Punjab, bread basket of India, hungers for change

By Manoj Kumar and Matthias Williams

LUDHIANA, India (Reuters) - Punjab made Sunil Jain's family rich, but now he wishes he could afford to leave.

Almost every day, the lights go out and machines shut down at the two factories of his $3-million-a-year packaging business in the northern India state. When the power goes out, the plants have to use generators, at up to three times the cost.

Profits at Oswal Polypack shrink every year, says Jain, a 49-year-old with a penchant for fat gold jewelry and chewing tobacco. The state government seems not to care and has even raised taxes on the raw materials he needs.

"How can we survive?" Jain said from his factory office in an industrial park in the city of Ludhiana whose roads are dotted with potholes.

"How can industry remain here, when there is no power, when you face labor shortages?" he said. "The government has been promising power for the past five years, but what we have got instead is power cuts of up to 12 hours a day."

While much of India has galloped ahead in recent years on the back of a reform drive that began two decades ago, Punjab has somehow been left straggling behind.

The Congress party, which leads the federal government, has leapt on that lag to woo Punjab's voters for a return to power in the state of 27 million people in elections there on January 30.

Firms like Sunil Jain's are moving to neighboring states where land is cheaper and labor is more readily available, he says. Another gripe is that states such as Himachal Pradesh next door have been granted long tax holidays as part of a federal assistance program, putting Punjabi firms at a disadvantage.

GREEN REVOLUTION

In the 1960s and 1970s, Punjab was a rare Indian success story. A star of former prime minister Indira Gandhi's Green Revolution - a massive farm program credited with ending famine in the country - Punjab drove growth at a time when India was throttled by the "Licence Raj," an all-pervading system of permits and quotas.

But after reforms in 1991 unleashed a boom in Asia's third-largest economy, Punjab was unable to capitalize. Its economy grew at an average annual rate of 6.6 percent over the past decade against a national average of about 8 percent. High-flyers such as Gujarat and Maharashtra grew at about 10 percent.

The state government's focus on farming may have earned Punjab the label the "bread basket of India," but it has stifled the growth of manufacturing industries that the state needs to catch up with the strongest performers.