Political economy of the three Punjabs
Ravian

Pakistani Punjabi farmers cannot take the subsidy route to catch up with the Punjabis on the other side of the border. Income growth, employment and poverty reduction must come from genuine gains in productivity
Ravian
Sikh and Hindu Punjabis in India are economically better off than our Punjabis in Pakistan thanks to the huge subsidies from the all-India government. The subsidy route to income growth and poverty reduction is unsustainable and politically not feasible in our Punjab. Instead, we have to aim at improving literacy and genuine productivity gains throughout the country and not Punjab alone.
The failure of political accommodation between Muslims and Hindus in pre-partition India and later between Sikhs and Hindus in post-partition Indian Punjab has given South Asia three Punjabs. A Sikh Punjab (population 24 million), a Hindu Punjab (Haryana, population 21 million) and a Muslim Punjab (population 73 million). Some lament while others applaud this division of the greater Punjab along religious lines. That is not our concern. We take as given the hand history has dealt us and focus instead on how the three Punjabs have managed their economic affairs unhindered by religious competition.
The premier criteria for gauging success in economic management has to be progress in eradicating poverty. The poor being those who just meet or fall below a minimum standard of consumption. Economic progress that creates wealth for a few but does not lift the poor out of their misery is hollow and unlikely to be sustained. On this criteria of economic management, Sikh Punjab is the most successful. In ten years since the late 1980s, the proportion of poor in rural areas fell from 13 per cent to six, and from 14 to five per cent in urban areas. Hindu Punjab is close behind Sikh Punjab with rural poverty falling from 15 to 7 per cent in the last ten years and urban poverty declining from 18 to 10 per cent. Our beloved Muslim Punjab is a distant third. In 1990, 39 per cent of the rural population was poor. This fell only slightly to 35 per cent by 1999. In urban areas, the proportion of the poor fell from 29 per cent to 27. To put it starkly, out of every 100 Sikh and Hindu Punjabis, only six are poor. On the other hand, 30 out of every 100 Muslim Punjabis are poor. The incidence of poverty is thus five time more in Muslim Punjab than in Sikh and Hindu Punjab.
How did the Indian Punjabis eradicate poverty so effectively while ours are struggling? It was not via a radical restructuring of the economies to generate high wage jobs in manufacturing and services. Agriculture remains the principal source of employment in all three Punjabs, accounting for 39 per cent of all jobs in Sikh Punjab, 52 per cent in Hindu Punjab and 46 per cent in Muslim Punjab.
The answer lies in agriculture itself and the political economy of subsidies. In another piece (A tale of two Punjabs), we saw that agricultural productivity in Sikh Punjab is considerably higher than in Muslim Punjab. However, that productivity is driven by huge subsidies on inputs (fertilizer, water, power and fuel) that inflate farm income. Furthermore, resource intensive productivity growth contaminates sub-soil water with harmful toxicants. This cost is also not factored in. Finally, excessive use of subsidised inputs leads to over production and the government has to step in to subsidise crop output as well, thus accumulating food stocks that nobody wants.
Input and output subsidies to Indian farmers are estimated at nearly $ 7 billion annually (or 1.5 per cent of India's Gross National Product of $500 billion). Major beneficiaries of the subsidies are Punjab and Haryana farmers. Thus high incomes of Indian Punjabi farmers are due, in large part, to transfer payments by the rest of India. A sort of bribe for keeping the peace. The result is much lower incidence of poverty among Indian Punjabis than the rest of India, that has a poverty rate of 28 per cent (similar to our Punjab's).
It has to be granted that the "bribe" is spread around well among the Indian Punjabis and is not usurped by rich farmers alone. Credit for this goes to India's effective land reform.
Pakistan's Punjabi farmers, on the other hand, enjoy no such subsides or transfer payments. In fact, for several decades, Pakistani farmers were heavily taxed via an over-valued exchange rate that pushed the farm gate price of export crops, such as cotton and rice, below the international price.
Could our Punjabi farmers have emulated their neighbours across the border and manipulated the rest of the country to subsidise them? The answer is no because 45 million Indian Punjabis constitute less than five per cent of India's total population. They can get away with the argument that they defend the Western flank of the country and therefore deserve special attention. Pakistani Punjabis, on the other hand, are the majority group accounting for 60 per cent of the population. Transfer payments of the sort enjoyed by Indian Punjabi farmers are politically not feasible here. Besides, given the high land concentration in Pakistan's Punjab, rich farmers would pocket most transfer payments. This would worsen income distribution leading to political dissatisfaction.
The other critical indicator of well-being is education since it affects the chances of escaping poverty in the future and joining the middle class via genuine improvements in agriculture and/or by securing high paid manufacturing or service sector jobs. Again Sikh and Hindu Punjabis, with about 70 percent adult literacy rates, have performed better than Muslim Punjabis with a rate of only 43. The literacy rate of Sikh and Hindu Punjabi men (76 and 79) is higher than that of Muslim Punjabi men (57) but especially telling is the much higher literacy rate of Sikh and Hindu Punjabi women (63 and 56) compared to Muslim Punjabi women (30).
To conclude, Pakistani Punjabi farmers cannot take the subsidy route to catch up with the Punjabis on the other side of the border. Income growth, employment and poverty reduction must come from genuine gains in productivity. This involves more efficient use of water, a more diversified cropping pattern, better domestic and international marketing of produce and increasing non-agricultural sources of income. These efficiencies require increasing the literacy rate in rural areas and also discouraging inefficient holdings of absentee landlords.
For reasons of political economy, our policy approach has to be the opposite of the Indian Punjabis'. Improvements must come at the country-wide level and not Punjab alone.
The writer is a leading economist of Pakistan
Curtsy:Daily Times: May 02, 2003