A contrasting tale of two states under two former chief ministers

While Punjab's economy struggled to revive under Captain Amrinder, Rupani delivered better than national average on many counts; Social indicators are a mixed bag in both states

The recent resignations of two chief ministers--of Punjab and Gujarat--have raised questions about their performance. While Captain Amrinder Singh's face helped the Congress a lot to uproot the Akali Dal-BJP combine in 2017, it was largely the Central leadership of the BJP that could be given credit for its victory in Gujarat in 2017 because the new chief minister Vijay Rupani had spent just about 16 months in office. Reports suggest that internal surveys in Punjab  and Gujarat conducted by the Congress and the BJP, respectively, had pointed to the strong anti-incumbency wave in the two states. In this scenario, let us look at the performance of both during the tenure of the two erstwhile chief ministers.

While Gujarat has always been lauded for its economy, Punjab has been somewhat of a laggard in recent times. For instance, Punjab's gross state domestic product (GSDP) grew at a much slower pace than the national average under the Captain till 2018-19 and when it contracted in 2019-20, the slowdown was sharper than the All-India level (See charts). On the other hand, Gujarat always surpassed the national average, except 2016-17, when Rupani replaced Anandiben Patel. But the first quarter had already gone when Rupani became the state chief minister in August. The next year, the Rupani government delivered a handsome double-digit GSDP growth of 10.7 per cent when the national average was just 6.8 per cent. While national GDP in 2017-18 slowed down from 8.3 per cent in 2016-17, the GSDP growth in Gujarat accelerated from 7.5 per cent. During the next two years, Gujarat's economic expansion was higher than the nation's. However, the latest numbers for 2020-21 weren't available when the national economic growth fell by 7.3 per cent.

Public finance:

Even before the Covid-induced lockdowns wrecked the financial condition of the states and the Centre, Punjab's fiscal deficit touched 3.1 per cent of GSDP in 2018-19, a tad higher than the mandatory three per cent limit set by the Centre for availing concessional  loans. The next year, it was close to the limit (see chart). In 2020-21, it shot up to 5.3 per cent, but that is quite understandable due to the pandemic and the Centre also raised the limit for states to five per cent with riders. In fact, the Centre's fiscal deficit itself shot up to 9.5 per cent of GDP, though some of it was caused by transparency in the subsidies regime. The reasons are quite obvious for widening the fiscal deficit of the state even before 2020-21, when the pandemic shattered finances. The own-tax revenues of the state have been growing at a tepid pace, with only the first year of the Captain's government being an exception, when these grew in double digits (see chart). The 12 per cent growth in OTR estimated in the Budget for the current fiscal was mainly due to a low base. In fact, revenues grew in line with the BE in the first four months of FY22, as 28 per cent of OTR was collected. By contrast, Gujarat kept its fiscal deficit well under control. It was only in 2020-21 that the gap between its revenues and expenditures rose to 3.1 per cent of GSDP, quite lower than the five per cent limit set by the Centre. It is not a surprise that capex shrank by 13.8 per cent. For each of the previous financial years, the deficit was under two per cent, hovering at 1.4-1.8 per cent. Even in 2019-20, when OTR contracted, the deficit was reined in at 1.5 per cent. It was no surprise that capex was also cut by 3.4 per cent.

Government debt:

Public debt has been a problem for Punjab, Kerala and West Bengal. As can be seen from the charts, the total outstanding liabilities of the state remained at least 40 per cent of GSDP under Amrinder Singh, till 2019-20. It was projected to decline to 38.7 per cent in 2020-21, but it is yet to be seen whether this could be met. However, it was still too higher than the average public debt-GSDP ratio at 26.6 per cent for that year. On the other hand, public debt of Gujarat was close to just 21 per cent even when it was at its peak under the Rupani government in 2016-17. It was lower than 24.7 per cent for all the states and union territories that year.  

Spending on health and education:

Despite its not-so-good fiscal situation, Punjab did spend a significant portion of its expenditure on education. It always stood in double digits, even when Covid-induced lockdowns devastated its revenues. The same is true for Gujarat, where only the first year of the Rupani government was an exception. Spending on health by Punjab and Gujarat was below eight per cent, which is the goal set by the 15th Finance Commission for the states to be reached by 2022. However, before the Covid struck, the expenditure was 6.2 per cent for two straight years in Gujarat. In Punjab, it hovered between 3.8 and 4.2 per cent.

Urban unemployment, rural wages and infant mortality:

This was quite high in Punjab and surpassed the national average in pre-Covid times. Covid-induced lockdowns raised it to the peak of 13.3 per cent in the first quarter of 2020-21, but it was below the all-India level of 20.9 per cent. It decreased thereafter, and remained below the national average. However, the lowest unemployment rate of 9.2 per cent during the third quarter of FY21 was quite elevated. The only exception was the Covid-affected April-June quarter of 2020-21, but even then, it was almost half the all-India rate. However, Gujarat may have been better than Punjab on this front earlier as well, though periodic labour force surveys are not available for that period.  

When it comes to wages rates in rural areas, Punjab fared better than Gujarat. In all the categories of men, agricultural workers, non-agricultural workers and construction workers, daily wages have been higher in the northern state than the western one (See chart). Also when it comes to infant mortality rate, Punjab under Amrinder Singh had lower deaths than Gujarat under Rupani. 

Table: A snapshot of the Punjab economy

Economic indicator	2017-18	2018-19	2019-20	2020-21	2021-22
GDP growth rate in%	4.7	4.4	2.9	-7.8	.
GDP growth rate national average in %	6.8	6.5	4.0	-7.3	.
Fiscal Deficit	2.7	3.1	2.9	5.3*	3.9**
Own tax revenue growth year on year in %

13.9 3.8 -5.0 1.4* 23.1 Spending on Education as % of total spend 14.5 13.2 11.8 12.8* 11.6** Health as % of total Expenditure 4.2 4.2 3.8 4.1* 4** Total outstanding liabilities as % of SGDP 41.5 40.3 40.0 38.7* . Average daily wage rates in rural areas (men--farm workers, Rs) 324.6 337.7 348.7 . .

Average daily wage rates in rural areas (men-construction workers)

338 347.4 369.5 . , Other metrics 2017 2018 . . . Infant mortality rate per 1000) 21 20 . . . All India  33 32 . . . Unemployment Oct-Dec 2019 Jan-Mar 2020 April-June 2020 July-Sept 2020 Oct-Dec 2020 Unemployment rate in % 9.8 9.4 13.3 10.8 9.2 Unemployment rate All India in % 7.9 9.1 20.9 13.3 10.3

Table: A snapshot of the Gujarat economy

Economic indicator	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
State GDP growth rate in %	7.5	10.7	7.9	6.1	.	,
GDP growth rate national average in %	8.3	6.8	6.5	4.0	-7.3	.
Fiscal deficit as % of SGDP	1.4	1.6	1.8	1.5	3.1*	1.6**
Own tax revenue growth YoY in %	2.8	11.0	11.9	-1.4	-5.5	15.2
Capex growth rate YoY in %	2.8	27.4	11.3	-3.4	-13.8	50.2
Spending on education as % of total expenditure	2.1	15.5	15.5	15.1	15.0	14.4
Spending on health as % of total expenditure	5.7	5.9	6.2	6.2	6.1	.
Total outstanding liabilities as % of SGDP	20.9	20.2	19.9	19.6	18.8*	.
Average daily wage rates in rural areas (Men-farm workers, Rs)	184,0	187.9	199.3	208.4	.	.
Average daily wage rates in rural areas (men non-agri workers, Rs)	204.3	216.1	224.1	233.7	.	.
Average daily wage rates in rural areas (Men-construction workers)	237.4	249.3	256.2	268.6	.	.
Other metrics	2016	2017	2018	.	.	.
Infant mortality rate per 1,000	30	30	28	.	.	.
All India infant mortality rate per 1,000	34	33	32	.	.	.
Unemployment	Oct-Dec 2019	Jan-March 2020	April-June 2020	Jul-Sept 2020	Oct-Dec 2020	.
Unemployment rate in %

3.3 3.7 10.5 4.5 4.0 .

Note: * Revised Estimates, ** Budget Estimates

Source:  RBI, state budgets, PRS Legislative Research, Comptroller and Auditor General of India