Bihar Reloaded: Hope Floats in a Basket Case

Indian Express, 23 November 2005

Piloo Mody once demanded of the prime minister of the time, why is it that Indian businesspersons do so well under every national government but your own? As the people of Bihar peer at the final result tally for signs of change, a similar question must run through their minds. The rest of India thrives because of Bihari out-migration at every level. And Biharis thrive elsewhere. In Bihar, however, socio-economic indicators remain abysmal. So the question must be posed: why is it that Biharis do well everywhere else but in their own state?

The answer in a word: misrule.

Evidence clearly indicates that the decline in Bihar’s economy is a direct consequence of misrule and the failure of the state. The economic decline is evident from various indicators such as income, employment, maternal mortality and education. That this decline is a consequence of misrule — of the failure of the state to enforce law and order and prevent corruption by government employees — is reflected in the low level of private investment in Bihar, zero foreign investment, and the near absence of public health, education and infrastructure.

Fifteen years of Laloo rule have left their mark on Bihar. State GDP growth in the state of Bihar slipped from being just slightly below the national average in the 1980s to nearly one-third below the national average by the latter half of the nineties. The state witnessed zero growth in the first half of the 1990s and since 1994-95 annual growth in Bihar has averaged 3.8 per cent. This implies a growth rate of barely 1 per cent in per capita terms — in a period when India was witnessing 3.7 per cent per capita GDP growth.

Morevoer, nearly 40 per cent of state gross domestic product comes from agriculture. The performance of agricuture has been poor, slipping from 2 per cent in the first half of the 1990s to 1 per cent in the second half. Since 80 per cent of the population of Bihar depends on agriculture, this performance has in turn led to a much slower reduction in poverty than in the rest of the country. The annual rate of poverty reduction in Bihar, at 0.3 per cent over the period 1960 to 1994, was already much lower than the all India mean at 1.3 per cent. The slowdown in growth made it worse.

Slow growth has meant slow growth in employement opportunities. Among the worst hit have been casual labourers who head 54 per cent of households in Bihar and are often unable to find work in rural Bihar. Employment opportunities outside agriculture have not grown either. Deterioration in public finance and rising deficits have led to lower public investment. A poor investment climate has kept private investment away from Bihar.

The freight equalisation policy allowed investment to go far away from Bihar even when the state was undivided with a large share of mineral resources. The transfer of mining resources to Jharkhand worsened Bihar’s investment prospects.

The investment climate in Bihar is characterised first and foremost by lack of law and order. When life and property are not safe and kidnapping and murder are common, private companies are averse to investing in the state. Interestingly, official crime statistics do not indicate that Bihar has a higher crime rate than India. Kidnappings, abductions and dacoities are below the all-India average. It is, however, suspected that official data does not capture the extent of crime in Bihar. The concern over law and order in Bihar is a significant deterrent to investment in Bihar.

Also, there has been no proactive policy to attract private investment as has been seen in some other states such as West Bengal or Andhra Pradesh. In addition, poor infrastructure such as unreliable power supply, abysmal roads connectivity and non-existent telecom reduce the attractiveness of Bihar as an investment destination even further.

The unreliability of the power supply with frequent breakdowns and heavy fluctuation have led the majority of industrial units in the state to have captive power plants. This pushes up costs and reduces competitiveness. With nearly 70 per cent of inhabited areas not connected by motorable roads, Bihar is among the worst connected states in the country. Bihar has only 77 km total road length per 100 sq km, worse than its poor neighbour Orissa, which has 169 km. Further, Bihar has the lowest teledensity in India. While in the rest of India, 9 per cent of households have telephones, Bihar missed out on the great Indian telecom revolution, and only 2 per cent of its households have telephones.

It is not as if more grants by the centre would help. Year after year, Bihar has been unable to utilite the funds available to it. For example, under the Pradhan Mantri Gram Sadak Yojana it was proposed that more than Rs 7000 crore would be spent for Bihar, but Bihar failed to ulitise the funds. Bihar spent barely Rs 18 crore out of the Rs 250 crore for the Accelerated Irrigation Benefits Program. It spent barely 5 per cent of its Rs 10 crore alloaction under the National Old Age Pension Scheme. Excessive centralisation of decision making, paralysis of decision making, capacity constraints, procedural delays and antiquated systems have been identified as among the reasons why nearly 20 of the money approved for Bihar was unspent. Poor infrastructure, low delivery of services and corruption add to the public’s woes.

The response to the lack of employement opportunites in Bihar compared to the rest of India, has been out-migration. Many studies show that out-migration is a crucial survival strategy in Bihar. Twenty five per cent of households in Bihar have absent male members — 95 per cent of out-migrants are male. Among the poor, migration is short-term in nature. However, among the top 20 per cent of households, migration is long term.

The new government will face many challenges. But the most important challenge on the economic front is to protect life and property. Failure to that will push Bihar even further below the rest of India as both labour and capital move away from the state.

If Nitish Kumar is to make anything of the responsibility the voter has given to him, he must do enough to be able to counter Laloo’s contention that he gave the people a voice.

Nitish must, as his most urgent task, place himself in a position to tell the Bihari: I have given you the confidence to aspire.

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