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% 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 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% growth per annum in the five year period, compared to 8.4% growth in the previous five years and services at 11.5% compared to 5.4% 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.
Is this growth sustainable? 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 in a recent interview, ‘If Bihar continues with 11% 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.
More importantly, manufacturing accounts for just 4-5% 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