Luck, Myth or Governance?

Playing catch-up Development plays a hide-and-seek game in Bihar
Playing catch-up Development plays a hide-and-seek game in Bihar

As mentioned earlier, the manufacturing growth in Nitish’s first five years was possibly led by the loss of revenues and opportunities when the state was carved up. Businessmen, who were entrenched in sectors related to natural resources such as mining, used their earlier profits to venture out into new areas. Manufacturing, which has similar traits to mining, was their first option. In a bid to shore up their finances, the policy makers supported entrepreneurship.
Various studies have shown that the growth in construction between 2005-06 to 2009-10 was led by public expenditure and not private funds. This was aided by the Centre, which transferred a higher proportion of its revenues to the states. In 2014-15, Bihar showed a hike of almost Rs 13,000 crore in its annual tax revenues. Of this amount, Rs 7,000 crore was contributed by the state’s share of the central kitty. In the same year, central grants were estimated to go up by nearly Rs 19,000 crore. In 2015-16, the state’s revenue receipts were predicted to go up by just over one percent from the previous year, largely because the central grants shrunk by over Rs 13,000 crore.
Miracle behind boom
The main factor that contributed to the decadal growth in Bihar was the unprecedented boom in the services sector, especially in areas such as communication, banking and insurance and trade (including hotels and restaurants). More importantly, of these three sectors, communication and trade witnessed high growths during the pre-Nitish days. A few researchers contend that these sectors got a fillip while Nitish was the chief minister, but the momentum was already there.
In the 21st century, the country witnessed the telecom revolution; Bihar was no exception. This was truer after the former and now-bailed-out telecom minister, A Raja, doled out 122 mobile licences to private operators at ridiculously cheap prices in 2008. Similarly, the banking and insurance segments grew faster in the past 10 years due to the Centre’s focus on financial inclusion. Both the previous UPA regime and the current NDA-led government initiated measures to open bank accounts for the lower classes and poor, as well as give them access to cheap insurance policies.
Reports suggest that the rise in the number of mobile users in the state is in contradiction to its status as one of the poorest states in the country. A recent newspaper article said that Bihar “is the top market for several mobile phone companies”. It added, “Be it the sale and revenue generation by the cell phone firms or air-time uses, Bihar, in proportion to its population, is ahead of most other much developed states.” The reason, as per the same piece, is that for the huge number of Bihari migrants who move outside the state in search of work, “nothing connects them better to their homes than cheap phone calls.”
The same is true for the retail and trade sector. As the country witnessed high growth over the last 15 years, except for the past few ones, there was a huge increase in consumption. As consumers lined up to buy new products, even two of the same, trade benefitted. Although the individual trader was substituted by organised retail, largely in urban areas, household expenses went up. The largely low interest rate regime helped auto and home buyers.
However, one has to credit Nitish for the forward-looking and businessfriendly policies. He did improve the investment sentiment, which is critical for growth. Mere policies don’t matter. The Narendra Modi regime has realised this over the past 17 months; its grandiose policies haven’t really cajoled the business community to invest more. In fact, the latter has complained that several critical reforms such as land acquisition and Goods and Service Tax, have been derailed.
Non-inclusive growth
Unfortunately, despite the unprecedented growth in the state, the lower classes and poor haven’t benefitted. The positives of growth haven’t percolated down in the past decade. For example, of the 17 larger states, Bihar was ranked the last in terms of per capita net state domestic product (NSDP) in 2012-13. The next year, it was ranked 15 as per its 2014-15 Economic Survey. The reason the state had inched up two positions in a year was because the survey’s table did not have the per capita NSDP figures for two states, Gujarat and Kerala.
Bihar’s per capital NSDP was  Rs 15,650 in 2013-14, merely 22.5 percent of the highest state, Maharashtra (Rs 69,584), as per the survey. The state’s figure was 39 percent of the national average. Even young states like Jharkhand and Chhattisgarh had per capita NSDPs that were almost twice the NSDP of Bihar. Even the laggards within the so-called ‘BIMARU’ states had a higher per capita. The figure for Uttar Pradesh was Rs 19,234 in 2013-14.
The same is true when it comes to the poverty rates in Bihar. Although the figure fell dramatically by over 24 percent over the past decade, as per non-official reports, the percentage is still much higher than the national average. In addition to this, experts say that poverty rates have come down in all the states. The major reason is that the central planning commission had redefined the daily incomes of people below the poverty line. More importantly, the disparity in income levels between the poor and rich regions and districts within Bihar are still high.
A 2014 study suggests that “there has not been any significant influence of the agricultural development and poverty alleviation programmes on reducing poverty incidence. It reflects that strategies adopted under various rural development programmes seem to be inappropriate in the Bihar context. Most programmes aimed at improving the economic status of poor households, while only a few attempted at improving their human capital, i.e. education, health, housing and social participation. This might be the reason for ineffectiveness of programmes on alleviating poverty during the last three decades.”
The same study noted that agriculture continues to be an important sector in the state, although it contributes less than 20 percent to the nsdp. The reason is that it employs over 70 percent of the work force in rural areas. To add to the woes, the state is wracked by the number of small landholders. Over 90 percent of farm households belong to the marginal farm category, i.e. less than one hectare land, but own almost 45 percent of the cultivated land.
While it is true that Nitish made a huge difference over the past 10 years, he cannot claim that by merely enhancing public safety and announcing progressive policies, he managed to woo private investment in manufacturing, construction and communication that led to huge growth rates. While a safe environment helped people to invest more, other factors have contributed to the boom. In fact, swings in sector-wise growth indicate lack of consistency. If he wins again, Nitish has to aim for more sustainable growth.