Q. Describe the main features of Bihar economy? Discussing the factors responsible for slow economic growth of Bihar, bring out the steps taken by Bihar government to boost the economic growth. [66th BPSC- Expected Topic]

Q. Describe the main features of Bihar economy? Discussing the factors responsible for slow economic growth of Bihar, bring out the steps taken by Bihar government to boost the economic growth.

The main features of Bihar economy:

• Structural Composition of the Bihar Economy:
  • The economy of Bihar is largely service-oriented, but it also has a significant agricultural base.
  • The share of Primary sector has come down from 25.8 percent to 19.7 percent during 2011-12 to 2018-19, whereas the share of Tertiary sector has increased from 55.5 percent to 61.2 percent during the same period. The share of Secondary sector was 18.8 percent in 2011-12 and marginally higher at 19.1 percent in 2018-19.
  • Within the Secondary sector, Construction and Manufacturing are major contributors to the GSVA and their shares were 9.5 and 8.2 percent respectively in 2018-19 and these shares have remained almost unchanged in the last five years.
  • In the Tertiary sector, major contributors to GSVA were — Trade & Repair services (18.2 percent), and Real Estate, Ownership of Dwelling and Professional Services (9.1 percent). The share of overall Tertiary sector in GSVA has increased between 2012-13 to 2018-19.
• High poverty rate:
  • 33% (2011 data) of population is below the poverty line.
  • Bihar has the lowest GDP per capita in India, but there are pockets of higher per capita income like the southern half of the state and its capital city, Patna, had per capita income greater than even metro cities of India.
• Abundant physical and human resources:
  • Fertile alluvial soil spread over 96% of Bihar area. It is one of the most fertile soil in the world.
  • The state has a large base of cost-effective industrial labour, making it an ideal destination for a wide range of industries. Demographic dividend is to stay for longer duration than other parts of India.
  • Varieties of mineral like limestone, Mica, bauxite, quartz etc are found in Bihar.
  • These resources has provided enormous potential for industrialisation of state.
• Improved economic growth rate:
  • However, there has been impressive increase in the growth rate after 2005. Growth rate for 2019-2020 was 10.5 %.
  • The growth is primarily led by the tertiary sector, with a growth rate of 13.3 percent.
  • The varying growth rates of different sectors has also resulted in structural changes in the economy— the share of the primary sector in GSDP has decreased and the share of tertiary has increased.
• Intra-State disparity:
  • There is a considerable disparity across the districts within the state in terms of socioeconomic development, as evident from the various indicators.
  • The three relatively most prosperous districts based on Petrol consumption per thousand persons are — Patna, Muzaffarpur, Gopalganj.
  • The three most prosperous districts in terms of per capita small savings are — Patna, Saran and Buxar.
• The State finances:
  • Current fiscal deficit to be near 4% due to Covid-19 induced borrowings.
  • Bihar is a revenue surplus budget state.
  • Given the limited revenue receipt from its own sources, the State Government has been dependent on the central transfers and the grants for resources. These transfers are mostly as per the recommendations of the Finance Commission.
• Agriculture and Allied sectors:
  • The percentage of population employed in agricultural production in Bihar is around 80%, which is much higher than the national average.
  • Rice is everywhere the dominant crop, but wheat, corn (maize), barley, and pulses (legumes) are important supplementary crops.
  • The gross cropped area in Bihar was 75.25 lakh hectares and the cropping intensity was 144 percent in 2017-18.
  • The Government of India has conferred the Krishi Karman Award to the state on 2nd January 2020, for its achievements in production and productivity of Maize and Wheat.
  • Livestock and aquaculture together contributed about 7.1 percent of GSVA in the agriculture sector in Bihar during 2018-19.
• Industries 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 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 larger industries are mainly in Dalmianagar (paper, cement, chemicals), Baruni (petrochemicals), and Patna (light manufacturing).
  • The major agriculture based industries in Bihar are Sugar Industry, Dairy Industry, food processing industries etc.
    • The annual 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.
  • Non-Agro Based Industries are Handloom and Powerloom, Sericulture, Khadi and Village Industries. 4
    • 13 locations in Bihar have specialised in the production of different fabrics and clothing materials. e.g. Banka, Bhagalpur, Gaya etc.
    • Three types of silks are cultivated in Bihar — mulberry, tasar, and castor (eri).
    • Jute industries are located in north-eastern part of state.
    • Other industries are Fertilizer industry, Glass industry, cement industry, Wood industry, Paper and paper pulp industry etc.
• Informal Enterprises in Bihar:
  • According to the NSS 73rd Round report, 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.
• Labour and employment:
  • The worker population ratio (WPR) for male workers in rural Bihar is around 64.0 percent, about 8 percent lower than the all-India average. The WPR for female workers was abysmally low at 3.9 percent in rural Bihar.
    • The share of casual labour in Bihar (32.1 percent) was significantly higher than the all-India level (24.3 percent).
  • Major employment-generating industries:
    • For working males in Bihar are agriculture, forestry and fishing (44.6 percent), construction (17.1 percent), wholesale and retail trade, repair of vehicles (12.3 percent), and manufacturing (9.3 percent).
    • For female workers, major employment-generating industries were — agriculture, forestry and fishing (53.6 percent), and education (25.7 percent).
• Infrastructure:
  • The physical infrastructure in Bihar has been strengthened considerably during the last decade.
    • The growth in the transport sector was 11.0 percent during the period 2011-12 to 2018-19.
  • The total length of national highway in Bihar is 5301 km.
  • Bihar was the sixth highest state in terms of building additional road length (1,30,799 km), during 2008-2017.
  • However, Road density in Bihar is lowest in India with only 861 km per million population, compared with 2,828 km nationwide.
• Urbanisation:
  • In Bihar, the rate of urbanization has been low compared to the all-India level. As per Census 2011, 1.18 crore people (11.3 percent of total population) lived in urban areas of Bihar. The national average for urbanisation stands at a much higher level at 31.2 percent
  • Within Bihar, the level of urbanization across the districts has been very skewed. At one extreme, the rate of urbanization was as high as 43.1 percent in Patna and, on another, it was only 3.5 percent in Banka.
• Banking sector:
  • With a share of 4.9 percent in 2019, Bihar is at the 10th position in terms of share of branches of the commercial banks. This share has remained almost the same during the years 2015 to 2019.
  • If one compares this share with the population share of Bihar in the entire country (8.6 percent), it is observed that the bank branches in Bihar are serving a larger population than the national average. This clearly highlights the need to further improve the banking infrastructure in Bihar.
• Finally, in the recent years, the overall inflation rate and rural inflation rate have been much lower in Bihar than the national inflation rates.

The factors responsible for slow economic growth of Bihar:

• Historical:
  • British exploitation to this area started right after battle of Plassey in 1757. Thus, Bihar had comparatively larger period of exploitation than other parts of India.
  • The causes of poor economic performance of Bihar can be traced back to British colonial policy that not only created an intermediary exploitative class through Permanent Settlement, but also destroyed local knowledge-based industries that provided livelihoods to many urban and rural artisans.
  • De-industrialization ruined indigenous company: Bihar was famous for textile handloom and spinning. During the early 19th century, about 20% of the state’s population was involved in spinning and other industrial work.
    • However, due to the British policy of discouraging cottage industries and the promotion of indigo cultivation, these industries employed only 8.5% of the state’s working population.
    • This declining trend continued even after independence.
  • The economic marginalization that started during the colonial period continued even after independence.
• Structural factors:
  • High population and low skill:
    • While skilled human resources are a driving force for economic growth, a balance between population and economic growth is essential for the manpower to be absorbed by the productive sector.
    • As per the 2011 Census, Bihar was also India’s most densely populated state, with 1,106 persons per square kilometre. (compared to 382 per square kilometre in India)
    • People are an asset when they are skilled enough to take the existing opportunities or create new opportunities through innovation and entrepreneurship. However, a large section of the population in Bihar has remained unskilled and poorly educated.
    • Due to the absence of a dynamic non-farm or industrial sector in Bihar and UP, the growing low-skilled population has created tremendous pressure on the agriculture sector.
      • More than 70% of Bihar’s workforce is dependent on agriculture.
      • Agriculture sector employs more than required number of people. It results disguised unemployment.
  • Due to high poverty, inequality and a poor education system resulting from low investment and poor governance, the education and health condition of Bihar and UP is poor.
    • Vocational training has also been inadequate leaving the vast majority of the rural workforce unskilled and engaged mostly in agriculture.
    • Many have been forced to migrate to other states for seasonal or long-term work.
  • Thus, the large population could not contribute to economic growth due to an absence of social and economic conditions to absorb the additional population and support innovative technologies.
• Economic:
  • Low capital resulting from low savings rate due to low productivity and high propensity to consumption reinforces the ‘vicious circle’ of poverty and the ‘low level equilibrium trap’.
  • per capita income of Bihar is 43000 rs. ( per capita income of India is 135000 rs.)
  • Weak agrarian structure:
    • As per 2011 census, of the total population of Bihar state, around 88.71 percent live in the villages of rural areas, depending on agriculture directly or indirectly.
    • Land fragmentation: Land, the primary basis of agriculture, and social and political power have remained in the hands of the elite class.
      • According to Bihar economic survey 2018-2019, The small and marginal landholdings which are less than two hectares, account for nearly 97 percent of the landholdings in Bihar, operating about 76 percent of the total area of operational holdings in the state.
    • Backwardness of agricultural technology,
    • Low investment in private sector,
  • Poor physical and economic infrastructure:
    • Owing to poor public infrastructure for surface water and increased water stress, farmers of Bihar have shifted to ground water irrigation as in the case of other states.
      • There was a huge surge in the 1980s in Bihar in ground water irrigation.
    • Fertilizer and pesticide prices also increased substantially.
    • Yet, while input prices had increased significantly, the output price of agriculture remained almost stagnant.
    • Bihar’s food grain yield is lower than the national average and less than half of Punjab’s.
    • unequal land distribution, poor agrarian social structure including persistence of feudal elements not only hindered the growth of productivity in agriculture.
• Political:
  • Bihar is among the most poorly governed states of India.
  • The alignment of political forces on the basis of caste and ethnic identity.
    • Post 1970s, several parties emerged in Bihar to represent caste and ethnic interests of less powerful groups. Although this has changed the political landscape of Bihar and the parties representing discriminated caste and ethnic groups have won elections, sectarian caste-based politics have failed to improve government performance in terms of economic growth.
    • Caste-based politics in Bihar promoted an electoral culture that locks in votes for candidates based on caste, regardless of their competence or performance.
    • The conflict between the so-called ‘backward’ and ‘forward’ castes has been an ongoing phenomenon in Bihar since the independence of the country.
  • Political instability:
    • more than 20 governments were in power in Bihar from 1961 to 1990, of which none was able to complete its term of office.
      • Bihar had 40 change of hands in just 70 years. On average Chief Ministers of Bihar had a tenure of 1.5 years. In fact many stayed in office for just a few months.
      • Bihar has had 23 different Chief Ministers in its 70 years history. Punjab has had only 14.
      • As a result, most of the governments remained dysfunctional with a weak capacity to enforce law and order, regulate and guide the activities of the private sector, and design and implement programmes and projects effectively.
  • Input related corruption in development work:
    • Due to this, the expected development didn’t materialized.
    • In other states, corruption was turn over based -> so projects were first completed.
  • All these adversely affect the quality of governance, the rule of law, financial management, and implementation of developmental plans and programmes.
  • Due to poor governance, physical and economic infrastructures such as roads, transportation and electricity, essential for attracting investment and pursuing other development efforts, have remained inadequate in Bihar.
  • Weak administration also undermined government’s capacity to mobilize local resources effectively to fund development expenditure.
• Adverse impact of certain policies:
  • Transfer of resources from the centre to the states:
    • Bihar has been receiving less per capita allocation from the centre for development expenditure than any other of the states. Right from the beginning of planned developement, It has received less than half the all-India average.
      • since resource allocation partly depends on resource utilization capacity, Bihar received relatively low per capita allocations.
    • Because Bihar has relatively undeveloped industry and services sectors, the fiscal resource base of both states is relatively small. Moreover, their low administrative capacity has weakened the ability of both states to collect revenue.
    • Bihar was not even able to manage the matching funds required for centrally sponsored development programmes.
    • Bihar has the lowest resource utilization rate in India. The unused funds in Bihar are transferred to more efficient states.
  • The policy of ‘freight equalization:
    • It was introduced in 1952 and remained in force until 1993. This policy further marginalized Bihar.
    • Under this policy, railway freight rates for industrial inputs like coal, iron ore, steel and cement were structured in a way that would ensure that they were available at the same price in all parts of the country through government subsidies.
    • The impact of this policy is distributed unevenly.
    • While this policy helped some states of the south and west to build industries with raw materials sourced from Bihar and UP at subsidized transport costs, it neutralized the benefits of proximity and comparative advantage of Bihar and UP in establishing locally available mineral resource-based industries.
    • While coal and other natural resources available in Bihar and other eastern states were made available inexpensively to other parts of India, other industrial inputs available in other parts of India were not included in the freight equalization scheme, such as petroleum products.
    • This policy negated the comparative advantages of Bihar’s and UP’s mineral resources and affected industrial and economic growth through dynamic loss of forward and backward linkages.
    • For instance, the Tata group decided to invest in Bihar because of its natural advantage of minerals, but changed its decision after the introduction of this policy, industrial agglomeration bias continued.
    • Consequently, the economy of Bihar and UP has remained agricultural despite possessing huge mineral resources.
    • While the freight equalization policy was cancelled in 1992, Bihar had already fallen behind and in addition they continued to be constrained by an unfriendly investment climate arising from weak physical and social infrastructure and poor governance.
    • While Colonial India’s permanent settlement policy took away Bihar’s agricultural productivity, independent India’s freight equalization policy destroyed Bihar’s industrial ambitions.
  • Given the huge agro-climatic potential and cheap agricultural labour, one could expect agriculture-led growth in Bihar and UP similar to that in Punjab.
    • But, Bihar and UP were not able to utilize this potential for several reasons, including incomplete land reforms and low investment, inadequate physical infrastructure and poor institutional support.
• Socio-Cultural:
  • Deep rooted caste system, widely prevalent patriarchy and high prevalence of child marriage etc.
    • The caste system caused lacking of innovativeness among a vast section of population.
  • The states’ vast human population has remained as a liability with poverty, illiteracy, malnutrition and low skill.
  • social conflict:
    • Caste conflicts e.g. Bara massacre, Senari massacre etc.
    • Communal riots
  • The exploitative landlord class established during British rule, which constantly resisted economic and social development even after independence in 1947.
    • Despite several attempts, land, which is the main productive asset in rural areas, has remained in the hands of a few absentee landlords, who have little interest to invest in land to increase productivity.
  • The canvas of social-movement was limited here. There were only two identity: Caste and national.
    • Sub-nationalism was al-together absent. =>Lack of emotional attachment to this area => no interest in it’s development.
  • Lacking investment on Health and education.
• Natural disasters:
  • Flood in BIhar, particularly in north Bihar is annual phenomena. Due to flooding, Kosi river is known as sorrow of Bihar.
  • in 2019, North Bihar is engulfed in a flood, while south Bihar is experiencing severe drought with deficient rainfall.
  • Earthquake:
    • Large part of north Bihar is under zone V while remaining area is under zone IV.
    • 1934 Bihar–Nepal earthquake was one of the worst earthquakes in India’s history. The towns of Munger and Muzaffarpur were completely destroyed.
  • Other disasters faced by Bihar are Heat wave, Cold wave, Thunderstorms and Cyclone.

• Other:
  • No proximity to any large Industrial city.
  • A landlock state lacking the international linkages.
  • Brian drain: Skilled and educated people migrate to other area looking for better life opportunity.

The steps taken by Bihar government to boost the economic growth:

• Bihar Agriculture Investment Policy 2020: To encourage investment in agriculture sector and attract investments in agro-based industries in the state.
• Third Agriculture Road Map (for 2017 to 2022): it incorporates major strategies and programs for Agriculture, Animal Husbandry and fisheries, Water resources, Minor water resources etc.
• Amendment 2020 in Bihar industrial Investment promotion policy 2016: Any unit investing > 25 lakh OR providing employment to 25 workers/persons will be eligible to apply under this policy.
• Bihar wood based Industry Investment Promotion Policy, 2020: To promote investment in wood based industries in Bihar through financial assistance.
• Special land allotment and amnesty policy, 2020: To attract industrial plots in relation to availability of land at attractive prices and easier terms.
• Bihar Industrial Area Development Authority (BIADA) has facilitated industrialisation in Bihar through several reforms. The impact of major reforms was visible, as the level of investment has increased in recent years.
• The public investment in the transport sector has tripled from Rs. 5988 crore (2012-13) to Rs. 18,677 crore (2019-20).
• To boost tourism sector, the State Government has planned as many as eight tourist circuits in the state — (i) Buddhist Circuit, (ii) Jain Circuit, (iii) Ramayan Circuit, (iv) Shiv Shakti Circuit, (v) Sufi Circuit, (vi) Sikh Circuit, (vii) Gandhi Circuit, and (viii) Eco Circuit.
  • The State Government has generously allocated funds to the Department of Tourism during the recent years. In 2019-20, a sum of Rs 275 crore was allocated to the Department, which was three times more than the allocation of 2018-19.
• The electricity connection has been provided to all willing households in the state.
  • The per capita consumption of the electricity in the state has risen from 145 kwh in 2012-13 to 311 kwh in 2018-19, implying a growth of 114 percent in six years.
  • To prioritise the renewable energy sources, the State Government has created an institution called Bihar Renewable Energy Development Agency (BREDA), which is primarily engaged in the execution of various projects on solar pumps and solar installations. BREDA also carries out various energy efficiency schemes in Bihar.
• The State Government has made significant efforts through promotion of Zero Tillage methods and System of Rice Intensification technique to increase rice production.
• To enhance the productivity of cereals, the State Government is making efforts through modernization of farms, technological adoption, investment in irrigation infrastructure and abating pest attack.
• JEEViKA, a World Bank supported program of the Government of Bihar (under the Bihar Rural Livelihoods Project) is aimed at socioeconomic empowerment and financial inclusion of rural households.
  • The State Government has launched a new scheme, ‘Satat Jivikoparjan Yojana’ (SJY), in August 2018. JEEViKA has been designated as the nodal agency for implementation of SJY.
• Current government have made an attempt to give development aspirations to all sections of society including low caste and ethnic minorities and practical measures have been taken to improve the quality of governance, including law and order, an increase in the efficiency of administration, the curbing of corruption, as well as increased development funds from the centre – all have contributed significantly to bring confidence and enhance development effectiveness.