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Economy of Punjab, India

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Until the early 1970s, Punjab had a high rate of economic growth but has since lagged behind. Punjab ranked first in GDP per capita amongst Indian states in 1981 and fourth in 2001, but has experienced slower growth than the rest of India in recent years, having the second-slowest GDP per capita growth rate of all Indian states and union territories (UTs) between 2000 and 2010, behind only Manipur. Between 1992 and 2014, Punjab's life expectancy also grew slower than most Indian states, rising from 69.4 to 71.4 years. During this period, Punjab's rank amongst Indian states in life expectancy at birth fell from first to sixth.

The state's economy is dominated primarily by agricultural production and small and medium-sized enterprises. Punjab has the ninth highest ranking among Indian states and UTs in human development index as of 2018.

History

In the year 1981, Punjab had the highest per capita GDP in comparison with other states in India, and in 2001, it stood at number four. However, since then, growth in Punjab has been slower than the growth in India's overall economy. In the period between 2000 and 2010, growth in per capita GDP for Punjab was the second-slowest in the whole of India, after Manipur. Therefore, the state's rank in terms of per capita income fell to the 19th place in 2026.

Ancient and medieval eras (pre-1526)

Indus Valley Civilisation

The people of the Indus Valley Civilisation, a permanent settlement that flourished between 2800 BC and 1800 BC, practised agriculture and animal domestication, used uniform weights and measures, made tools and weapons, and traded with other cities.

The civilization had knowledge of urban planning, with evidence of well-planned streets, a drainage system, a water supply, and the first-known urban sanitation system. There is also evidence of a form of municipal government.

Mahajanapadas

Silver punch-marked coins were minted as currency during the period of intensive trade activity and urban development by the Mahajanapadas.

Silk Road

Scholars suggest that trading from India to West Asia and Eastern Europe via the silk road was active between the 14th and 18th centuries. Most overland trade was carried out via the Khyber Pass, connecting the Punjab region with Afghanistan and continuing into the Middle East and Central Asia.

Medieval period

Although many kingdoms and rulers issued coins, barter was prevalent in the region. Villages paid a portion of their agricultural produce as revenue to the rulers, while their craftsmen received a part of the crops at harvest time for their services.

Mughal era (1526–1738)

The Mughal Empire ruled over Punjab from 1526 to 1738, controlling its economy and implementing Islamic economics. It was under Mughal rule that barter became less common in Punjab and a monetary system was fully established.

Sikh era (1738–1849)

Sikh Confederacy (1738–1799)

The barons collected a very moderate rent, and that mostly in kind. Their soldiery never molested the husbandman; the baron never levied the whole of his share; and in the country, perhaps, never was a cultivator treated with more indulgence. Moreover, the baron did not interfere with old and hereditary land tenures. The rules of haq shufd did not permit land to be sold to an outsider. New fields, or residential sites could be broken out of waste land as such land was available in plenty. Duties on traders and merchants also brought some revenue. The Sikh barons gave full protection to traders passing through their territories.

— James Browne, a contemporary British East India Company Employee

Extensive and valuable commerce was maintained in their territories which was extended to distant quarters of India.

— George Forster, who traveled to Punjab in 1783

The decline of the Mughal Empire left a power vacuum in the Punjab, which resulted in constant conflict until the formation of the Sikh Empire. The conflict severely damaged the economy.

Sikh Empire (1799–1849)

Ranjit Singh, Maharaja of the Sikh Empire from 1801–1839, ensured that Punjab manufactured all weapons, equipment and munitions his army needed, being self-sufficient. His government invested in some infrastructure during the 1800s and thereafter, established raw materials mines, cannon foundries, and factories for gunpowder and arms. Some of these operations were owned by the state, others operated by private Sikh entities.

However, Ranjit Singh did not make major investments in other infrastructure such as irrigation canals to improve the productivity of land and roads. The prosperity in his empire, in contrast to the Mughal–Sikh wars era, largely came from the improvement in the security situation, reduction in violence, reopened trade routes and greater freedom to conduct commerce.

Under Sikh rule, the Nanakshahi rupee (issued by the Sikhs and named after Guru Nanak, the founder of Sikhism) was the predominant currency.

British era (1849–1947)

Agriculture

Within a few years of its annexation, Punjab was regarded as British India's model agricultural province. From the 1860s onwards, agricultural prices and land values soared in the Punjab. This stemmed from increasing political security and improvements in infrastructure and communications. New cash crops such as wheat, tobacco, sugar cane and cotton were introduced to the region. By the 1920s, Punjab produced a tenth of India's total cotton crops and a third of its wheat crops. Per capita output of all the crops in the province increased by approximately 45 percent between 1891 and 1921, a growth contrasting to agricultural crises in Bengal, Bihar and Orissa during the period.

In 1885, the Punjab administration of the British Raj began a plan to transform over six million acres of barren land in central and western Punjab into irrigable agricultural land. The creation of canal colonies was designed to relieve demographic pressures in the central parts of the province, increase productivity and revenues, and create support for the British amongst peasant landholders. The colonisation resulted in an agricultural revolution in the province, rapid industrial growth, and the resettlement of over one million Punjabis in the new areas. A number of towns were created or saw significant development in the colonies, such as Lyallpur, Sargodha, and Montgomery. Colonisation led to the size of canal irrigated area in Punjab increasing from three to fourteen million acres in the period from 1885 to 1947.

An agricultural college was also established in British India, now known as University of Agriculture Faisalabad. Rapid agricultural growth, combined with access to easy credit for landowners, led to a growing crisis of indebtedness. When landowners were unable to pay down their loans, urban based moneylenders took advantage of the law to foreclose debts of mortgaged land. This led to a situation where land increasingly passed to absentee moneylenders who had little connection to the villages were the land was located. The colonial government recognised this as a potential threat to stability in the province, and a split emerged in the government between paternalists who favoured intervention to ensure order, and those who opposed state intervention in private property relations. The paternalists emerged victorious and the Punjab Land Alienation Act of 1900 prevented urban commercial castes, who were overwhelmingly Hindu, from permanently acquiring land from statutory agriculturalist tribes, who were mainly Muslim and Sikh. Accompanied by the increasing franchise of the rural population, this interventionist approach led to a long lasting impact on the political landscape of the province. The agricultural lobby remained loyal to the government, and rejected communalism in common defence of its privileges against urban moneylenders. This position was entrenched by the Unionist Party.

The Congress Party's opposition to the Act led to it being marginalised in the Punjab, reducing its influence more so than in any other province, and inhibiting its ability to challenge colonial rule locally. The political dominance of the Unionist Party in Punjab would remain until partition, only collapsing on the eve of independence from Britain when communal violence began to spread in rural Punjab.

Army

In 1914, three fifths of the Indian army came from Punjab, despite the region constituting approximately one tenth of the total population of British India. During the First World War, Punjabi Sikhs alone accounted for one quarter of all armed personnel in India. Military service provided access to the wider world, and personnel were deployed across the British Empire from Malaya, the Mediterranean, to Africa. Upon completion of their terms of service, these personnel were often amongst the first to seek economic opportunities abroad.

At the outbreak of the Second World War, 48 percent of the Indian army came from the province. In Jhelum, Rawalpindi, and Attock the percentage of the total male population who enlisted reached fifteen percent. Punjab continued to be the main supplier of troops throughout the war, contributing 36 percent of the total Indian troops who served in the conflict.

The huge proportion of Punjabis in the army meant that a significant amount of military expenditure went to Punjabis and in turn resulted in a notably high level of resource investment in Punjab. It has been suggested that by 1935, if remittances of serving officers were combined with income from military pensions, more than two thirds of Punjab's land revenue could have been paid out of military incomes. Military service further helped reduce the extent of indebtedness across the province. In 1920 in Hoshiarpur, a notable source of military personnel, thirty percent of proprietors were debt free compared to the region's average of eleven percent. In addition, the benefits of military service and the perception that the government was benevolent towards soldiers, affected the latter's attitudes towards the British. The loyalty of recruited peasantry and the influence of military groups in rural areas across the province limited the reach of the nationalist movement in the province.

Green Revolution period (1947–1991)

The Green Revolution in India was first introduced in Punjab in the late 1960s as part of a development program issued by international donor agencies and the Government of India.

Since 1965, the use of high-yielding varieties of seeds, increased fertilisers and improved irrigation facilities collectively contributed to the Green Revolution in India. This improved the condition of agriculture by increasing crop productivity, improving crop patterns and strengthening forward and backward linkages between agriculture and industry. A large amount of the development was focused in Punjab, and greatly improved the states economy, especially in comparison to the rest of India, which saw a low rate of growth. By 1981, Punjab's GDP per capita had become the highest amongst Indian states and union territories.

The Green Revolution yielded great economic prosperity during its early years. In Punjab, where it was first introduced, the Green Revolution led to significant increases in the state's agricultural output, supporting India's overall economy. By 1970, Punjab was producing 70% of the country's total food grains, and farmers' incomes were increasing by over 70%. Punjab's prosperity following the Green Revolution became a model to which other states looked to replicate.

Punjab became the first Indian state to provide electricity to all of its villages in 1974, after the completion of the Guru Nanak Thermal Plant in Bathinda.

Criticism

Costs

However, despite the initial prosperity experienced in Punjab, the Green Revolution was met with controversy.

Criticism of the effects of the Green Revolution include the high costs of using High-yielding variety (HYV) seeds for small farmers, which require greater use of irrigation systems and pesticides. Examples of this can be found in Punjab, where farmers bought Monsanto BT cotton seeds. Farmers were sold on the idea that these seeds produced 'natural insecticides', saving costs. In reality, they still needed to pay for expensive pesticides and irrigation systems, which can lead to increased borrowing to finance the change from traditional seed varieties. Many farmers have difficulty in paying for the expensive technologies, especially if they have a bad harvest. These high costs of cultivation push rural farmers to take out loans, typically at high interest rates. Over-borrowing commonly entraps farmers into a cycle of debt.

India's liberalized economy has further exacerbated the farmers's economic conditions. Indian environmentalist Vandana Shiva writes that this is the "second Green Revolution". The first Green Revolution, she suggests, was mostly publicly funded (by the Indian Government). This new Green Revolution, she says, is driven by private and foreign interest—notably Multinational corporations (MNCs) like Monsanto—encouraged by neoliberal policies. Ultimately, this has led to foreign ownership over most of India's farmland, undermining farmers' interests.

Farmer's financial issues have become particularly apparent in Punjab, where its rural areas have witnessed an alarming rise in suicide rates. There was an estimated 51.97% increase in the number of reported suicides in Punjab from 1992–93, compared to the recorded 5.11% increase in the country as a whole. According to a 2019 Indian news report, indebtedness continues to be a grave issue affecting Punjabi people today, demonstrated by the more than 900 farmers recorded to have committed suicide in Punjab in the last two years.

Environmental damage

Excessive and inappropriate use of fertilizers and pesticides have polluted waterways and killed important insects and wildlife. The increased agricultural production has caused over-use of soil and has rapidly depleted its nutrients. The rampant irrigation practices have led to soil degradation caused by stubble burning. Groundwater practices have fallen dramatically. Further, heavy dependence on a few major crops has led to loss of biodiversity in farming. These problems were aggravated due to absence of training to use modern technology and vast illiteracy, leading to excessive use of chemicals.

Increased regional disparities

The Green Revolution only spread to irrigated and high-potential, rainfed areas. The regions in villages without the access to sufficient water were left out of the economic prosperity brought by the Green Revolution. This widened the regional disparities between adopters and non-adopters. Since the HYV seeds can only be used in lands with a reliable water supply and requires chemicals, fertilizers etc., the introduction of the new technology in the dry-land areas is ruled out.

Communal tensions

While the Green Revolution in Punjab had several positive and negative impacts, the introduction of new mechanised agricultural techniques led to an uneven distribution of wealth. Industrial development was not done at the same pace of agricultural development and the Indian government had been reluctant to set up heavy industries in Punjab due to its status as a high-risk state bordering Pakistan. The rapid increase in higher education opportunities without an adequate corresponding rise in the jobs resulted in an increase in unemployment for educated youth. The resulting unemployed rural Sikh youth were drawn to militant groups, and formed the backbone of the militancy that occurred in Punjab during the 1980s.

Economic liberalisation period (post-1991)

Economic liberalisation in India propelled India to become one of the fastest growing major economies in the world. However, Punjab has grown slower than the rest of India, and thus its GDP per capita rank has dropped from first amongst Indian states and union territories in 1981 to sixteenth in 2020.

Some argue that part of the slower growth might have been caused by high rates of corruption in the state government and mistreatment of the state by the central government. Low rates of investment and high rates of debt, some of the problems caused by the Green Revolution, have helped keep growth lower in the state than elsewhere in India.

The slower growth of Punjab's economy, particularlywithin the agricultural sector, is believed to have helped fuel the 2020–2021 Indian farmers' protest.

The economy of Punjab was severely effected by the COVID-19 pandemic beginning in 2020.

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