Monday, September 10, 2007

The economic strangulation of Bihar

Simple economic logic tells us that a region falling way behind needs greater investment in its development. But Bihar is being systematically denied even its rightful due from the Centre, let alone the additional assistance its economic and social condition deserves. If the present state of affairs continues, it will only imperil India, for the country cannot really progress without Bihar's advancement, say Mohan Guruswamy and Abhishek Kaul.

THAT Bihar is India's poorest and most backward State is undeniable. The facts speak for themselves. But what makes its situation unique is that Bihar is the only State where poverty levels are uniformly at the highest level (46-70 per cent) in all the sub-regions. The annual real per capita income of Bihar — Rs 3,650 — is about a third of the national average of Rs 11, 625. Bihar is also the only State where the majority of the population — 52.47 per cent — is illiterate.

But Bihar has its bright spots. Its infant mortality rate is 62 per 1,000, which is below the national average of 66 per 1,000. But what is interesting is that this is better than not just UP (83) and Orissa (91), but better even than States such as AP and Haryana (both 66).

Even in terms of life expectancy, the average Bihari male lives a year longer (63.6 yrs.) than the average Indian male (62.4 yrs) and the State's performance in increasing life spans has been better than most in the past three years.

Bihar has 7.04 million hectares under agriculture and its yield of 1,679 kg per hectare, while less than the national average of 1,739 kg per hectare, is better than that of six other States, including some big agricultural States like Karnataka and Maharashtra. Despite this, in socio-economic terms at least, Bihar is clearly in terrible shape.

Bihar is not only the worst off of all Indian States, but the gap between it and the rest is also widening. But there is another reality as well. It is that India cannot progress without Bihar's advancement. It is much too big to be left behind.

Even after Jharkhand was taken out of it, Bihar still has a population of about 85 million. But more relevant than that, for policy purposes, is that Bihar has India's largest concentration in the below 25 years age cohort, with 58 per cent in this category. It will retain this position till well into this century, which means that as India ages, Bihar will remain young! And what the young need most is health, education and jobs. Or else.

Thus, the development of Bihar is integral to India's development. India cannot go forward leaving Bihar behind. This is not the time to apportion blame for Bihar's plight. But that it is in this condition is a severe indictment of our national leadership that has so blatantly and wilfully ignored the Bihar economic problem.

The successive State Governments too are equally culpable. Who is more responsible for this is a chicken-or-egg question? It does not matter now. But one thing is clear. Bihar has few willing to speak up for it. The numbers are proof of its systematic and deliberate neglect.

As opposed to an All-India per capita developmental expenditure (from 2000 to 2002) of Rs 6748.50, Bihar's is less than half at Rs 3,206.00.

While development expenditure depends on a bunch of factors, including a State's contribution to the national exchequer, no logic can explain away the per capita Tenth Plan size which, at Rs 2533.80, is less than a third of that of States such as Gujarat (Rs 9,289.10), Karnataka (Rs 8,260.00) and Punjab (Rs 7,681.20).

Simple and sound economic logic tells us that when a region is falling way behind, it calls for a greater degree of investment in its progress and development. It is analogous to giving a weak or sick child in the family better nutrition and greater attention. Only in the animal kingdom do we see the survival of the fittest, with the weak and infirm neglected, deprived and even killed.

But Bihar is being systematically denied, let alone the additional assistance its economic and social condition deserves, but also what is its rightful due. From the pitiful per capita investment in Bihar, it is obvious that the Central Government has been systematically starving Bihar of funds.

One can understand that the share in Central taxation is determined by the formula of the Finance Commission that takes into account the contribution of an individual State to the exchequer. But one is hard put to understand why this inequality, and such a glaring inequality, should extend to grants, special assistance and even to Plan allocations.

That politics has a lot to do with neglect is seen from the fact that while AP received Rs 3,507.60 crore (1998 to 2000) as "additional Central assistance for externally-aided projects in State Plans," Bihar received just Rs 306.90 crore.

Even in terms of grants from the Central Government (2000 to 2002), Bihar fares poorly. It received Rs 4,047.30 crore while AP topped the list with Rs 9,790.00 crore. Bihar has also been neglected as far as net loans from the Centre are concerned. It received just Rs 2,849.60 as against Rs 6,902.20 received by AP from 2000-02.

It is only in terms of per capita share of central taxes do we see Bihar getting its due. This gross neglect by the Central government is reflected in the low per capita Central assistance (additional assistance, grants and net loans from the Centre) received by Bihar in 2001. While AP received Rs 625.60 per capita, Bihar got a paltry Rs 276.70.

The results of the economic strangulation of Bihar can be seen in the abysmally low investments possible in the State government's four major development thrusts. Bihar's per capita spending on roads is Rs 44.60, just 38 per cent of the national average of Rs 117.80.

Similarly, for irrigation and flood control, Bihar spends just Rs 104.40 on a per capita basis as opposed to the national average of Rs 199.20. Despite this, Bihar manages a few sunshine pictures. Its per capita spending on education, at Rs 484.10, is as good as the best. AP spends Rs 493.90 and the national average is Rs 586.8.

But in terms of per capita expenditure on medical and public health, Bihar falls well behind with Rs 86.20, against the national average of Rs 157.20.

Despite this its infant mortality rate (62 per 1,000) is better than the national average (66 per 1,000). Not only is this better than the other Bimaru States but it is also better than Andhra Pradesh, which stands at 66 per 1,000.

The World Bank's country study of India's poverty actually shows (See "India: Reducing Poverty, Accelerating Development," Table 8.5 on page 115) that the change in Bihar's social infrastructure has been the highest in India, while economic deterioration has been among the lowest.

Now, the question of how much did Bihar "forego"? If Bihar got just the All-India per capita average, it would have got Rs 48,216.66 crore for the Tenth Five Year Plan instead of the Rs 21,000.00 crore it has been allocated. It would have got Rs 44,830 crore as credit from banks instead of the Rs 5,635.76 crore it actually got, if it were to get the benefit of the prevalent national credit/deposit ratio.

Similarly, Bihar received a pittance from the financial institutions, a mere Rs 551.60 per capita, as opposed to the national average of Rs 4,828.80 per capita. This could presumably be explained away by the fact that Bihar now witnesses hardly any industrial activity. But no excuses can be made for the low investment by NABARD.

On a cumulative per capita basis (2000 to 2002) Bihar received just Rs 119.00 from NABARD as against Rs 164.80 by AP and Rs 306.30 by Punjab. It can be nobody's argument that there is no farming in Bihar.

If the financial institutions were to invest in Bihar at the national per capita average, the State would have got Rs 40, 020.51 crore as investment instead of just Rs 4,571.59 crore that it actually received.

Even if with the wave of some magic wand the inequities of the past are wiped away, it is doubtful that Bihar can absorb such huge sums in the near future. For a start it just doesn't have the administrative wherewithal to use the money productively. But the present state of affairs cannot continue. If they do, it only imperils India, for already we can see a gathering storm of red terror over a wide arc from Nepal to Chattisgarh, with Bihar in the middle of it.

Quite clearly Bihar is not only being denied its due share, but there is a flight of capital from Bihar, India's poorest and most backward State. This is a cruel paradox indeed. The cycle then becomes vicious. This capital finances economic activity in other regions, leading to a higher cycle of taxation and consequent injection of greater Central government assistance there. If one used harsher language one can even say that Bihar is being systematically looted, just as the British looted India. Criticism of Bihar's political elite and its polity that has become a standard feature of our national discourse has only served as a smokescreen to deny the State its rightful due.

(The authors are with the Centre for Policy Alternatives, New Delhi, an independent think-tank. For a full report on this subject email:

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