Enterprises Sector in Bihar-I

Introduction

• Bihar, a state with abundant physical and human resources, has enormous potential for industrialisation. The State Government has adopted several strategies for industrialisation of the state.
  • The state has developed agro-processing industries, based on its comparative advantage in the agricultural sector. Among the major agro-based industries, dairy and sugar industries have performed particularly well.
  • Bihar Industrial Area Development Authority (BIADA) has facilitated industrialisation in Bihar through several reforms.
  • The official data on informal enterprises shows that a significantly large section of the working-age population has been engaged in small scale production activities. Importantly, the informal enterprises have contributed substantially to capital formation and employment generation in the state.
• The tourism sector has also attracted a significantly large number of foreign and domestic tourists in the last few years.
• Since the distant past, Bihar has been suffering from surplus population in an agrarian economy and the burgeoning population has been migrating towards the urban centres in the state and beyond.

• Admittedly, the remittances from migrants have positive impact on consumption demand, but it fails to add to the production capacity of the state’s economy.
• The most sustainable solution for this problem is rapid industrialisation. Given the large size of working population, Bihar would require a kind of industrialisation that is broadly labour-intensive and also leads to large-scale capital formation within the state, expanding the base of the non-agricultural economy.

• In Bihar, the relation between annual growth rate of the secondary sector and Gross State Domestic Product has been rather moderate. It implies that fluctuation in the growth of the secondary sector contributes very marginally to the overall economic growth of the state.
  • The most important driver of growth of the secondary sector has been the manufacturing sector. The performance of the manufacturing sector has a strong bearing on the overall growth achieved in the secondary sector.
  • The state has performed remarkably well in providing electricity, gas, water supply, and other utility services (EGWUS) in the recent past. It is worthy to mention that, unlike other sub-sectors of the secondary sector, the growth rate of EGWUS has been consistently positive in the recent years and appreciably high in some years
• The comparison of the contribution of the industrial sector to the Gross State Value Added (GSVA) across states suggests that it was the lowest in Bihar among all the major states of India. Till now, with a preponderance of small-sized industrial enterprises, Bihar’s industrial economy is driven by the demand for consumption goods.

• The sectoral composition suggests that the industrial sector’s contribution to GSVA in Bihar was merely 20.0 percent in 2017-18, 11.2 percentage points lower than the all-India average. It was also significantly lower than in states like Jharkhand (37.1 percent), Chhattisgarh (48.0 percent), and Odisha (42.1 percent).
• To increase the contribution of the industrial sector in the GSDP, the State Government has strategized industrialisation by introducing a well articulated Industrial Investment Promotion Policy, 2016 and brought in some institutional changes to aid the process of industrialisation.

Status of Industries

• The annual growth rate of the number of factories (both agro-based and non-agro based) and the number of operational factories (both agro-based and non-agro based) was higher in Bihar than that at the all-India level. It is heartening to note that the growth rate of operational agro-based factories in Bihar was 16.4 percent over the last 10 years, compared to only 3.3 percent at the all-India level.
• The contribution of Bihar to the country’s industrial output has been extremely limited, at 0.5 percent of total Gross Value Added (GVA) of the industrial sector in India in 2016-17.
• The share of Gross Value Added (GVA) in Gross Value of Output (GVO) of Bihar has been low at 13.4 percent, which is 9.1 percentage points lower than that of Maharashtra, the best performing state in terms of industrial output. At the national level, this ratio stands at 18.8 percent.
• If the average scales of operation of factories in Bihar and Maharashtra are compared, a factory in Bihar added only Rs. 2.2 crore compared to Rs. 11.5 crore in Maharashtra. This again indicates the relatively lower size of operations of factories in Bihar.
• On an average, a factory in Bihar employs only 40.0 workers, which is almost half of the all-India average (76.7 workers) and one-third of a factory’s employment-generating capacity in Haryana (120.7 workers).
• The low productivity of labour, as previously mentioned, also leads to a lower level of compensation to the workers in Bihar. For instance, a worker in a factory in Bihar received a sum of Rs. 129.6 thousand per annum as wages, salaries and bonus, which was just one-third of the prevailing compensation level in Jharkhand (Rs. 373.8 thousand) and Maharashtra (Rs. 344.0 thousand), the two best performing states in India.
  • At the national level, the average compensation per annum was Rs. 252.8 thousand.
• The industrial sector in Bihar has been historically suffering from low investment, low capital formation, and low return on investment.
  • However, careful policy formulation and institutional interventions by the State Government have been instrumental in improving the investment climate of the state in the last few years.

Informal Enterprises in Bihar

• According to the NSS 73rd Round (July 2015 – June 2016), the number of unincorporated nonagricultural enterprises (UNAEs) was estimated at 6.34 crore at the all-India level, whereas Bihar is the place of operation for 5.4 percent of such enterprises in the country. However, the Annual Survey of Industries (ASI) does not cover the large section of informal sector production units in the country.
  • At the all-India level, the share of manufacturing was 23.5 percent of total Gross Value Added (GVA) of enterprises, while trade and other services contributed 38.7 percent and 37.8 percent, respectively of total GVA of enterprises.
  • The share of manufacturing total GVA in Bihar was only 18.3 percent; however, the share of trade was 53.8 percent, the highest among all the states. The share of other services was the lowest (27.9 percent) in Bihar.
• The annual income of the workers varies within a range of Rs 53 thousand (OAEs in manufacturing) to Rs. 82 thousand (establishments in other services). It clearly suggests that the majority of the hired workers in the unincorporated sector earn very low wages across the states vis-à-vis hired workers in the formal industrial sector.
• In spite of the low average value of fixed assets, the ratio of GVA to fixed assets in Bihar indicate that UNAEs have performed remarkably well, compared to the national average. The ratio of GVA to fixed assets per enterprise was much higher in Bihar compared to even industrialised states like Maharashtra, Karnataka and Haryana, to name a few.