nd
Indicus Analytics Pvt. Ltd., 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002
                               Email:...
BIHAR DEVELOPMENT REPORT
2010



SUBMITTED TO

PRABHAT KHABAR



July 2010


Indicus Analytics




Indicus Analytics Pvt. ...
Data Qualification

Objective analysis of the performance of a state requires quantitative information that allows for
com...
Data Qualification ..........................................................................................................
Section I


In the last five years there have been a number of instances that point to a revival of Bihar. It seems
from v...
Changing Bihar’s future

Ashok V Desai



                              Ashok V Desai is a Senior Economist and Consulting...
There was a time when I saw a good deal of Bihar, though it is long ago. During the famine of 1966, I
went and worked with...
in Bengaluru with cell phones who offer taxi drivers overnight money transfer to their families in
Bihar. I remember comin...
Resurrection of the State

Shaibal Gupta


                   Shaibal Gupta is a prominent social scientist and founder me...
agenda in Bihar in the post-independence period and, in the process, development remained a
casualty. For any regime that ...
creation of new institutions to serve the development agenda. Such strengthening of the state and
the consequent economic ...
establishment in the state will need support from the Government of India. For example,
establishment of power projects in...
get resurrected. Without a resurrected state, the economy of the state will not leap frog.
Unfortunately, the tripod of st...
The New Bihar of 2010s: Strengthening the Ethical Environment

Laveesh Bhandari


                      Laveesh Bhandari i...
difficult challenges, they are. But there is another challenge that Bihar, like any other rapidly
growing economy, will ne...
necessarily have to work in a cooperative ethical manner; the former in most cases will end up in
some kind of an unethica...
But there is also another facet of ethics. Societies that do not punish unethical behavior fail to
prosper. In other words...
Ray of Light Emerging in Bihar

Sumita Kale


                        Sumita Kale is Chief Economist with Indicus Analytic...
According to the latest Economic Survey 2009-10, growth has raised connectivity in the state
dramatically. Tele density ha...
More importantly, manufacturing accounts for just 4-5 percent of the state income, with the major
share coming in from the...
granted – states that were once leaders can fall back, while states that were laggards can turn the
corner and shine.


In...
Deprivation to Development

Bibek Debroy


                         Bibek Debroy is Professor at the Centre for Policy Res...
the second-best governed state? There is no such mention. Strictly speaking, the subject of the
second report had nothing ...
Rajasthan, Uttar Pradesh) nomenclature, with a pun on the word bimar, meaning ill or sick,
referring to the undivided Stat...
mis-governance and vote in good governance. However, it is possible to argue that the change in
government in 2005 was dri...
percent growth means roughly 1.1 percent per capita income growth, while 11.3 percent growth
means roughly 8.5 percent per...
A Job Well Begun

Pratap Bhanu Mehta


                          Pratap Bhanu Mehta is the President of Centre for Policy ...
paradigm of caste politics seeks to forge new alliances with the most deprived and those
marginalised by traditional polit...
pace that gives reason to be confident. There are fundamental reasons for this which have not even
begun to be addressed. ...
It also is an open question therefore, whether any government, in the highly contested terrain of
Bihar politics, can risk...
Section II
Reviewing Growth and Development of Bihar (1985-2005)

Bihar, India’s eighth largest state, is a state with a l...
Figure 2.1




For the first ten years of the period under discussion – 1985 to 1995, the state’s economy grew at a
mere 3...
Figure 2.2




With heavy dependence on agriculture and hardly any buffer against the vagaries of weather,
agricultural ou...
More than 60 percent of the population lay below the poverty line in 1983. By 2005, this proportion
had improved to 41 per...
lack of skilled manpower and very little political commitment to make the requisite changes
resulted in a vicious circle t...
Table 2.2 Literacy Rates (Percentage of Population)

                                                                Incre...
On the health front again the lack of governance shows up starkly. Although surprisingly, the
number of primary health cen...
group 12-35 months were given full immunisation, showing the lack of awareness as well as
difficulty in access to health c...
Table 2.4 Human Development Index

                        1981          1991         2001

States                  Value ...
Table 2.5 Index of Infrastructure Development 1999

States                   Index
Bihar                                  ...
The people of Bihar voted against the 15 year rule of the RJD and ushered in a new era under a
coalition government, led b...
Section III

New Era in Bihar (Post 2005 till Date)

Bihar struggles against an image problem that is deeply damaging to i...
The overall analysis gives positive signals, Bihar is gradually treading on the path of
development.

A. Economic Indicato...
Table 3.1: GDP Growth Rate (2004-05 to 2008-09)
                             GDP Growth Rate (in %
 Year                  ...
b) Sectoral growth:


With the process of growth and development, there is a structural change in the sectoral share of
in...
Figure 3.2: Sectoral Share in Bihar (2001-02 and 2007-08)
          Sectoral shares in Bihar as percentage of GSDP        ...
c) Consumer Market:

The consumer market is composed of individuals (or households) who buy a specific good or
service. In...
revolution. According to an estimate by Indicus, about 56 percent of the households in the state
belong to the middle clas...
Figure 3.3: Variation in the Strength of Potential Consumers over time

                                 Variation in Stat...
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Bihar development report 2010

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Bihar struggles against an image problem that is deeply damaging to its growth prospects. However, the situation has changed in recent years. This section presents an objective assessment of the socio-economic progress made by the state particularly in the last five years. Two critical questions have been dealt with in depth – (a) what has changed in the state during 2005-10? , and (b) what implications does this change hold for the future?

A state-level comparative analysis is done under the following heads.

i) Economic Indicators
• State GDP Growth Rate
• Sectoral Growth
• Consumer Markets
• Investment Scenario
• Central Grants and Social Sector Expenditure
ii) Social and Development Indicators
• Law and Order
• Infrastructure and Communication
• Poverty
• Education
• Health
iii) Other
• Tourism
• Agriculture

The overall analysis gives positive signals, Bihar is gradually treading on the path of development.

A. Economic Indicators

a) GDP Growth Rate in Bihar (2004-05 to 2008-09)

The state's economy has never grown so fast and so consistently as it has since 2004-2005. The Central Statistical Organization (CSO), in a report released recently, placed Bihar in the second place in terms of growth in the Gross Domestic Product (GDP) between the years 2004 and 2009. On an average, Bihar registered a double digit GDP growth rate of about 11 percent over the period 2004-09 (Figure 2.1 and Table 2.1). According to Swaminathan S. Anklesaria Aiyar , ‘this economic boom in Bihar is real and not a statistical fudge’.

Figure 3.1: GDP Growth Rate Trend

Source: CENTRAL STATISTICAL ORGANIZATION (CSO)
Table 3.1: GDP Growth Rate (2004-05 to 2008-09)
Year GDP Growth Rate (in % per annum)
2004-05 12.17
2005-06 1.49
2006-07 22.00
2007-08 8.04
2008-09 11.44
Average growth (2004-09) 11.03
Source: Central Statistical Organization (CSO)

Arguably, Bihar had been performing so badly for so long that it may just be enjoying catch-up gains. In other words, this high growth is coming on a very low base. In fact, four of the poorest states — Bihar (with 11.0 percent GDP growth), Orissa (8.7 percent), Jharkhand (8.5 percent) and Chhattisgarh (7.4 percent) — qualified as miracle economies, going by the international norm of 7 percent growth. This is indeed a remarkable achievement. However, sustainable growth would only be ensured in the State when the economy is well-diversified and the volatility in year on year growth is robustly tackled.

According to the Bihar Economic Survey 2009-10, the main growth sectors have been construction, communication and trade/hotels/restaurants. The annual growth rate for these high-growth sectors was 35.8, 17.7 and 17.7 percent respectively, way above the overall average rate of 11.0 percent. Further, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Bihar GDP is estimated to reach Rs 2,64,781 crore from the current level of Rs 1,05,148 crore, mainly due to the positive boost from good governance.

b) Sectoral growth:

With the process of growth and development, there is a structural change in the sectoral share of income, the main focus of an economy's activity shifts from the primary, through the secondary and finally to the tertiary sector. Further, this is accompanied by a shift in employment from the primary sector to the other sectors as surplus labour moves to more productive avenues of employment.

Bihar’s economy is witnessing a shift towards services, much before industrialization, mostly driven by a buoyant urban economy. This is growth induced by the government. The share of the tertiary sector in GSDP grew in Bihar from 51 percent in 2001 to about 60 percent in 2007-08, while the secondary sector showed a marginal increase in share from about 11 percent to about 16 percent (Figure 2.2). The primary sector has witnessed a decrease of 13 percentage points in its contribution to the state income.

Table 3.2: Sectoral shares in GSDP (

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  • conclusion: be proud for bihar and for the reason that we are living in bihar
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  • fast emerging BIHAR.
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  1. 1. nd Indicus Analytics Pvt. Ltd., 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  2. 2. BIHAR DEVELOPMENT REPORT 2010 SUBMITTED TO PRABHAT KHABAR July 2010 Indicus Analytics Indicus Analytics Pvt. Ltd. Page nd 1 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  3. 3. Data Qualification Objective analysis of the performance of a state requires quantitative information that allows for comparison on various indicators with other states and across time. There are many caveats while doing so, however, as the availability of data that meet stringent standards is not assured in many cases. Estimates of the growth of the economy, for instance, is released by state governments on a provisional basis for the latest years and is revised once final numbers come in from various sources. Final revised estimates therefore follow provisional estimates with a gap of a few years. There are also delays in release of data and this report utilises the latest available data, though it may be provisional and may seem old. There is an added constraint in this report when it comes to data from states that were broken up in 2000 – data from pre-2000 usually is available only for the combined states, while data from post- 2000 is available for the states separately. Comparison across time needs to account for this divergence. As far as fiscal estimates go, this report uses the revised estimates of state budgets for the previous years, rather than budgeted estimates for indicators related to expenditure incurred by the state government on various sectors like education, health etc. This gives a more accurate picture of the finances of the government, than the budgeted estimates. While all data have been taken from credible government sources, all care has been taken to validate the data. Indicus Team: Ankur Gupta, Sumita Kale, and Peeyush Bajpai Indicus Analytics Pvt. Ltd. Page nd 2 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  4. 4. Data Qualification ................................................................................................................................. 2 Section I.................................................................................................................................................. 4 Changing Bihar’s future .......................................................................................................................... 5 Resurrection of the State .......................................................................................................................... 8 The New Bihar of 2010s: Strengthening the Ethical Environment ....................................................... 13 Ray of Light Emerging in Bihar............................................................................................................. 17 Deprivation to Development................................................................................................................... 21 A Job Well Begun ................................................................................................................................... 26 Section II............................................................................................................................................... 30 Reviewing Growth and Development of Bihar (1985-2005) .................................................................. 30 Section III.............................................................................................................................................. 41 New Era in Bihar (Post 2005 till Date)................................................................................................... 41 Section IV ............................................................................................................................................. 77 District Profile of Bihar.......................................................................................................................... 77 Bibliography......................................................................................................................................... 93 Indicus Analytics Pvt. Ltd. Page nd 3 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  5. 5. Section I In the last five years there have been a number of instances that point to a revival of Bihar. It seems from various indicators that Bihar is preparing itself to shed the "BIMARU" tag. It will take consistent effort and time to catch up with the other states. This section includes seven essays contributed by eminent thought leaders. These essays focus on the success stories, the problems being faced, the lessons to be learnt and the way forward for Bihar. Indicus Analytics Pvt. Ltd. Page nd 4 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  6. 6. Changing Bihar’s future Ashok V Desai Ashok V Desai is a Senior Economist and Consulting Editor with Business World. His columns are an authoritative commentary on economic events in India. Before his journalistic career, Desai served as Chief Consultant in the Finance Ministry from 1991 to 1993, and helped design the early economic reforms. In the 1980s, Desai coordinated a large survey of energy research for International Development Research Centre in Ottawa. Earlier, he worked as an economist in National Council of Applied Economic Research in Delhi, where he carried out policy-oriented industrial studies, especially studies on technology development and transfer. India has an elaborate array of statistics. But they are fitted into economic categories that tell us little about how people live and work; and they are published with such long delays that they tell us little that is topical. Price statistics are the only ones that are up to date; and man does not live by prices alone. In the circumstances, we think of people and states as stereotypes, such as that Madrasis are thrifty and Bengalis are lazy. There is usually a modicum of truth behind these stereotypes – at least historical truth – but they are useless for any analysis, let alone any practical thinking. Thus, Bihar is stereotypically a poor state with rich natural resources. Its people talk a lot but achieve little. Nothing much happens in their state, and they go to other states to find work, mainly manual work. This generally unfavourable impression has recently acquired a discordant corollary – that it has one of India’s most honest, dedicated and industrious chief ministers, under whom it has achieved GDP growth that would be the envy of any state. Indicus Analytics Pvt. Ltd. Page nd 5 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  7. 7. There was a time when I saw a good deal of Bihar, though it is long ago. During the famine of 1966, I went and worked with Jaiprakash Narain who had organized mass feeding programmes. The landmark of Patna that I remember most vividly is the Golghar. This 90ft-high, egg-shaped structure was built in 1786, the year of another famine, to store grains for the British army. Coolies would go up a spiral staircase and pour grain through a hole at the top; and it would be removed through vents at the bottom. Our organisation kept receiving grains from all over India by train; I used to go to the station to keep a watch on the unloading. There was much grain arriving on government account; the labourers who unloaded it pilfered a lot, both at the station and from warehouses. We did not allow pilfering; so labourers used to eat the rice. They carried hooks to dig into gunny bags and lift them; they would tear the bags with the hook and eat the rice raw as it poured out. The villages were eerie; they had only women and children. All the men had left the villages to find work elsewhere (this was before the green revolution). One reason was that the government and charities fed only women and children; there was a strong belief amongst them that men should look after themselves. I do not remember men looking after themselves by theft and robbery; Bihar was not known for crime then, although landlords had gangs of strongmen, and they were surely not paid for being nice. The famine was disastrous for education, for schools were turned into food outlets, and teachers were turned into kitchen managers and cooks. That was the last famine in Bihar. The 1987 famine was equally serious; I remember seeing thousands of cattle leaving Gujarat for Madhya Pradesh and for slaughterhouses. But Bihar was hardly affected. Its economy has become more robust. I suspect one reason is that, paradoxically, many more Biharis work outside Bihar. More than a half of Delhi’s population of nearly two crore is Bihari. Many Biharis have settled down in Punjab. A taxi driver in Bombay or Calcutta is more likely to be a Bihari than an indigene. All these migrants send money home; apparently there are agents Indicus Analytics Pvt. Ltd. Page nd 6 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  8. 8. in Bengaluru with cell phones who offer taxi drivers overnight money transfer to their families in Bihar. I remember coming across a Bihari engineer on a flight. He owned some 200 acres near the Nepal border; most of it was fallow because he could not get labour. Altogether, Bihar is more prosperous today because it receives much larger transfers from Bihari migrants. Some people would lament this. For them, development is not of the people but of a territory. They would like to see many more factories and offices all over Bihar. To me, what matters is what people consume and enjoy, not what they produce. But if I had to think like these people, the industry I would think of for Bihar is fish or water chestnuts. Both require fresh water, of which most of India is short, so Bihar would have little competition in producing them. In southern China, every farmer has a fishpond next to his house. If Biharis took to fish culture, they could not only improve their diet, but they could supply the rich urban markets of north India. Such is my out-of- the-pond thinking for Bihar. Indicus Analytics Pvt. Ltd. Page nd 7 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  9. 9. Resurrection of the State Shaibal Gupta Shaibal Gupta is a prominent social scientist and founder member-secretary of Asian Development Research Institute (ADRI) in Patna. The areas of his research interest have been guided more by the development problems of Bihar rather than his own intellectual predilections. His research interest is to promote development research that is more user-oriented than the academic output of typical research institutions. His research interest now transcends beyond Bihar and encompasses the entire Hindi Heartland and the eastern Indian states. Nitish Kumar has completed four and half years of his reign in Bihar. Only a few months are left before he faces the assembly elections in Bihar in November, 2010. Even if the present pace of development initiated by Nitish continues without any electoral destabilization, it will take years before Bihar can hope to reach any front ranking state in the country. However, Bihar which was on the verge of being written off by the national elite and the media has already experienced a dramatic change, not only in the level of perception, but in the realm of actual development too. Bihar will no more be referred under the contemptuous rubric of a BIMARU state. When the mantle of the state was electorally thrust on Nitish, he inherited a ramshackle state structure which had no history of work, coherence and dynamism, not just during the previous regime, but during the entire last century. In this background, among many of his political achievements, the most substantive one is probably the task of state building in Bihar. The growth agenda of Bihar could be pursued, even in the absence of an institutional memory of development, provided a few other conditions were favorable. But the retarded civil society, non-existent corporate sector, largely uninformed political opinion and an intelligentsia with a none too wide cognitive world, all together could not understand the critical role of a strong state structure, the main fulcrum of a growth process. Thus, the task of state building could not become the prime Indicus Analytics Pvt. Ltd. Page nd 8 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  10. 10. agenda in Bihar in the post-independence period and, in the process, development remained a casualty. For any regime that comes to power through a democratic process, development must be its core agenda. The trajectory of governance is then essentially woven around it and its success is measured in terms of creating new economic and social benchmarks. This script of governance with the thrust on development is relatively easy for a regime, either national or provincial, provided there is a functioning state structure. As Nitish Kumar did not inherit such a structure, he had to build it all by himself. It is a matter of social science research as to why the elites in Bihar, largely wedded to feudal landed interest, or the galaxy of Chief Ministers who ruled the state in the last six decades, could not feel the disadvantage of a non-functioning state. In contrast, Nitish did feel its absence immediately after taking over the reigns, owing primarily to his wide national and international exposure developed during his stint in the Union Cabinet for years. He had got elected to the Parliament six times and held various important portfolios in the Central Government with élan and distinction in railways, agriculture, road transport, etc. So he could not have been satisfied with a 'Bihar- centric' sloth, ignoring the national trajectory of development. As Nitish was considered to be a dynamic and successful Minister at the centre, he was keen to replicate his successes in the governance of the state as well. For the first time, therefore, Bihar was being calibrated from inside vis-à-vis national parameters. He could go about his job of state building with clinical precision. Even though an engineer by training, his predilections were not techno-managerial, his understanding of an inclusive growth was shaped by his ideological grounding in the socialist movement and the wider world view. In the last sixty years, the building of the state structure was nearly complete in most regions of the country and at the centre. The first task in this process was value addition to the inherited colonial administration, apart from reinventing the chain of command for the development administration, parallel to the general administration. Over and above, it also entailed administrative reforms and Indicus Analytics Pvt. Ltd. Page nd 9 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  11. 11. creation of new institutions to serve the development agenda. Such strengthening of the state and the consequent economic development would have led to a growing market structure. This important gap is being filled now in Bihar. A well-oiled state structure was not absolutely needed for enforcing the ‘rule of the law’, without which neither social justice nor economic development could be possible. An under governed province like Bihar needed both ‘law’ and ‘order’, essentially a demonstration of the authority of the state. This new grammar of governance in Bihar is now being provided and one of its important dimensions is the ‘conviction rate’, mediated through the speedy trial in the courts. It is reported that 47,000 criminals have been convicted in the recent years, a number of whom have been given the death sentence, life imprisonment and sentenced for 10 years or more. The impact of better governance was visible in the state. An analysis of the Bihar economy indicates that in the last four years, it has shown considerable growth rates in three sectors viz. construction, communications and trade, hotels and restaurants. The dramatic GSDP growth in Bihar, which generated a national and international interest, was not a flash in the pan. The growth rate of the GSDP in Bihar during 2004/5 to 2008/9 recorded 11.35 percent which was much higher than what it was during the preceding five years. This was not totally unexplainable phenomenon, because the total plan expenditure of Bihar at Rs.4899 in 2005/6 has more than trebled in the first three years of the present government. In 2008/9, it stood at Rs. 15746 crore. For the current year, the plan size of Rs. 20,000 crore for Bihar has been approved by the Planning Commission. Essentially, the growth in Bihar presently is construction centric. On the industrial front, small and medium scale enterprises are predominant in Bihar. But, after declaration of the new liberalized industrial policy by the state government in 2006, a number of proposals for setting up medium and large industries has been received which are likely to materialize in near future. However, a number of industrial ventures related to power and sugar for Indicus Analytics Pvt. Ltd. Page nd 10 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  12. 12. establishment in the state will need support from the Government of India. For example, establishment of power projects in the state will need clearance of coal linkages from the central government. Efforts are also being made to tap into the food processing and agro-based industries that carry a great potential in the state and can become a major source of income and employment generation. The functioning of the banking sector again has shown improvement, resulting in higher commercial activities and increased credit-deposit ratio. There are major achievements in social sectors as well, especially education and health. For example, the enrolment in primary schools (especially for the scheduled caste children) during the last four years has increased considerably. The crowning achievement in the realm of asset building exercise in the state is revealed by the sterling performance of Bihar State Bridge Construction Corporation Ltd and Bihar State Police Construction Corporations. The plethora of bridges and police stations built in the state in the last four years is really unprecedented. Incidentally, both these corporations were on the verge of liquidation during the previous regime. A visible impact of such heightened economic activity has been a significant drop in the out migration of workers from Bihar. In the arena of public finance, the fiscal performance has improved through rationalization of expenditure, effective debt management and improvement in the quality of expenditure. While the growth of revenue expenditure has been kept to the minimum, the capital expenditure is growing fast, the latter now accounting for about one-fifth of the total expenditure. Incidentally, the present government is working out the nuts and bolts to ensure that the per capita developmental expenditure of the state matches the national average by 2015. It will not be out of place to state that after years of isolation, the economy of Bihar is likely to get integrated with the national and possibly international economic grid in future. The state of Bihar is poised for a turnaround and will be the most happening state in this part of the country. Bihar could become role model for most of the land-locked states of the Hindi Heartland. The problem of governance is universal in the Hindi Heartland states. Bihar has displayed to the world that with marginal improvement in the quality of governance, even a moribund state could Indicus Analytics Pvt. Ltd. Page nd 11 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  13. 13. get resurrected. Without a resurrected state, the economy of the state will not leap frog. Unfortunately, the tripod of state, market and civil society, a necessary precondition for economic growth, is relatively weak in the state. While the functioning of the state has improved substantially, the other components of the tripod need to be strengthened. We hope in the next couple of years, we shall banish our developmental deficit authentically. Indicus Analytics Pvt. Ltd. Page nd 12 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  14. 14. The New Bihar of 2010s: Strengthening the Ethical Environment Laveesh Bhandari Laveesh Bhandari is the Founder Director of Indicus Analytics. He has led policy-oriented studies for nationally and internationally reputed organisations such as the Finance Commission, World Bank, United Nations Children’s Fund, Asian Development Bank and Food and Agriculture Organization. He has published extensively and is a columnist for newspapers and newsmagazines. His work on inequality, education and regional growth is frequently referred to in policy debates in India. He has received a number of awards, including the EXIM Bank Award for his work on international joint ventures and the Hite Fellowship for his work on international finance. As a new decade starts, Bihar is leaving behind a history of slackness and entering into a new phase marked by energy and dynamism. The government can no longer be characterized as lazy and vision-less, the state can no longer be identified as uninterested in its own people. It seems that Bihar has decided to go on a path that will take it into a completely new world. It is not used to this path, has little experience in, and will need to devise new ways of doing new things. True international and national consultants may fly in regularly, NRBs (Non-Resident Biharis) long gone away, may come in to help out. But in the end the new Bihar will be built by those who have lived through bad times and good in Bihar itself. What is the single biggest challenge facing Bihar today and in times to come? Many say it is lack of adequately educated trained human capital; but that is only a temporary problem – human capital moves wherever the opportunities are, and as Bihar grows human capital will come in. Others say it is lack of finances, but that also goes where the opportunities are and will also come into Bihar as time goes by. Still others say it is lack of infrastructure, but that is a medium term problem at best. Some also say it is a problem of ineffective state government machinery; but there are solutions to this problem as well that take some time to yield fruit. Note that I am not saying that these are not Indicus Analytics Pvt. Ltd. Page nd 13 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  15. 15. difficult challenges, they are. But there is another challenge that Bihar, like any other rapidly growing economy, will need to address. In my mind the most important issue for any society including Bihar is that of maintaining and strengthening ethical practices. These include ethics in government and in business, in relationships between individuals and between organizations, ethics in citizen-state interaction and in commercial relationships. Ethics are important not merely because the religious texts and those who have lived life to its fullest tell us so. Ethical practices are a very practical solution to the various pulls and pressures that affect individuals and organizations. Without them we can very easily go down a long downward spiral that any amount of government action or investment cannot get us out. Economic research has shown in many different ways that ethical actions are the very foundation of market forces. Without those, markets don’t function, private or public enterprise fails, costs increase and any progress – whether social or economic is unsustainable. The classic example is that of Russia where despite a great base of human capital, rich natural resources, and good infrastructure, economic growth did not follow after the unravelling of socialist institutions. Somehow the markets just could not deliver. The latent energy of a great country got diverted towards quick short cuts, greed and selfish gains. A few people in the government and in the private sector gained untold riches but a whole country is still suffering. Why does this happen? As opportunities arise there are two ways of dealing with them. The first is individuals quickly react by trying to get as much of the new pie as they can get for themselves. The second way is groups of individuals work together to ensure that such opportunities continue to arise and they are willing to share in the effort and benefits of such opportunities. The latter will Indicus Analytics Pvt. Ltd. Page nd 14 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  16. 16. necessarily have to work in a cooperative ethical manner; the former in most cases will end up in some kind of an unethical action or the other. Why are markets so dependent upon ethics? In the absence of ethical practices there are many different kinds of market failures. If markets fail, either transactions do not occur, or for transactions to occur companies and governments need to create counteracting mechanisms to reduce the impact of unethical practices. Creation of complex contracts, greater regulation, monitoring, greater dependence on third party arbitrators and the judiciary are only some examples. These are very costly and lead to high level of economic inefficiency. Moreover in areas or sectors where the level of unethical practices are high, the time and effort costs incurred in finding the right partner also are very high, and sometimes these areas or sectors are avoided altogether. Hence markets work best where the level of ethics are best. And growth is highest in such areas - be it at the level of an individual, organization or the economy. But despite such well known positive impacts of ethical practices and despite the teachings of all religions and gurus, unethical practices abound. Why? Here as well economic theory provides many insights. • First, those who expect to be in a repeated and long term relationships are less likely to resort to fraud and cheating. The reason is simple, if one practices unethical behavior once, the long term relationship will end. • Second, those who want quick returns are more likely to practice unethical behavior than those who are in it for the long term. This is because unethical behavior is found out and eventually adversely impacts long term relationships, though it gives instantaneous benefits. • Third, unethical behavior happens much more in areas where there is a large turnover of people. For instance in politics a lot of new people keep on entering and exiting, hence long term relationships are difficult to maintain. Indicus Analytics Pvt. Ltd. Page nd 15 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  17. 17. But there is also another facet of ethics. Societies that do not punish unethical behavior fail to prosper. In other words, just waiting for god or the government to punish unethical actions is not enough. Individuals and organizations need to be constantly aware of unethical practices and the response needs to be swift and even. Punishment of the unethical is a critical element of strengthening ethical practices. In conclusion, as funds will flow into Bihar, as investments are made in land, labour and capital, the people of Bihar will face a new wind of opportunity. After having been debarred of such opportunities for so many decades, some may want to benefit from gains at the cost of others, some may stop thinking of the long term, and many may want to make a quick buck. Such people need not be only in the government; even in the private sector, in trade, industry, services or agriculture, the lure of quick riches can be a powerful motivator that could lead Bihar in a downward spiral. Merely depending upon the government to address this problem will not be adequate. Every individual will need to guard against it and not accept it – whether the action is by a colleague, friend or family. Indicus Analytics Pvt. Ltd. Page nd 16 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  18. 18. Ray of Light Emerging in Bihar Sumita Kale Sumita Kale is Chief Economist with Indicus Analytics. She received her Ph D from the University of Pune and M Phil in the Economics of Developing Countries from the University of Cambridge. She has a number of publications to her credit and has been visiting faculty at the Department of Economics, University of Pune and at the National Insurance Academy, Pune. A state that is usually in the news for the wrong reasons, Bihar has stunned the country by turning in a superlative growth performance, averaging 11.4 percent annual growth over the five year period starting 20004-05. There are many sceptics to this growth story - reservations over whether the data has been fudged and doubts over the sustainability of such high growth. The first thing to note is that this data is as reliable as other estimates that come through the Central Statistical Organisation. There is of course the caveat that these are provisional estimates, till the state governments release final estimates through the CENTRAL STATISTICAL ORGANIZATION (CSO), and such revisions can continue well into the next few years - for now, these estimates cannot be doubted. The sectors powering growth in the state are construction at 35.8 percent growth per annum in the five year period, compared to 8.4 percent growth in the previous five years and services at 11.5 percent compared to 5.4 percent previously. This data actually corroborates anecdotal evidence coming in from Bihar of improvements in governance and boost by government spending on infrastructure, particularly road construction. The Nitish factor is seen to have worked post 2005 - while all states in India have grown faster in the last five years, it is Bihar that has made the largest jump. Indicus Analytics Pvt. Ltd. Page nd 17 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  19. 19. According to the latest Economic Survey 2009-10, growth has raised connectivity in the state dramatically. Tele density has risen from 5.34 percent in 2006 to 22.18 percent in 2009. Internet connections in rural Bihar are up to 4.99 lakh in 2009-10 compared to 0.43 lakh in 2008-09. Two districts - Muzaffarpur and Khagaria - have the highest number of broadband and dial up connections. Road connectivity is a crucial achievement in Bihar. About 2,417 km roads were constructed in the state in 2008-09 compared to 415 km in 2005-06. The survey also pointed that the improvements in Bihar have been validated by a rise in tourist arrivals – the state attracted 3.46 lakh tourists in 2008 compared to 61,000 in 2003. Bihar has definitely changed for the better. Yet, the question remains whether such double-digit growth is sustainable over the long term? This is a difficult question to answer as it depends on so many factors. To begin with, this growth comes on a very low base. Even after leading the growth charts amongst states in India, Bihar’s per capita income at Rs. 12,643 in 2008-09, a third of the national figure of Rs. 37,490, is still the lowest in the country. The state government understands well that the achievements so far just mark the beginning and much more needs to be done to consolidate the fruits of this growth. As Deputy Chief Minister Mr. Modi said, ‘If Bihar continues with 11 percent growth rate for the next 15 years, then we will achieve Maharashtra’s current SDP. And by that time, Maharashtra’s SDP will be threefold of what it is today. So, we have a long way to go.’ Sustainable growth is a dream unless the economy is well-diversified and the volatility in year on year growth is a worrisome feature of Bihar’s economy that needs to be tackled. A look at the graph on annual growth will show how growth fluctuates from year to year. The reason behind this volatility is that Bihar’s economy has not diversified enough over the last few years. The share of agricultural sector in the economy has been declining over the last decade but still accounts for almost a quarter of Bihar’s income. A lot needs to be done in irrigation, flood control and drainage schemes to keep agricultural output from suffering tremendous fluctuations. Indicus Analytics Pvt. Ltd. Page nd 18 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  20. 20. More importantly, manufacturing accounts for just 4-5 percent of the state income, with the major share coming in from the un-registered sector. That is, organised manufacturing still accounts for just under a quarter of manufacturing activity in the state. What the present government has managed in Bihar so far has been to improve the law and order position and raise the feasibility of investment in the state. The government has attracted significantly larger investment proposals recently, but these need to be converted into actual production facilities on the ground. In a recent note on economic prospects at the regional level, global research agency Moody's Economy.com noted Bihar's stunning economic performance as an example of how government policies help accelerate growth. The note went ahead to say, "If Bihar shows how good regulation can accelerate growth, neighbouring West Bengal highlights how bureaucratic roadblocks and firmly entrenched special interests can inhibit it." The tragedy of West Bengal today is that it is being pulled out as an example of bad governance and constrained growth. Is this a fair picture? It is true that West Bengal has posted the second lowest growth in the decade amongst large states. On the other hand, growth has been steadily rising; per capita income at Rs. 31,722 in 2007-08 was way higher than Bihar’s Rs. 11,135 that year. More importantly, on all social indicators, West Bengal outperforms Bihar. The problem is that while Bihar is a state that had been practically given up as a non-achiever, and has therefore surprised observers, West Bengal has been performing far below expectations, per capita income currently trails the national average. As one of the leading industrial states in the 60s, West Bengal ranked with Maharashtra amongst the rich states in the country. While the state has lost much ground in the decades since then, the manner in which Singur and Nandigram were dealt with recently has created an atmosphere of uncertainty that is not conducive for investment and growth opportunities. The experience of Bihar and West Bengal show that things cannot be taken for Indicus Analytics Pvt. Ltd. Page nd 19 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  21. 21. granted – states that were once leaders can fall back, while states that were laggards can turn the corner and shine. In the last five years, the state of Bihar has shown that change is possible. Bihar’s achievement has given the people of the state hope and confidence that good governance can move the economy on a high growth trajectory. Indicus Analytics Pvt. Ltd. Page nd 20 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  22. 22. Deprivation to Development Bibek Debroy Bibek Debroy is Professor at the Centre for Policy Research, New Delhi and Contributing Editor with the Indian Express. He has worked in academic institutes, for the government and an industry chamber. He is the author of several books, papers and popular articles. His special interests are education, health, law, governance and trade. Anga, Videha, Magadha, Vaishali, Nalanda, Vikramshila, Pataliputra – these are names that resonate in history. On 27th May 2006, Prime Minister Dr Manmohan Singh delivered a speech at the International Conference on Agriculture for Food, Nutritional Security and National Growth.1 In that speech he stated, “We do need a lot more attention to be paid to the management of our agricultural research and technology system. We must also ponder why is that Bihar which was chosen to be the original location of the Indian Institute of Agricultural Research, why it has failed to catch up with the rest of the country? Bihar, in 1950 was described as the second-best governed state in the very famous Paul Appleby Report. From that point, from that benchmark where Bihar is today in terms of its absorptive capacity? This is worthy of exploration, why a state like Bihar has not been able to catch up with the rest of the world?" Let us dispose of Paul Appleby first. Paul Henson Appleby (1891-1963) visited India in 1952, 1954, 1956 and 1960-61. As a consultant to the Ford Foundation, he produced his first report in 1953, titled, “Public Administration in India: Report of a Survey”. And there was a second report in 1956, titled, “Re-examination of India's Administrative System with Special Reference to Administration of Government's Industrial and Commercial Enterprises.” There was no Paul Appleby Report in 1950. The year should have been either 1953 or 1956. Where in his two reports did Appleby rank Bihar as 1 http://pmindia.nic.in/speech/content.asp?id=341 Indicus Analytics Pvt. Ltd. Page nd 21 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  23. 23. the second-best governed state? There is no such mention. Strictly speaking, the subject of the second report had nothing to do with ranking states. If Appleby had undertaken such a ranking, it should have been in the first report. And certainly in the 1950s, this business of cross-country or inter-state rankings wasn't that fashionable. Governance wasn't the buzzword it is now. Nor was there any literature on what variables to include in governance and how to weight and aggregate them into an index. Appleby also published three papers in the “Indian Journal of Public Administration” at around the same time and there is no such ranking of Bihar in these three papers either. Consequently, the stuff about Appleby ranking Bihar so high in the early 1950s is just an urban legend and the Prime Minister's speech-writers should have known better. But it is a good story and captures Bihar's relative slippage not only from a historical period, when it was the cradle of civilizations, empires, religions, educational centres, administration and prosperity, but also from the 1950s. Had a governance ranking been undertaken in the 1950s, Bihar, and even Uttar Pradesh, would have figured at the top of the league. By any criterion, Bihar is towards the bottom. Published in 2001, the Planning Commission's “National Human Development Report” is dated now.2 Nevertheless, it illustrates the point. The human development index (HDI) was computed for 15 major States in 2001 and Bihar was ranked the 15th.3 Every year, a cross-State ranking is undertaken by Bibek Debroy and Laveesh Bhandari for “India Today”, spanning a large number of variables spread over several heads. Irrespective of the head (or the variable), Bihar figures towards the bottom. In 2004-05, 42.1 percent of rural Bihar was below the poverty line, a figure surpassed only by Jharkhand and Orissa.4 Bihar has become an image for everything that is wrong with the state of India's economic development and governance. Academic work and popular impression have often used the BIMARU (Bihar, Madhya Pradesh, 2 http://www.planningcommission.nic.in/reports/genrep/nhdrep/nhdreportf.htm 3 HDI is based on three indicators of education (literacy, gross enrollment ratio), health (life expectancy) and per capita income (or expenditure) and has been popularized by UNDP in its “Human Development Reports”. There are some minor differences between the UNDP methodology and that followed by the Planning Commission. 4 http://www.planningcommission.nic.in/news/prmar07.pdf. This is based on the uniform recall period and the debate about the poverty line is irrelevant for present purposes. 34.6 percent of urban Bihar was below the poverty line, surpassed by Chhattisgarh, Madhya Pradesh and Orissa. Indicus Analytics Pvt. Ltd. Page nd 22 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  24. 24. Rajasthan, Uttar Pradesh) nomenclature, with a pun on the word bimar, meaning ill or sick, referring to the undivided States. However, undivided Madhya Pradesh and Rajasthan are no longer as deprived and backward as Bihar and the eastern parts of Uttar Pradesh. This is important because the demographic dividend, in terms of new entrants into the labour force, will primarily accrue in the undivided States of Bihar, Uttar Pradesh and Madhya Pradesh and in Rajasthan and Orissa. India cannot hope to prosper if these regions remain bypassed and marginalized. Left-wing extremist violence or Naxalism, which feeds on development deprivation, has a significant presence in Bihar. Migration is an indicator of a region's prosperity and attractiveness. A couple of thousand years ago, Bihar was the centre of in-migration. Today, Bihar is the focus of out-migration. Why is Bihar backward and deprived and why has its relative position slipped? Legitimate points can be made about Centre-State fiscal transfers5 and the freight equalization policy, though the latter is now only of historical interest. However, the key is what can broadly be called governance, spilling over into provision of physical and social infrastructure, making public expenditure efficient and ensuring law and order. This enabling environment is critical for agriculture, industry and services.6 Given Bihar's agro-climatic zones and land, despite the flood problem, there is no reason why Bihar's agriculture should not do better. Given Bihar's natural resources7, potential transport infrastructure and strategic location, there is no reason why Bihar's industry should not do better. Given Bihar's educational infrastructure, there is no reason why Bihar's services should not do better. The reform agenda need not be restated here. Such an agenda was formulated by the World Bank in 2005, building on the pillars of improving the investment climate and social service delivery, with fiscal and administrative reforms as integral components of the latter.8 In the complex world of electoral politics, with caste a major factor in Bihar, it is not always obvious that citizens vote out 5 See, Mohan Guruswamy, Ramnis Attar Baitha and Jeevan Prakash Mohanty, “Centrally Planned Inequality, the Tale of Two States – Punjab and Bihar” and Mohan Guruswamy and Jeevan Prakash Mohanty, “De-urbanisation of Bihar,” both published by Centre for Policy Alternatives, New Delhi, in 2004. 6 The share of industry in gross State domestic product is remarkably low in Bihar. 7 Though some have gone to Jharkhand. 8 Bihar, Towards a Development Strategy, World Bank, http://siteresources.worldbank.org/INTINDIA/Resources/Bihar_report_final_June2005.pdf. Indicus Analytics Pvt. Ltd. Page nd 23 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  25. 25. mis-governance and vote in good governance. However, it is possible to argue that the change in government in 2005 was driven by a desire to see an improvement in governance. This does not necessarily mean that good governance will bring electoral dividends in 2010. There is anecdotal evidence that Bihar has improved, on parameters like administrative delivery and law and order. This has received some support from the 2008-09 GSDP (gross State domestic product) figures. There has been a slight misreporting in some sections of media about 2008-09 real State domestic product (GSDP) growth rates. These reports suggest that at 11.4 percent, Bihar has shown the highest real growth after Gujarat. That’s not quite true, because 2008-09 data are still not available for many States, including Gujarat. Indeed, if one considers States for which 2008-09 data are available, Bihar has grown the fastest. At 10.8 percent and 10.4 percent respectively, Puducherry and Chandigarh come after Bihar. Out of 32 States and UTs, 2008-09 data are yet available only for 18, with many major States missing. Lest we forget, all-India GDP grew at 6.7 percent in 2008-09, considerably lower than 11.4 percent. A better comparison is for 2007-08, when data are available for all but Nagaland and Tripura. The all-India GDP growth in 2007-08 was 9.01 percent. Bihar registered 8.04 percent, far less spectacular than 11.4 percent. Several States and UTs were ahead of 8.04% - Andhra (10.62%), Goa (11.14%), Gujarat (12.79%), Haryana (9.35%), Himachal (8.59%), Chhattisgarh (8.63%), Maharashtra (9.18%), Uttarakhand (9.37%), Chandigarh (11.51%), Delhi (12.48%) and Puducherry (24.85%). Therefore, one shouldn’t make too much of a year’s figures, which can be subject to annual fluctuations. More important is the trend over say, a five-year period. The trouble with picking only one year is better illustrated by 2006-07, when Bihar grew by 22.0 percent. Thus, what is of note is not Bihar’s record in any specific year like 2006-07, 2007-08 or 2008-09. Nitish Kumar became CM in 2005 and political mileage is being made of the fact that in preceding year, 2003-04, Bihar declined by 5.15 percent under Rabri Devi. Ignoring such annual aberrations, between 1999 and 2004, Indicus figures show that real SDP in Bihar grew by 3.9 percent. Between 2004 and 2009, real SDP in Bihar grew by 11.3 percent. The annual decadal (1991 to 2001) rate of population growth in Bihar was 2.8 percent, though it may be lower now. 3.9 Indicus Analytics Pvt. Ltd. Page nd 24 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  26. 26. percent growth means roughly 1.1 percent per capita income growth, while 11.3 percent growth means roughly 8.5 percent per capita income growth. That’s a huge difference. Regionally, one of the issues has been that States with higher rates of growth have also tended to have lower rates of population growth and States with lower rates of growth have tended to have higher rates of population growth. Therefore, in terms of inter-State disparities, per capita figures show greater divergences than non-per capita numbers. If a traditionally backward State like Bihar has broken away from past trend that is a reason for celebration. Because we are talking about trends and not year-to-year fluctuations, there is no denying that Bihar has broken away from earlier growth trajectories. For instance, in earlier bad years (2001-02, 2003-04), real SDP declined by around 5 percent. In a recent bad year (2005-06), SDP increased by 1.5 percent. Can one ascribe a State’s success to a Chief Minister and a new government? In this case, because break with the historical trajectory is so sharp, the answer is in the affirmative. Anecdotally, one knows governance, administration and service delivery have improved in Bihar, partly facilitated by a World Bank lending programme between 2007 and 2009. However, agriculture doesn’t seem to be the primary driving force. Between 1999 and 2004, real agricultural SDP growth was 2 percent, while between 2004 and 2009, it was 5.6 percent. That’s undeniably an improvement, as is the increase in manufacturing SDP growth from -1.9 percent in the first period to 8.0 percent in the second. But what is spectacular is the jacking up of construction from 8.4 percent to 35.8 percent, communication from 9.4 percent to 17.7 percent and trade, hotels and restaurants from 11.6 percent to 17.7 percent. Somewhat unexpectedly, services have been driving growth, which has what has happened in the rest of India earlier. Bihar is catching up, as with Rajasthan and undivided Madhya Pradesh earlier. However, one should also remember that there are considerable divergences within Bihar and Patna, and the area around it, is not all of Bihar. Indicus Analytics Pvt. Ltd. Page nd 25 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  27. 27. A Job Well Begun Pratap Bhanu Mehta Pratap Bhanu Mehta is the President of Centre for Policy Research, a New Delhi-based think tank. He has also been appointed to New York University Law School’s Global Faculty. He has previously held Professorships at Harvard and JNU. He was Convenor of the National Knowledge Commission. His most recent publications include The Oxford Companion to Politics in India (co edited with Niraja Jayal) and The Burden of Democracy. He writes a column for the Indian Express. He is also a winner of the 2010 Malcolm Adshieshiah Award. There is little doubt about the palpable excitement that Bihar’s growth over the last five years or so has generated. But the excitement is, in equal measure, due to the fact that the last five years or so have set new benchmarks in a number of areas. Bihar gives lie to the proposition that there is something inevitable about decline in governance in poor states. Law and deterioration cannot take place without state complicity. The great achievement of the last few years has been removing the sense of state complicity in structures of violence. While Bihar’s law and order woes are by no means over entirely, the sense that the state is marked irrevocably by violent polarisation is diminishing. Bihar has made attempts to contain violence at both ends of the ideological spectrum, naxalism and upper caste reactionary groups like the Ranvir Sena. Just the number of prosecutions is impressive by any measure. The turnaround in law and order, the sense that prosecutions are taking place and increased sense of safety, suggests that any state can improve if it is genuinely committed. Second, there is a palpable sense that the state can actually do things: the construction of roads and schools, the appointments of teachers, functioning health clinics give a sense of a state making its presence felt. Third, there is an innovative attempt to create a new paradigm in politics. This new paradigm has three premises. The first is that the old paradigm of caste politics has exhausted itself; the new Indicus Analytics Pvt. Ltd. Page nd 26 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  28. 28. paradigm of caste politics seeks to forge new alliances with the most deprived and those marginalised by traditional politics. The second is that politics requires deeper participatory structures, including the strengthening of Panchayati Raj. While a lot remains to be done on the ground, Bihar’s thinking has been innovative. The idea of transferring more functions to panchayat institutions, an understanding that their capacity needs to be built, and making the state visibly present through panchayat Bhawans, are all steps in the right direction. No one should be under any illusion that decentralisation and strengthening local government is at least a fifteen year project; and that things may occasionally get worse before they get better. The challenge is to stay the course. Bihar has also, with admittedly mixed results, at least been a place of governance experimentation. It has tried to make the discourse of development replace a politics of intra group resentment and recrimination. Democracy is always a work in progress. But it is after decades that such an ambitious new paradigm of politics was tried out anywhere and in any state. But the foundations of the new found optimism on Bihar remain fragile. Bihar has had periods of high growth in the past. Although there are more reasons to be optimistic this time there are serious issues that remain to be tackled. For one thing the growth largely seems to be a result of what you might call the governance effect, a rapid expansion in actual government expenditure. The most striking piece of data in the Bihar story is the phenomenal growth in the construction industry, at rates of more than fifty percent a year in the initial phase of this regime. By some estimates the share of construction in state GDP has more than doubled. Construction has great beneficial effects. It is labour intensive, and rural connectivity via roads is a necessary condition for long term growth. Even agriculture has shown improvement, the volatility in agriculture performance due to unaddressed ecological issues remains a cause for serious concern. But the simple truth is that the long term sustainable future of a state requires the opening of alternative vistas of development: industrialisation and services. It is still not very clear that these alternative horizons have opened up in Bihar. Private sector investment is still not picking up at a Indicus Analytics Pvt. Ltd. Page nd 27 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  29. 29. pace that gives reason to be confident. There are fundamental reasons for this which have not even begun to be addressed. First, Bihar’s power situation remains very precarious, through no fault of its own. The uncertainty of power makes it particularly difficult for small business, which is going to be the backbone of any growth. The second issue is more subtle. No state can experience long term sustainable growth without a credible strategy for urbanisation. Almost all the consistently high growth states have urban centres that are magnets for investment, and draw and retain human capital. West Bengal tried to have an entirely rural based strategy, even going to the extent of actively decimating its urban infrastructure. In recent years it has tried to reverse the trend, but with little success. Bihar is urbanising, but the form of its urbanization, is not of the kind that will draw large scale investment. But a crucial political economy question is this. Regimes that have their base in rural consolidation, typically find it difficult to make the transition to an aggressive industrial or services sector policy. In a way, Bihar’s slow progress on this is understandable. During Nitish Kumar’s first term it had just emerged from almost a decade of active mis-governance. It needed to consolidate state institutions. It also needed a regime that had a powerful social base. But usually, as we have seen in West Bengal, the process of creating a credible urbanisation and industrial strategy generates great conflict. This is especially true in conditions where land is very scarce and highly contested. The real test of the durability of governance in a state is its ability to negotiate the land question. In a way, Nitish Kumar, again had the right idea. Some degree of land reform and regularisation of rights is desperately needed, and in principle would also have allowed the regime to further consolidate its social base. But this strategy is also fraught with risks. It risks a political backlash from some sections of upper castes. But more importantly, it has not yet been demonstrated that the state has the administrative capacity and party support to carry out this program. In West Bengal, the communist party was able to impose its writ at the local level; it is not clear that Nitish Kumar has that kind of party structure that can do serious social engineering on the land question. Indicus Analytics Pvt. Ltd. Page nd 28 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  30. 30. It also is an open question therefore, whether any government, in the highly contested terrain of Bihar politics, can risk conflict by pursuing an urbanisation strategy. Despite some recent expansion, the condition of Higher Education, a vital engine for growth, remains dismal. But the difficulties of creating high class higher education projects in Bihar, are indications that Bihar will find it difficult to attract and retain an edge in knowledge industries and services that are important drivers of growth. The Nalanda project initially had great promise as a show case project that would set new standards in Indian Higher Education; it is more likely to settle into another humdrum politics. Bihar, at the moment, has renewed energy and commitment in governance. That is paying great dividends. It also shows considerable promise in creating a new discourse on participation and social justice. But, despite a job well begun, these are still precarious gains. There is also little doubt that there is a drive, energy in the people of Bihar. But it is still a long way from being harnessed to an alternative and sustainable development imagination. Indicus Analytics Pvt. Ltd. Page nd 29 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  31. 31. Section II Reviewing Growth and Development of Bihar (1985-2005) Bihar, India’s eighth largest state, is a state with a largely negative image. According to popular perception, Bihar is known as a state with high levels of poverty, lawlessness and corruption. It is only in the last five years that the state has been going through a slow transformation with double- digit growth, improved law and order situation and better governance. Looking at the two decades of performance before the recent growth spurt – 1985-2005 – shows that the years of neglect have given the state a very low base from which it has now begun moving up. While other states pushed ahead on the growth and development agenda throughout the last two decades, Bihar, continues to have significant growth and development challenges to overcome. The state was bifurcated in 2000 as southern districts were carved out to create Jharkhand. There is therefore a caveat when using data across the twenty year period to compare the performance of the state over time. The state includes Jharkhand districts for economic data before the nineties, while for social indicators, in the early years after bifurcation, government data do not provide for separate data for the two states. While this makes strict comparison across time difficult, the broad trends that are reflected by the data, even in aggregate, are indicative of the ground reality in the state of Bihar. As far as the impact of the division is concerned, at one level, it was expected Bihar’s problems would be compounded as the southern districts hosted a large part of the industrial establishments as well as rich mineral resources. However, with change of governance in 2005, these fears have been proved wrong. Over the period 1985-2005, the state hardly witnessed much economic growth. In 1985, Bihar’s per capita income was Rs. 1601 at current prices, compared to the national average of Rs. 2730. By 2005, per capita income had moved up to Rs. 7844 while the national average had surged to Rs. 30,526 – the gap had widened significantly. Indicus Analytics Pvt. Ltd. Page nd 30 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  32. 32. Figure 2.1 For the first ten years of the period under discussion – 1985 to 1995, the state’s economy grew at a mere 3.2 percent per year, while India grew at 5.5 percent. Over the second ten years – 1995-2005, growth in Bihar picked up to average 4.75 percent while the Indian economy went ahead to turn in a 6.3 percent growth per year. Clearly, not only did Bihar miss out on the opportunities that liberalisation and reforms had brought to the country, it also dragged India’s performance down as it tottered along over the years. As the gap widened between India and Bihar, the urgency to revive the state became even more overwhelming. In fact, as then-President Kalam put it, “If India is to progress, Bihar has to succeed” - India cannot afford to leave 8 percent of its population behind if it aims to achieve double digit economic growth. The high levels of migration from the state as people left to escape poverty and secure any sort of employment outside the state had deep socio- economic repercussions as this migration brought down wages in other parts of the country and induced social tensions. One of the main problems of Bihar’s growth path has been its high volatility (see accompanying graph) with several years of negative growth. Indicus Analytics Pvt. Ltd. Page nd 31 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  33. 33. Figure 2.2 With heavy dependence on agriculture and hardly any buffer against the vagaries of weather, agricultural output fluctuates from year to year. One reason lies in the geography of the state – though the soil is fertile, a large part of Bihar is highly prone to floods. Alternating between years of drought and floods, agricultural output has been highly volatile. Population pressures in this state have been high. The decadal growth of population for 1991-2001 stood at 28.43 percent, the highest in the country. One of the causes for low productivity is the fragmentation of land holdings and preponderance of subsistence farming. Bihar’s record in land reform has been abysmal and the lack of effective water management hindered the improvements in productivity. While on the one hand, the state has been negligent in providing infrastructure for improving returns, the lack of land reforms has led to low levels of incentive to invest in the land. Added to this is the poor transportation network and marketing infrastructure that are needed for farm output to get a better price. Indicus Analytics Pvt. Ltd. Page nd 32 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  34. 34. More than 60 percent of the population lay below the poverty line in 1983. By 2005, this proportion had improved to 41 percent, however this still makes Bihar one of the poorest states in the country. The slow progress in tackling poverty leaves a higher burden going forward. The concern is that Bihar is largely a rural state – 90 percent of the people live in rural areas, indicating that rural poverty is a problem which needs to be tackled on a war footing. In fact, Bihar is the only state in India that has shown a trend away from urbanisation over these two decades – 1981 urban population constituted 13 percent of the total population, in 2001, this share was down to 10 percent. Most of the rural poor lack access to land and majority are landless labourers, depending on casual work or agricultural wages for subsistence. With 75 percent of the population engaged in the primary sector, raising the levels of agricultural growth would have major implications for poverty reduction. Hence, realising the transition away from the primary sector is a goal that remains to be achieved. However, Bihar was not in a position to build a vibrant industrial sector. Bihar’s share of private projects implemented was the lowest in the 1990s, a time when private sector in India leaped forward to take advantage of the new economic era.. From 1991 to 2006, just 7 Industrial Entrepreneurial Memorandums were implemented in the state, out of a total of 6248 in the country, generating employment for just 768 people. The state accounted for just 0.5 percent of all industrial investment proposals in the country, a pitiful record for the eighth largest state. The ratio of implemented projects to those proposed was 6.7 percent, lower than the national average implementation ratio of 9.2 percent, showing the significant problems faced in getting even the few proposed projects off the ground. While the private sector tended to stay away given the poor law and order situation, public investment was on a decline as low growth and income leave little scope for revenue realisation for the administration. High levels of corruption and inefficiency meant that even though the state received large transfers from the Central Government, funds were left unutilised. Weak infrastructure of roads, telecommunications, power etc., weak financial markets, Indicus Analytics Pvt. Ltd. Page nd 33 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  35. 35. lack of skilled manpower and very little political commitment to make the requisite changes resulted in a vicious circle that made it difficult for industrial investment to penetrate. Likewise, the services sector also was not well-developed. While the sector did generate 17 percent of employment, in 2005, the largest share of income was generated by public administration, showing the lack of private sector involvement. 20 percent of the services sector was from public administration, in neighbouring West Bengal, this share was just 9 percent. More significantly, the sectors of banking and insurance which contributed 22 percent to West Bengal’s services sector, formed just 10 percent of Bihar’s income from the service sector, a pointer to low access to financial markets and credit in the state. Overall, the state economy was not well-diversified, leaving little opportunities for the people for gainful employment. Table 2.1 Share of employment in 2004 Primary State Sector Secondary Sector Tertiary Sector Bihar 75 8 17 Uttar Pradesh 75 10 15 Madhya Pradesh 71 14 15 Orissa 65 18 17 West Bengal 48 23 29 Source: Central Statistical Organisation It is not just that there were no opportunities for employment, the low spread of education also meant that the population of the state was not employable and had little skills. Not only did Bihar have the lowest literacy rate in the country, it also made the least progress towards enhancing literacy over the period 1981-2001. In 1991, it had the same literacy rate as Rajasthan, in 2001 Rajasthan had covered 61 percent of its population, through intensive government outreach programmes. Indicus Analytics Pvt. Ltd. Page nd 34 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  36. 36. Table 2.2 Literacy Rates (Percentage of Population) Increase in percentage of literate population States 1981 1991 2001 1981-2001 Bihar 32.3 37.5 47.0 14.7 Jharkhand 35.0 41.4 53.6 18.5 Madhya Pradesh 38.6 44.7 63.7 25.1 Orissa 33.6 49.1 63.1 29.5 Uttar Pradesh 32.7 40.7 56.3 23.6 All India 43.6 52.2 64.8 21.3 Source : Economic Survey, 2009-10 In 2001, literacy rates for men stood at 59.7 percent while that for women was 33.1 percent, both were lower than the national average literacy rate of 1991. Little wonder then that even though the human resource base is huge, the productivity in the state has been so low. In 1998-99, only 22 percent of the children in the 10 years plus age group had completed primary schooling, a clear indication that the backlog in educational attainment is enormous. The problem of poverty, access to schooling and capacity of children to remain in school are all interlinked and as late as 2002, the drop out ratio from primary schooling was almost 75 percent. Given the poor governance factor, the quality of government schools and teaching left much to be desired. A 2003 UNICEF survey of five districts over the previous three years revealed that teachers spent an equivalent of just two months in the classrooms with the children. Teacher absenteeism, lack of monitoring, involvement of teachers in government duties etc, all played a role in leaving the children un-cared for. With an acute shortage of teachers, the pupil-teacher ratio worsened over the nineties. The private sector did manage to step in to provide educational facilities, however access to these schools was limited to the urban areas. Indicus Analytics Pvt. Ltd. Page nd 35 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  37. 37. On the health front again the lack of governance shows up starkly. Although surprisingly, the number of primary health centres grew 177 percent over the period 1985-1996, compared to the growth rate of 140 percent at the national level, the shortage continued to be severe. More importantly, as in the case of schools, absenteeism of staff was a regular problem. A 2003 survey showed that 58 percent of the staff was absent on unannounced visits by independent researchers. With the public health system plagued with problems of inadequate staff, lack of medicines and equipment, often without basic infrastructure of power and water etc., it is little wonder that the bulk of the population went to private doctors, if they could afford to, or to unlicensed quacks with no medical qualifications. In the absence of any sort of regular inspections, regulation or monitoring, the quality of health care at these private doctor and quack dispensaries was bound to be doubtful. That the burden of poor health facilities fell disproportionately on the poor, who formed the majority of the population in the state, added to the poor health indicators. Table 2.3 In 2004, the infant mortality rate in Bihar was 61 out of 1000 live births, while in Jharkhand it was much lower at 49. In 1992-93, the year for which combined data for both states is available, the infant mortality rate was 89.2 out of 1000 live births. Clearly, this figure masked the disparity within the state then, with the southern districts that formed Jharkhand later having better health indicators with higher urbanisation rates. In 2003 in Bihar, only a quarter of the children in the age Indicus Analytics Pvt. Ltd. Page nd 36 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  38. 38. group 12-35 months were given full immunisation, showing the lack of awareness as well as difficulty in access to health care in the state. One interesting trend in Bihar has been the rise of the coverage of households with access to safe drinking water. In 1981, just 38 percent of the households had access to safe drinking water. However, by 2005-06, more than 90 percent of the households reported access to an improved source of drinking water. Unfortunately, the reason behind this high coverage lies in the definition of ‘improved source of drinking water’, which includes not just piped water or tap water, but also bore wells and tube wells, protected springs and rainwater. Though this definition is in line with established practice worldwide, if we look at just piped water as being safe, while 71 percent of urban Indian households have access to piped water, in Bihar piped water accounts for just 2 percent of urban households. While another 8 percent of urban households in Bihar source water from public taps/standpipes, the majority, 76 percent, use tube wells/bore holes. Unfortunately, the issue of ‘safety’ or quality of water is not addressed by this statistic nor by the survey. Apart from faecal contamination, there are problems of nitrates, fluoride, arsenic and salinity concentrations that are harmful for health. 15 out of Bihar’s 38 districts have been identified with high arsenic levels. Needless to say, skin lesions and cancers triggered by arsenic are a matter of concern in these areas where dependence on groundwater is high. Despite the positive statistic therefore, Bihar’s health situation remains adverse. A 2003 study by Debroy and Bhandari identified 69 backward districts in India, based on six indicators, viz., poverty ratios, hunger, infant mortality rate, immunization, literacy rate and enrolment ratios. Of those 69 districts, 26 were in Bihar, 13 in UP, 10 each in Jharkhand and Orissa, 6 in Madhya Pradesh, 3 in Arunachal Pradesh, and 1 in Karnataka. The fact that 26 of Bihar’s 37 districts were backward speaks volumes about the development in the state. In fact, from 1981 to 2001, Bihar consistently ranked the lowest amongst all on the Human Development Index, revealing the huge backlog that the state has to achieve. Indicus Analytics Pvt. Ltd. Page nd 37 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  39. 39. Table 2.4 Human Development Index 1981 1991 2001 States Value Value Value Kerala 0.500 0.591 0.638 Punjab 0.411 0.475 0.537 West Bengal 0.305 0.404 0.472 Orissa 0.267 0.345 0.404 Madhya Pradesh 0.245 0.328 0.394 Uttar Pradesh 0.255 0.314 0.388 Bihar 0.237 0.308 0.367 All India 0.302 0.381 0.472 Source : Human Development Report 2001, Planning Commission One of the most crucial constraints to both economic growth and improvements in health and education was the poor performance on most infrastructure indicators. As late as 2006, the percentage of households connected to electricity was a dismal 13 percent, the lowest in the country. Tele-density, which was the lowest at 0.12 percent in 1987-88, rose to 0.65 percent in 2000, not even touching 1 percent of the population. Over the same period, teledensity in Orissa had moved up from 0.19 percent to 1.21 percent, a commendable rise, though still with low coverage. The poverty in the state is also reflected in the asset penetration as the number of cars per lakh of population was the lowest in the country– As late as 2003, only 72 cars per lakh of population compared to 297 per lakh in Jharkhand. Little wonder then that the Eleventh Finance Commission’s Infrastructure Index for India gave very low rankings to Bihar. Indicus Analytics Pvt. Ltd. Page nd 38 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  40. 40. Table 2.5 Index of Infrastructure Development 1999 States Index Bihar 81.3 Gujarat 124.3 Kerala 178.7 Madhya Pradesh 76.8 Maharashtra 112.8 Orissa 81.0 Uttar Pradesh 101.2 West Bengal 111.3 Source: Eleventh Finance Commission Report, 2000 The main problem that afflicted Bihar was its polity. With corruption and rough politics reigning, the people of the state suffered. In 2004, the Economist magazine referred to Bihar as ‘an area of darkness’, where many people were left behind. The article said, ‘Bihar has become a byword for the worst of India, of widespread and inescapable poverty, of corrupt politicians indistinguishable from mafia-dons they patronise, caste-ridden social order that has retained the worst feudal cruelties.’ Quoting a study which covered 69 most disadvantaged of India's 602 districts of which 26 are in Bihar, it said Bihar's biggest growth industry was kidnapping for ransom. In 2005, the World Bank report on Bihar, setting forth a development strategy for the state said, ‘The challenge of development in Bihar is enormous due to persistent poverty, unsatisfactory infrastructure and weak governance; problems that are well known but not well understood. The people of Bihar also struggle against an image problem that is deeply damaging to Bihar’s growth prospects. An effort is needed to change this perception, and to search for real solutions and strategies to meet Bihar’s development challenge. The main message of this report is one of hope.’ Indicus Analytics Pvt. Ltd. Page nd 39 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  41. 41. The people of Bihar voted against the 15 year rule of the RJD and ushered in a new era under a coalition government, led by Nitish Kumar. The results of the past five years, documented in the chapters that follow, show that the hope has been kindled and Bihar stands a good chance of rising to contribute positively to India’s growth story, instead of being the millstone around the neck that it was for the past two decades. Indicus Analytics Pvt. Ltd. Page nd 40 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  42. 42. Section III New Era in Bihar (Post 2005 till Date) Bihar struggles against an image problem that is deeply damaging to its growth prospects. However, the situation has changed in recent years. This section presents an objective assessment of the socio-economic progress made by the state particularly in the last five years. Two critical questions have been dealt with in depth – (a) what has changed in the state during 2005-10? , and (b) what implications does this change hold for the future? A state-level comparative analysis is done under the following heads. i) Economic Indicators • State GDP Growth Rate • Sectoral Growth • Consumer Markets • Investment Scenario • Central Grants and Social Sector Expenditure ii) Social and Development Indicators • Law and Order • Infrastructure and Communication • Poverty • Education • Health iii) Other • Tourism • Agriculture Indicus Analytics Pvt. Ltd. Page nd 41 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  43. 43. The overall analysis gives positive signals, Bihar is gradually treading on the path of development. A. Economic Indicators a) GDP Growth Rate in Bihar (2004-05 to 2008-09) The state's economy has never grown so fast and so consistently as it has since 2004-2005. The Central Statistical Organization (CSO), in a report released recently, placed Bihar in the second place in terms of growth in the Gross Domestic Product (GDP) between the years 2004 and 2009. On an average, Bihar registered a double digit GDP growth rate of about 11 percent over the period 2004- 09 (Figure 2.1 and Table 2.1). According to Swaminathan S. Anklesaria Aiyar9, ‘this economic boom in Bihar is real and not a statistical fudge’. Figure 3.1: GDP Growth Rate Trend Average Annual GDP growth rate (%) 12 10 8 Average Annual GDP growth rate (%) 6 4 2 0 1984-89 1989-94 1994-99 1999-04 2004-09 Time Series Source: CENTRAL STATISTICAL ORGANIZATION (CSO) 9 Swaminomics Indicus Analytics Pvt. Ltd. Page nd 42 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  44. 44. Table 3.1: GDP Growth Rate (2004-05 to 2008-09) GDP Growth Rate (in % Year per annum) 2004-05 12.17 2005-06 1.49 2006-07 22.00 2007-08 8.04 2008-09 11.44 Average growth (2004-09) 11.03 Source: Central Statistical Organization (CSO) Arguably, Bihar had been performing so badly for so long that it may just be enjoying catch-up gains. In other words, this high growth is coming on a very low base. In fact, four of the poorest states — Bihar (with 11.0 percent GDP growth), Orissa (8.7 percent), Jharkhand (8.5 percent) and Chhattisgarh (7.4 percent) — qualified as miracle economies, going by the international norm of 7 percent growth. This is indeed a remarkable achievement. However, sustainable growth would only be ensured in the State when the economy is well-diversified and the volatility in year on year growth is robustly tackled. According to the Bihar Economic Survey 2009-10, the main growth sectors have been construction, communication and trade/hotels/restaurants. The annual growth rate for these high-growth sectors was 35.8, 17.7 and 17.7 percent respectively, way above the overall average rate of 11.0 percent. Further, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Bihar GDP is estimated to reach Rs 2,64,781 crore from the current level of Rs 1,05,148 crore, mainly due to the positive boost from good governance. Indicus Analytics Pvt. Ltd. Page nd 43 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  45. 45. b) Sectoral growth: With the process of growth and development, there is a structural change in the sectoral share of income, the main focus of an economy's activity shifts from the primary, through the secondary and finally to the tertiary sector. Further, this is accompanied by a shift in employment from the primary sector to the other sectors as surplus labour moves to more productive avenues of employment. Bihar’s economy is witnessing a shift towards services, much before industrialization, mostly driven by a buoyant urban economy. This is growth induced by the government. The share of the tertiary sector in GSDP grew in Bihar from 51 percent in 2001 to about 60 percent in 2007-08, while the secondary sector showed a marginal increase in share from about 11 percent to about 16 percent (Figure 2.2). The primary sector has witnessed a decrease of 13 percentage points in its contribution to the state income. Table 3.2: Sectoral shares in GSDP (%) Primary Sector Secondary Sector Tertiary Sector States 2001-02 2007-08 2001-02 2007-08 2001-02 2007-08 Bihar 37.9 24.8 11.2 15.7 51 59.5 Jharkhand 29.3 21.9 35.3 39.5 35.5 38.6 Punjab 35 32.5 22.7 24.7 42.3 42.8 West Bengal 31.3 24.8 15.2 19.4 53.5 55.8 Maharashtra 16.2 14.5 25.7 26.8 58.2 58.7 Source : Central Statistical Organization (CSO) Indicus Analytics Pvt. Ltd. Page nd 44 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  46. 46. Figure 3.2: Sectoral Share in Bihar (2001-02 and 2007-08) Sectoral shares in Bihar as percentage of GSDP Sectoral shares in Bihar as percentage of GSDP (2001-02) (2007-08) 24.8 37.9 51 11.2 59.5 15.7 Primary Sector Secondary Sector Tertiary Sector Primary Sector Secondary Sector Tertiary Sector The current economic growth in Bihar has happened mainly due to its well performing service sector. This highlights the need for providing security to the industrial set-up in the state so as to attract investment in the manufacturing sector in the state. In addition, the state has set an ambitious target of 7.6 percent GSDP growth in 2007-12, higher than states like Madhya Pradesh and Uttar Pradesh (Table 2.3). This equitable growth is targeted in all the three sectors to ensure an overall growth which is well-diversified and balanced. Table 3.3: State-wise Target for GSDP Growth in India (Annual Averages in %) (2007-2012) State wise Growth Target GSDP State Agriculture Industry Services Growth Bihar 7 8 8 7.6 Jharkhand 6.3 12 8 9.8 Madhya Pradesh 4.4 8 7 6.7 Orissa 3 12 9.6 8.8 Uttar Pradesh 3 8 7.1 6.1 West Bengal 4 11 11 9.7 Source : Ministry of Commerce & Industry, Govt. of India. (10334) Indicus Analytics Pvt. Ltd. Page nd 45 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  47. 47. c) Consumer Market: The consumer market is composed of individuals (or households) who buy a specific good or service. In recent times, many factors such as urbanized lifestyle, increased influence of the media, and growth of the service sector have completely changed the consumer market scenario in Bihar. The per capita income in the state rose from Rs 10,415 in 2008 to Rs 13,959 in 2009, i.e. an increase of 34 percent in single year. On the other hand, the per capita expenditure in the state is still very low (Rs 6,800 in rural areas and Rs 12,800 in urban areas) as compared to that in other states and India (Table 2.4). However, there are signs of rising consumerism in the state in recent times. For example, in the last one year, there has been a growth of 39 percent in the number of private vehicles and 67 percent rise in the number of commercial vehicles plying across Patna10. Table 3.4: Annual Per Capita Expenditure across states (Rs per person), 2008 State Rural Area Urban Area Bihar 6,800 12,800 Jharkhand 16,300 38,100 Maharashtra 21,300 64,100 Orissa 17,100 35,100 Punjab 23,500 41,100 Tamil Nadu 18,400 38,400 West Bengal 19,500 44,700 India 16,200 41,100 Source: Market Skyline of India, 2008 Further, rural Bihar’s widespread participation is confirmed by the rapid rise in rural sales of branded consumer goods. Even stronger confirmation comes from the spread of the cell phone 10 India Today, Year-ender 2009, State Scan - Patna: P For Progress, Amitabh Srivastava Indicus Analytics Pvt. Ltd. Page nd 46 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  48. 48. revolution. According to an estimate by Indicus, about 56 percent of the households in the state belong to the middle class which offers a large and vital consumer base. There has been a steady growth in the number of people belonging to the middle class in populous Bihar and its baby state Jharkhand (Figure 2.3). However, a declining or stagnating trend can be observed in the neighboring states such as Orissa, Madhya Pradesh and Uttar Pradesh. Also, the mega trend of consumerism is revamping Patna's economic structure, besides fuelling business growth in the city. Similarly, the retail industry here is also developing fast with improving business environment and rising income levels. Table 3.5: Potential Consumer Base offered by the Middle Class Potential Consumers (Middle Class) State 1998-99 2003-04 2007-08 Bihar 48.34 51.62 56.01 Jharkhand 42.7 47.26 57.68 Orissa 44.94 46.03 43.93 Uttar Pradesh 59.78 60.83 57.31 Madhya Pradesh 66.04 56.15 56.19 Source: Indicus Estimates using asset data from DLHS 1 2 and 3 Note: Q2, Q3 and Q4 quintiles together are considered as the 'middle class' Indicus Analytics Pvt. Ltd. Page nd 47 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net
  49. 49. Figure 3.3: Variation in the Strength of Potential Consumers over time Variation in State wise Potential Consumers over Time % Hhds (Middle-Class) 70 60 Bihar 50 Jharkhand 40 Orissa 30 20 Uttar Pradesh 10 Madhya Pradesh 0 1998-99 2003-04 2007-08 Time-Series Source: Indicus Estimates using asset data from DLHS 1 2 and 3 Note: Hhds refers to Households d) Investment Climate: Investment climate refers to the general economic conditions affecting the financial markets. A favorable investment climate encourages businesses to improve efficiency and productivity in order to increase revenues and capital available for investment. It also gives investors confidence in the market and encourages them to invest more capital. In the period spanning 2004-2010, Bihar has witnessed an annual average growth rate of about 86 percent in overall proposed investment which includes Industrial Entrepreneur Memoranda (IEMs) filed, and Letters of Intent (LOIs) & Direct Industrial Licences (DILs) issued (Table 2.6). In 2004, the share of Bihar in the overall proposed investment (vis-à-vis other states) was a mere of 0.1 percent (Rs 314 crore). However, by 2010, this share increased to about 1.5 percent (Rs 13,674 crore). Nevertheless, proposed investment in Bihar is still significantly lower than that in the neighboring Indicus Analytics Pvt. Ltd. Page nd 48 2 Floor, Nehru House, 4 BSZ Marg, New Delhi – 110002 Email: mail@indicus.net

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