in 2007-12 to 7% per year against 6% a year under the preceding Congress regime. High inflation has, ironically, eroded the debt/GDP ratio. Government bankruptcy is being finessed through private investment in toll roads and bridges, schools, hospitals, bus transport and electricity generation. While this leaves huge unfilled gaps, it has helped economic development.

For years, Punjab failed to add additional power capacity, but will soon get 1,940 mw from Vedanta (Talwandi Sabo), 1,400 mw from L&T (Rajpura) and 540 mw from GVK (Goindwal). This should improve the very tardy pace of industrialisation.

A rich agricultural state like Punjab should have automatically become industrialised, serving rich consumers in the entire north-west. Punjabis say that corporates fear investing because of its closeness to Pakistan, but that’s rubbish: another border state, Gujarat, attracts the most investment of all.

Some investment may indeed have been diverted to Himachal Pradesh and Uttarakhand by excise duty concessions for hill states, but that can only be a small part of the story. The state’s investment/GDP rate has been just 18-20% against the national 34-37% in recent years.

Prof Ranjit Ghuman of CRRID, Chandigarh, estimates that the state has lost over 9,500 crore of investment by falling below the national investment rate between 1995-96 and 2008-09.

The power shortage and very high price of land (up to 1 crore per acre) have been major investment disincentives. Nevertheless, industry is coming up, though too slowly. At Mohali, a pharma cluster has come up, and an IT Knowledge City is taking shape.

Public-private partnerships are rising fast and closing the investment gap, but have led to crony capitalism. Private buses have been licensed massively and have brought in much revenue. But half the buses are said to be owned by the Badal family, and most others by Congress politicians.

They form a cartel that physically beats up independents that try to enter. The Tribune complains that the tax on AC buses has been halved, and on luxury integral buses has been cut from 7.50 to 0.50 per km, a bonanza of thousands of crores for the politician-owners.

The Akalis have shown that a bankrupt state, ruined by free electricity, unable to even pay salaries, can nevertheless win elections through populist giveaways and public-private partnerships rife with corruption. But is this sustainable? Probably not. In which case, Manpreet may have the last laugh.

What do you think?