Punjab, bread basket of India, hungers for change

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.
Farmers sitting on some of India's most fertile land - Punjab means "the land of five rivers" - are reluctant to sell their fields to make way for industry, and politicians are wary of upsetting the state's most powerful vote bank.
Slowing growth, a ballooning subsidy bill for power and food staples, and ineffective tax collection have plunged Punjab into debt, forcing the government to sell off state property.
"The crisis in Punjab is very deep," said Sanjay Sharma, the regional bureau chief for the Times of India newspaper.
Since the early 1990s, successive state governments had failed to grasp the importance of industrialization, he said.
"Somehow there was an impression with the rulers here that Punjab is a surplus agriculture state, and that it can survive on this model. They didn't try new things."
Punjab offers a snapshot of the ills that are putting the brakes on India's economic expansion, from chronic power shortages to tussles between industry and farmers over land and policy decisions held hostage by political compulsions.
After two decades of rapid economic growth, India has struggled to develop a manufacturing base to match its world-renowned IT and services companies. Tucked on India's northwest border with Pakistan, hundreds of miles from a port, Punjab has been especially poor at attracting big-ticket foreign direct investment (FDI).