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Following are excerpts from an article in Wall Street Journal.

India’s northern state of Punjab was once a symbol of the nation’s economic progress, its advances in agriculture lauded worldwide as a spectacular feat that made India self-sufficient in food production.

But Punjab today faces a grave economic crisis, the result of years of shoddy governance that have stunted growth and created such a mound of public debt that the state is now seeking a multi-billion dollar bailout from the central government. It also is facing high unemployment, an anomaly in a nation that has the highest economic growth rate of any major nation after China.

Once India’s fastest growing state, Punjab is now one of its slowest, with about 6% economic expansion annually in recent years, compared with a national average of 8.5% and top-performing regions that are clocking 11% growth. With few good industry jobs being created, urban unemployment is a staggering 15.2%.

… Many of the problems behind Punjab’s decline – an overreliance on agriculture, the under-development of manufacturing, lack of infrastructure development and overspending on populist welfare subsidies – are major issues for the government in New Delhi.

… Amid the turmoil in Punjab, the state’s ex-finance minister, Manpreet Singh Badal, has emerged as a leading advocate of reforms. …

Mr. Badal says Punjab needs to reduce spending on populist programs such as free power for farmers and cash handouts to lower caste women who get married; make long-term investments in education and infrastructure; and provide more incentives for industrial development.

"We have to think about not just the next general election, but the next generation," Mr. Badal said in a recent interview.

… With little spending restraint and paltry tax collections, Punjab has amassed $15.5 billion in debt. To pay annual debt servicing costs of about $1.8 billion, salaries for government workers and maintain all basic public services, the government is borrowing about $1 billion more per year, Mr. Badal says.

The debt crisis has been a humiliating blow to the proud Punjabi culture and economic history. Punjab’s agriculture sector in the late 1960s and 1970s was largely responsible for India achieving food security. Using new hybrid seeds imported from Mexico and taking advantage of extensive canal networks, farmers saw spectacular yields of wheat and rice. From 1966 to 1969, Punjab grew at an average of 8.4%, twice the national rate.

But by the 1990s, farmers’ yields had begun to stagnate. They began over-using fertilizers, which ultimately damaged the soil. …

Mr. Badal says there’s nothing wrong with agriculture but the state is too reliant on the sector, which makes up 30% of output but has grown only at an average of 3.1% a year for the past five years.

Successive governments since the mid-1990s have pursued populist policies that have left the exchequer in the red. The most sweeping move came in 1997 when the state gave free electricity to farmers to help cope with the costs of running water pumps. Mr. Badal estimates Punjab spends $1 billion per year on such subsidy programs.

… Though Punjab has small-scale industries that produce items like woolen garments, bicycle parts, and sporting goods, the state hasn’t attracted large-scale industrial investment – from foreign or domestic firms – and consequently has relatively few factories employing more than 15 or 20 workers, economists say.

Punjab’s infrastructure woes, including electricity demand that outstrips supply by 24% at peak usage hours, are one reason big manufacturers don’t want to set up shop.

Kaushik Basu, economic advisor to India’s finance ministry, says Punjab is still too focused on spurring growth in agriculture at the expense of other sectors. "It is tilting the incentives away from services and industry, which if it is unleashed, the growth potential of Punjab is huge," he said.

The above has a lot of lessons for Odisha in terms of what it should not do and what it should continue to do.

• Odisha is a power surplus state and with many new power companies in the pipeline, it will continue to remain power surplus. It should tout this to get more diverse and employment-reach industries to Odisha. On the other hand it needs to address the environmental concerns and be smart in locating the power plants.
• Odisha got out of negative budgets that depended on loans a few years back. It needs to keep a close eye on not getting into that situation again.
• More …