A SILENT BREAKTHROUGH
In the past decade, the state has become an exemplar of fiscal prudence and targeted spending on infrastructure and growth. But it needs to industrialise rapidly and improve agricultural productivity to check migration out of the state and alleviate poverty
Etymologically derived from the word ‘vihara’— the serene and tranquil Buddhist monasteries—modern Bihar has, in a cruel irony, been associated with violence, lawlessness, political anarchy and economic stagnation. The stereotype is so tenaciously embedded in the public imagination that the very mention of Bihar brings to mind images of a political ‘jungle raj’ and an economic BIMAROU (the damning acronym for Bihar, Madhya Pradesh, Rajasthan, Odisha and Uttar Pradesh, referring to their poor economic standing).
The true picture of Bihar is quite the reverse. There was indeed a long period of decline after Independence and, in the not so distant past, a 15-year period of slump between 1990 and 2005. But from 2004-05 to 2014-15, Bihar emerged as the fastest growing state in India, clocking over 10 per cent annual growth for the past decade and, in the process, more than doubling its economy. According to the Bihar Economic Survey, in 2016-17, the last year for which data is available, the growth rate was 10.3 per cent, while the national average was 7 per cent. In 2015-16, Bihar’s growth rate was 7.5 per cent.
The state’s impressive growth can be attributed partly to the low base of the stagnating decade and partly the positive effect of a fairly rapid period of global growth (2003 to 2012). What’s remarkable is the relative sustainability of Bihar’s double-digit growth for a decade even as its neighbour Uttar Pradesh gasped along at 6.6 per cent, with a comparatively low base during the same period. Odisha is a similar story of relatively slower growth in the same period. This is a state with a 560 kilometre coastline—a great location trade-wise. Bihar grew faster despite being landlocked and less exposed to the global economy, while Odisha’s growth was modest, by comparison. Also, Bihar’s growth is way more robust than of the other BIMAROU states.
A parallel development is the phenomenal growth in literacy in Bihar, especially since 2001. Between 2001 and 2011, pushed largely by the Sarva Shiksha Abhiyan and the expansion of private schools, its literacy rate jumped from 47 per cent to almost 64 per cent. This decadal increase is both a
geographical and historical record. The 17 percentage point improvement in literacy is the highest among all Indian states for the decade. Again, the low base of Bihar’s literacy might have contributed partially to it. Also, the state’s female literacy rate surged 18 percentage points as against India’s average female literacy rate increase of 11 percentage points. Yet, the truth is that Bihar has a lot of catching up to do. In 2018, while Bihar has a literacy rate of 64 per cent, the country’s average is 74 per cent. Since the growth in literacy predated the economic surge, the former can be considered as a cause for the latter.
The growth drivers
Bihar’s turnaround despite the poverty trap and the numerous resultant challenges has led to a serious debate among economists. The issue has been examined from various perspectives. What triggered the structural transformation in such a poor economy? Was it a mere regime change in 2005, from the Lalu Prasad Yadav-led Rashtriya Janata Dal
(RJD) to the Nitish Kumar-led Janata Dal-United (JD-U)? Or was it good governance and the re-establishment of law and order under the JD-U-led government? What were the potential drivers of such growth given the stagnation in the past? Did fiscal strengthening and strategic targeting of public spending lead to the growth spree? Has this structural transformation reduced poverty? Is this double-digit growth sustainable in the long run, and if so how?
In an article, ‘Bihar’s Growth: Learning From Experience’, economist Arvind Virmani focuses on the sectoral drivers of the state’s growth. Virmani compares two periods: 199394 to 2004-05, when India’s economic growth averaged 6.8 per cent per year, and 2004-05 to 2011-12, when the country’s economic growth was 8.3 per cent annually. Bihar’s average growth in the earlier period was a modest 5.3 per cent per year, but in the later period, it accelerated to 11.7 per cent. The second period witnessed more than double growth than the earlier one.
The acceleration appears even sharper if we take 2005-06 as the dividing year, when Chief Minister Nitish Kumar came to power. “From an average of 4.8 per cent per year between 1993-94 and 2005-06 to 13.5 per cent per annum from 2005-06 to 201112,” says Virmani. Moreover, if we take the long-term trend from 2004-05 to 2014-15, the average annual growth rate remains in double digits, at 10 per cent, even by the most conservative estimates. Disaggregating the overall growth rate, which were the main contributing
sectors? Six sectors exceeded the average growth rate of 10 per cent. “These were communication (27.5 per cent), construction (21.8 per cent), banking and insurance (19.4 per cent), mining and quarrying (14.1 per cent), registered manufacturing (13.1 per cent), and trade, hotels and restaurants (12 per cent),” says Virmani.
The re-establishment of law and order under Kumar has been the main trigger for growth as it kick-started several economic activities. It checked the flight of the entrepreneurial class to neighbouring Chhattisgarh and Madhya Pradesh and even lured back some of Bihar’s diaspora to reinvest in the state all over again. This led to a sudden gush in construction activity— both public and private—which became the second driver of growth. Land prices shot up along with the construction of multi-storeyed buildings, flyovers and malls in urban centres, especially Patna, Muzaffarpur, Munger, Nalanda and Bhagalpur.
This was followed by rapid growth in the infrastructure, energy and communication sectors. There was massive public investment in roads, both national and state highways. Rural and urban networks became the arteries of commercial and economic activities and growth. The spurt in the services sector—banking and insurance—became an important driver of growth as did the hospitality sector—trade, hotels and restaurants. The growth in mining and quarrying and registered manufacturing boosted industrial growth, though its share in the Gross State Domestic Product (GSDP) remained lower than the services sector.
Real turnaround?
But what are the limitations of such a sharp turnaround in the economy? Economist Kaushik Basu points out that Bihar’s high growth did not translate into significant reduction in poverty. “Between 2004-05 and 2009-10, the percentage of poor people in Bihar hardly declined, as against the national figure,” says Basu. “The number of poor in Bihar has increased in the past five years. So the task ahead remains huge.”
However, Oxford economist Sabina Alkire, who studies Multi-dimensional Poverty Index (MPI) across various countries, disagrees. “Over half of the multi-dimensionally poor in India live in the four poorest states. Pockets of poverty are found across India, but multi-dimensional poverty is particularly acute—and significant—in Bihar, Jharkhand, Uttar Pradesh and Madhya Pradesh,” says Alkire. “These accounted for 196 million MPI poor—more than half of all MPI poor in India.”
Yet, there was progress. “Jharkhand made the biggest strides among all states in reducing multi-dimensional poverty, with Arunachal Pradesh, Bihar, Chhattisgarh, and Nagaland only slightly behind,” says Alkire, who has studied multi-dimensional poverty reduction between 2005-06 and 2015-16 across Indian states. It seems reduction of poverty through higher
growth rate is a lagged variable. It may not be visible in a five-year period, but begins to have an effect in an interval of 10 years or more. So while Basu does not find any correlation between growth and reduction in poverty in five years, Alkire sees a correlation between growth and reduction of multi-dimensional poverty in a 10-year period.
What other factors could have led to Bihar’s turnaround since 2005? Professor Sudipto Mundle, a former 14th Finance Commission member, looks at the state’s growth from a public finance perspective—the strategic targeting of public spending towards development programmes and fiscal strengthening. “Another factor that is driving Bihar’s strong development performance in recent years is the strengthening of its fiscal situation,” says Mundle. “The emergence of a revenue surplus, the rising share of capital spending and rising development spending are central to an explanation of the remarkable turnaround in Bihar’s development performance.”
Capital expenditure is a robust measure of the emphasis being given to capital in the public sector. It provides the figure for expenditure on public goods, such as roads, telecommunications and power delivery systems. Development expenditure, which combines capital expenditure and revenue, is a measure of what the government spends on all development services. In Bihar, the share of capital expenditure in total government spending, which was a lowly 8 per cent in 2004-05, rose sharply to over 20 per cent by 200607 and stabilised around that level for the next decade, estimates Mundle. Development spending bottomed out to 39 per cent in 2003-04 and then rose steadily to 52 per cent by 2010-11, according to him.
The entire increase in public spending was by the Nitish Kumar government generating a revenue surplus and at the same time reducing the fiscal deficit from 6 per cent during the RJD regime to 3 per cent, says Mundle. Fiscal deficit was brought down after the Bihar government enacted the Fiscal Responsibility and Budget Management Act in 2006, committing to eliminating revenue deficit by 2006-07.
The growth of revenue to GSDP ratio, which led to fiscal consolidation, is also attributable to a rise in central transfers, not simply enhancement of state revenues. Central transfers account for 75 per cent of the Bihar government’s revenues. However, the main component of central transfers is the mandatory transfer of Bihar’s share of central taxes, as recommended by several finance commissions. Poorer states like Bihar are heavily reliant on central transfers since their own powers of taxation fall far short of their spending responsibilities on agriculture, primary education, health, law and order and other state subjects. The principle of equity in a federal fiscal system requires that within a unified national jurisdiction, citizens in all states should have access to the same level of publicly provided services for the same tax price. Finance commissions are able to only partly help in this since their awards only account for one part of the central transfers. The D.R. Gadgil formula also only helped partly. Mundle says that for central schemes, the allocation among states is purely ad hoc, not guided by any principle of interstate equity.
Bihar is the worst victim of this inadequate federal transfer system. Since Bihar is the poorest among the general category states, “it has the strongest claim to be awarded a special assistance package to compensate for its fiscal disadvantage”, adds Mundle.
According to public finance expert M. Govinda Rao, “Thanks to inadequate central transfers to compensate Bihar, its per capita development expenditure is the lowest among all general category states. It amounts to only about half the average per capita development spending of all states, and a third of that in the highest-spending state.” Stuck with the lowest per capita income, Bihar also has the lowest per capita spending on education, health, and economic and social services. “The case for a special assistance package for Bihar is further reinforced by the fact that the transfer gap exists despite a strong effort at fiscal consolidation by the state government,” argues Rao.
Despite a phenomenal turnaround in the past decade, Bihar remains largely poor. With 3 per cent of India’s land mass and about 9 per cent of its population (104 million), it is the most densely populated state. It has a population density of 1,102 persons per square kilometre (2011 Census) as against
the all-India figure of 382. This high population growth in the state during the past few decades is concerning. The population growth rate over 2001-11, at 25 per cent, was much higher than the corresponding 17.6 per cent for India.
Moreover, with an urban population of barely 11 per cent, Bihar is the least urbanised among the major states. Bihar’s bifurcation in 2000 took away its entire industrial base into the mineral-laden, industrially rich Jharkhand. The bifurcation left Bihar with just 54 per cent of the original undivided area but 75 per cent of the population. This further increased population density and demographic pressure on natural endowments. Most of the mineral-rich areas, accounting for nearly 85 per cent of the known and certified deposits in the region, and a large part of the forest resources, have gone to Jharkhand. At the time of bifurcation, Bihar was left with just 7 per cent forest cover. Additional chief secretary Tripurari Sharan says the forest cover has now increased to 15 per cent.
Regional variation and cultural diversity
Bihar’s most important natural resources are fertile land, plenty of water and rich and diverse flora and fauna. The entire state lies on the Gangetic Plain, with hills rising above the gentle slope eastward, north and south of the Ganga. The north is better watered than the south, with rivers Kosi, Kamala and Gandak flowing down from the Himalayas, and inevitably more vulnerable to flooding. The districts of Madhubani, Sheohar, Supaul, Saharsa, Madhepura and Araria form a massive funnel between the Kamala and Kosi and are perennially flood-prone. These are also the poorest districts and the main source of out-migration of labour.
The Ganga divides Bihar into north and south. This natural partition is also the main economic divide in the state. The prosperity of the south is in sharp contrast to the penury of the north. The south is more urban, with cities like Patna, Gaya, Munger and Bhagalpur. In the north, Muzaffarpur, Barauni and Begusarai are the comparable cities. Other urban centres are more like towns with large populations. Darbhanga, which at one time boasted of the best medical school in the state, two top universities and an airport, looks like a relic of its past. “There is a serious attempt to reconstruct the airport and make it functional by 2019 in order to link north Bihar directly with Delhi, Kolkata and Mumbai,” says Sanjay Jha, a JD-U MLC. Air connectivity is a trigger for development. For instance, Kishanganj in the northeast has begun to boom because of its proximity to the Bagdogra airport in West Bengal.
The north is more populated and economically poorer, but culturally richer. The Maithili-speaking Darbhanga, Tirhut, Kosi, Purnea (also called Mithilanchal and Seemanchal) and Bhagalpur divisions in the south have powerful traditions of painting (Madhubani), music, architecture and sculpture. Bhojpuri-speaking Saran has rich folk song and theatre traditions symbolised by nautanki and Bhikhari Thakur’s Bidesiya. The state’s southern parts are more sparsely populated and much more prosperous, with canal irrigation in the southwest, and includes the larger urban centres of Patna, Munger, Biharsharif and Nalanda. Nalanda was the seat of the oldest university in India, thriving between 500 CE and 1,200 CE. Today, the revamped Nalanda University is a global centre of excellence.
It is such regional and cultural diversity as well as economic disparity that the State of the State (SOTS) exercise aims to capture through a comparative study of the various districts. With a firm belief that the future of the country lies in its states, Union territories, the SOTS survey, started in 2003, has emerged as the gold standard for analysing the performance of states. The survey analyses the performance of districts in each state over a period of time, and across various categories. Each category is usually a composite index of a few parameters, which are measurable across time, provided data is available. In the case of Bihar, ideally one should compare all 38 districts. The urban centres have advantages over the far-flung rural areas. Yet, some of the emerging rural districts topping various parameters of development range from the northwest corner, such as Kishanganj, or from the southeast, such as Rohtas and Kaimur, or even from the poverty-stricken north—Darbhanga, Madhubani and Sheohar. Moreover, Patna—the top district in prosperity and overall development—accounts for a large share of this growth.
Over-reliance on agriculture
Agriculture continues to be the main source of livelihood for the majority of people. It employs 66 per cent of all workers and 75 per cent of all rural workers, who are mostly small cultivators and agricultural labourers. Agriculture is dominated by small farms, with nearly 85 per cent of the farmers owning less than a hectare. The cropping pattern is also typical of a subsistence economy wherein foodgrains cultivation occupy 87 per cent of the total cropped area, with rice and wheat accounting for 44 per cent and 26 per cent respectively. Further, this subsistence cropping pattern has shown rigidity over time. A comparison of Bihar with the agriculturally advanced
states—for instance, Madhya Pradesh— reveals that despite its relatively favourable soil and climatic conditions, most crop yields in Bihar are low. The average productivity of rice and wheat is 20-25 per cent lower than the national average and less than half that of the best performers, such as Madhya Pradesh.
The backwardness of Bihar’s economy in the past has been perpetuated because of extremely poor infrastructure and low levels of investment, along with poor governance. The state was extremely deficient in power. The Bihar government’s Har Ghar Bijli Yojana started in November 2016 has almost transformed the villages.
Earlier, the per capita electricity consumption was 112 per kilowatt hour (kWh). Today, it is 360 kWh. The numbers look woeful compared to the national average of 1,200 kWh. But the main reason for the low consumption of electricity in Bihar is the absence of serious industrialisation in the state. In industrially developed states such as Maharashtra and Gujarat, 40 per cent of the consumers are high-tension consumers, i.e. the industrial units. The peak demand grew two-and-a-half times in three years: from 1,800 MW in 2014 to 4,600 MW in 2017. The aim is to reach 6,000 MW by early 2019.
The Har Ghar Bijli Yojana is likely to impact agricultural productivity. The construction of dedicated agricultural feeders—1,312 such feeders with plans for another 800 by the year-end—is likely to boost agriculture and help farmers save the money spent on diesel pumps. Like Gujarat and Madhya Pradesh, agricultural productivity is likely to go up. As of today, the share of agriculture in electricity consumption is 3-4 per cent. This is likely to jump to about 18-20 per cent.
New industrial policy
Bihar’s growth story is largely led by services and partly by agriculture. There has been a total absence of any industrial sector in Bihar since its bifurcation and the entire mineral-rich Chota Nagpur Plateau becoming a part of Jharkhand. For a while, construction was the lone sector in the name of industry. Later, food processing, manufacturing, dairy and healthcare were added to the list. Given their small base, the industrial growth rate picked up rather fast, but has a long way to go before having any measurable impact on the state’s economic profile. The state has planned initiatives for the development of other sectors, such as agricultural implements and small machine manufacturing, tourism, information technology and renewable energy.
Addressing the ‘Bihar IT and ITeS Investment Conclave 2017’, Kumar had announced, in the presence of Union IT
minister Ravi Shankar Prasad, that 100 acres had been earmarked for an IT city at Rajgir near Nalanda University. Land has been made available for an IT park at Bihta in Patna district. In Patna city, land has been provided for an IT tower. IT units with investment below Rs 5 crore and with over 50 people engaged in core activities were being given special concessions if they finished the investment within three years. Kumar said there was tremendous scope for both the software and hardware sectors. In the state industrial policy of 2016, priority has been given to IT, food processing and readymade garments.
Bihar performs poorly in social and human development indicators. In education, although there has been considerable improvement in enrolment at the elementary level (about 83 per cent in 2006-07), the state is far behind the all-India average for both boys and girls. Most worrying is the high dropouts—70 per cent for classes 1 to VIII as against 43 per cent for India as a whole. Health indicators show Bihar ahead of most BIMAROU states, but below the national average. Life expectancy, at 68.1 (2014 figures), is slightly higher than the all-India average of 67.9, but much lower than Kerala (74.9). Maternal mortality (165 per 100,000 live births) is the lowest among BIMAROU states, but higher than the all-India figure of 130. Infant mortality, at 38 per 1,000 births (2016 figures), is higher than the all-India average of 34, but the lowest among BIMAROU states, barring Jharkhand.
The way forward
The Jayaprakash Narayan-led total revolution in Bihar in 1974, which unseated the Indira Gandhi-led Congress regime after the end of Emergency in 1977, produced two mass leaders: Lalu Prasad and Nitish Kumar. Both were students of Patna University at the same time, one studying law and the other engineering. Both were JP’s followers, trained in the socialist tradition. Both are charismatic OBC leaders who transformed the face of Bihar’s political sociology. Yet there is a difference. While Lalu shifted the fulcrum of Bihar politics from an upper-caste, upperclass social base to what is known as the Muslim-Yadav (MY) combination, with the support of some Dalit groups, he did little to change their economic fortunes despite ruling the state for 15 years, first directly and later through wife Rabri Devi. To many, the making of Lalu Prasad was the unmaking of Bihar—the state sliding into economic stagnation, political anarchy and lawlessness. Lydia Polgreen put it rather pithily in an article in The New York Times: “For decades, the sprawling state of Bihar, flat and scorching as a griddle, was something between a punch line and a cautionary tale, the exact opposite of the high-tech, rapidly growing, rising global power India has sought to become.”
Kumar’s JD-U replaced the RJD in 2005 in alliance with the BJP. In the past 13 years, which witnessed some somersaults by him involving an alliance between the two arch-rivals for three years and then Kumar’s realignment with the BJP, the economic transformation of the state has begun in right earnest. With double-digit growth, fiscal prudence, targeted development of infrastructure, massive scale of electrification of villages, bringing girl students back to schools and women’s empowerment and some semblance of good governance, Bihar has begun a new chapter of development.
However, double-digit annual economic growth, largely led by the services sector, is very difficult to sustain
in the long run. Although agriculture has shown some growth recently, in the form of horticulture and food processing, agricultural productivity in Bihar is still fairly low as against Madhya Pradesh and Chhattisgarh. Bihar needs to change its strategy of growth and begin focusing on agriculture, by preventing annual floods in the north and annual drought in the south. The Ganga running through the entire state is a boon, though massive silting and pollution have been a constant problem.
Effective water management via small dams and massive investment in canals, tanks, ponds and other forms of irrigation can change the face of Bihar’s agriculture, given its fertile alluvial soil and abundance of water. Agricultural failure and lack of jobs for the youth have been the main cause of endless out-migration from Bihar to the southern and western states and overseas. However, focus on women’s empowerment through initiatives such as quota in panchayat polls, Jeevika programme for women and free bicycles to girls have begun to change the hamlets.
Bihar’s entire growth is services-led, with some contribution by agriculture. The missing link is the lack of industrialisation. Some initiatives have been taken in developing an IT strategy, but without its rich minerals, Bihar seems to confound policy-makers. They are at a loss when it comes to developing an industrial vision and strategy. The industrial policy of 2016 by the NDA government has given priority to IT, food processing and readymade garments. But Bengaluru and Hyderabad did not become India’s Silicon Valley overnight. Bihar’s policy-makers need to focus on a quality education policy to produce brilliant software engineers and cutting edge startup entrepreneurs.
What Bihar today needs is a new vision for the next 15 years, and for that a new strategic thinking needs to be introduced. A completely new focus on industrial and agricultural growth linked with the global markets and with greater emphasis on exports is the only way ahead, like those followed by Gujarat, Maharashtra, Madhya Pradesh and Chhattisgarh. Creation of jobs must be the top priority, for which the emphasis should be on the primary and secondary sectors, less on the tertiary. The new focus of education in Bihar must be on quality and not on mere quantity. Some well-meaning critics of Chief Minister Kumar point out that during his last term, he has been preoccupied with politics and the survival of his government, instead of a single-minded commitment to development and growth, which he displayed during his first term. With Lok Sabha election next year and an assembly poll in 2020, politics will continue to weigh much more than economics, elections much more than development. As a result, Bihar’s growth rate, the critics point out, is bound to slow down unless a qualitative leap is attempted, along with a new growth strategy and renewed focus on technology, quality education, job creation, cleaner industrial revolution and a greener agricultural transformation. Bihar needs to catch up not only with the rest of India, but become the leader in the newer sectors of growth and development.
Perhaps a start can be made by attracting the Bihari diaspora, which has either shifted to other parts of India or overseas. But for that Bihar needs world-class infrastructure, top quality educational institutions and a good healthcare system. Amartya Sen, in his article ‘Bihar: Past, Present and Future’, points out how Pataliputra during the Mauryan empire had world-class educational institutions, cutting-edge mathematicians, a trailblazing system of free and quality public healthcare, rule of law, good infrastructure and resistance to caste inequality. “What we learn from these early achievements of Bihar helps us address and conquer the persistent disadvantages that are restraining Bihar in the contemporary world. We cannot busy ourselves in the past, but the past of this exceptional region of India offers both inspiration and guidance,” Sen concluded. Wisdom for the state if it intends to not only catch up but forge ahead as a leading state of India.