Provincial economies: The Punjab story

The Institute of Public Policy, an independent think-tank at the Beaconhouse National University recently released its fifth annual report, what could be termed as a formidable effort at elucidating the socio-economic landscape of the Punjab. Titled The Punjab Story, the report provides a telling analysis of economic growth and inter-district disparities in Pakistans largest province.
The IPP report estimates the Punjabs Gross Regional Product at Rs.97,492 per capita ($1140) for 2010-11, two percentage points lower than rest of Pakistan. Interestingly, Punjab outperforms rest of Pakistan in periods of low growth, but grows less rapidly during periods of fast growth. This is due to Punjab being more of an agrarian and less an industrial economy compared to the rest of Pakistan, especially Sindh.
The report identifies the sectors in which Punjab has comparative advantage over other provinces. The province has major comparative advantage in agriculture (major & minor crops, livestock, etc.), and minor advantage in services like transport & communications. Punjab also has comparative advantage in small-scale manufacturing and large-scale manufacturing in agro-based industries and intermediate goods.
The report then goes on to reject the notion that Punjab drives the economic growth of the whole country, on two grounds. One, the provincial output is consumed by relatively less well-performing sectors. Two, severe weaknesses in social sector development have reduced the potential contributions from a relatively young population in the provincial economy.
The study estimates that between 1999-2000 and 2010-11, Punjabs share in the national economy had dropped from 55.5 percent to 54.9 percent. This is primarily because the provinces agricultural share in national economy dropped by 5bps to 63.1 percent, even as its industrial and services shares slightly increased during the period to 45.2 percent and 56.5 percent, respectively.
While Punjab had grown faster than rest of the country at 5.6 percent between 1999-2000 and 2006-07, the province seems to have lost its growth momentum lately, lagging behind rest of Pakistan with a meager 2.5 percent growth between FY07 and FY11. Various factors have been pointed out by the IPP economists in the report for this secular economic decline.
For one, the farming sector witnessed declining outputs in several major crops due to expensive inputs, worsening yields, water shortages, etc. In addition, the industrial sector was battered by the energy crisis. The provinces economic slowdown has also been attributed to the decline in development expenditures in real terms; with the present development budget just one percent of Punjabs GRP.
The IPP report adjudges Punjab to have the least degree of regional inequality vis-à-vis other provinces; however, inter-district disparities remain. The district-wise analysis relegates South Punjab below North and Central Punjab in terms of regional development. Recent improvements in South Punjab in housing and electricity must be augmented with melioration in school enrollment, water, sanitation, and road networks.
The report offers sound policy inputs to the Punjab government, which include initiating an ambitious energy sector development programme, focusing the development strategy on areas of comparative advantages, and facilitating trade with India. The government is advised to significantly increase its development outlays, through mobilising taxes from sectors like agriculture, services, and real estate.