Struggling Back


Bihar is almost like a bad word, especially given its abject poverty and unemployment. But the legacy has been created carefully since British times, and the present dispensation is trying to get out of this

At one point, Bihar was likely to be written off from the cognitive world of India. However, in the last decade or so, there appears to be a turnaround. But to understand the state fully, one has to delve into its historical backdrop.

Bihar’s backwardness is a historical fact. Under the British Rule, Bihar was kept backward under some design. All the works relating to development were kept at a minimum in the state; as a result, Bihar remained backward. This fact gets vindicated in “Memorandum for the Indian Statutory Commission on the Working of the Reforms in Bihar and Orissa”, prepared in 1930 with the help of official statistical data. This document bears the testimony of how the colonial administration ignored even the minimum administrative needs of the state. In Bihar and Orissa, while the revenue per 10 lakh of population (Rs 1,668) was the minimum among the states, the normal expenditure per 10 lakh population was also the lowest (Rs 1,229).

Even after independence, no concerted efforts were made through the planned development process to undo the wrong perpetrated on the state earlier. As a result, the state suffered from the lowest per capita income syndrome right from the beginning. In 1961-62, with a Per Capita Net State Domestic Product (NSDP) at Rs 213, the state was at the lowest rung (only above Manipur). The trend continued and in 2010-11 it remained at the bottom with a Per Capita NSDP of Rs 12,090.

Centrally Discriminated

The slow growth of the state is attributable to a large extent to the low level of plan expenditure, inadequate central assistance and inadequate flow of institutional finance. During the First Plan, the per capita plan expenditure for the state was Rs 25 and the per capita central assistance was Rs 14 only, as against Rs 33 and Rs 23 respectively for all-India. In the recent past, the per capita plan expenditure for the state for Tenth and Eleventh Plans was Rs 2,536 and Rs 7,344 respectively. As against this, for Punjab, it was Rs 6,111 and Rs 12,598 during the two plan periods respectively.

A low and declining level of investment in the central sector also contributed to the backwardness of Bihar. While in 1975-76, the share of Bihar in central investment was 30.7 per cent, it declined to 8.2 per cent by 1990-91. In 1977, the central investment in public sector undertaking was 21.9 per cent in Bihar which declined to only 2.8 per cent in 2012. Because of freight equalization, private investment in Bihar has also been low throughout.

Caustic Neglect

Bihar has been a predominantly agricultural economy, sustaining 89 per cent of its population; despite this, there has been declining public investments in agriculture which resulted in erosion of productivity potential of the state. The public investment per acre of net sown area was Rs 196 during the Fifth Plan period and it dropped to Rs 79 during the Eighth Plan. In the Eleventh Plan Period, however, it had increased to Rs 315.

The infrastructure of roads, irrigation and power needs a great deal of strengthening for the development of the state. The bifurcation of the state has further brought down the level of infrastructure of the present Bihar. According to Planning Commission, the Infrastructure Index for Bihar was 78.79 in 2008-09, as against 197.36 for Kerala.

After introduction of reforms in 1990, the regional inequality has increased, when disadvantaged states including Bihar performed very poorly. During this period, Bihar suffered badly because no capital investment could be made in the absence of proper and adequate infrastructure. Bihar’s annual rate of growth of Gross State Domestic Product (GSDP) which was 4.66 per cent during 1980-81 to 1990-91, declined to 2.88 per cent during 1991-92 to 1998-99. Later, between 2000-2001 and 2006-07, the growth rate was again moderate at only 4.37 per cent. In the absence of powerful institutions, the benefit of progress in the last three decades has gone in favour of richer states. Fortunately, in the last 8 years, during 2007-08 to 2014-15, the state income grew annually at 10.63 per cent. Thus, with the concerted efforts of State in the development sector and prudent management of state finances, the GSDP has shown a double digited growth in the recent years.

Already a backward and poor state, it had to undergo a process of bifurcation in 2000; as a result, its resource base was curtailed severely. The state’s own revenue receipt which was Rs 4,251 crore in 1999-2000 came down to Rs 2,788 crore after bifurcation registering a decrease of 34.4 per cent.

Current Scenario

Against the backdrop described above, the state’s economy has throughout been fretting and fuming. The average annual growth rate of GSDP during 1980-94 was 3.5 per cent. Similar growth trend was registered during 1993-2000 (3.9 per cent). After 2004-05, the state registered a double digit growth of around 10 per cent.

Bihar even now ranks the lowest in terms of per capita income in India. However, while the per capita income of Bihar in 2004-05 was around 33 per cent of all-India average, this ratio went up to 41 per cent in 2014-15. With the sustained growth process, the gap between Bihar and India was bridged by about 8 percentage points over a period of ten years

It is historically observed that, with economic growth, the structure of any economy would show major changes. This is primarily because, with increase in income, the pattern of demand changes from primary sector products to products of secondary sector and services sector. In 1993-94, the share of the primary sector happened to be almost half of the total GSDP, which had been gradually declining over the years and has reached to 19 per cent in 2014-15. During the same period, the contribution of tertiary sector has jumped by 21.3 percentage points and touched a high of around 62.6 per cent in 2014-15 compared to 41.3 per cent in 1993-94. The contribution of secondary sector has also increased but in the last five years, its contribution has slightly decreased. Thus, the economy is witnessing a process of tertiarisation, much before a process of industrialisation.


Nearly 89 per cent of the total population lives in rural areas in Bihar. Agriculture continues to be the mainstay of the population, but its productivity is among the lowest in the country, although the state is endowed with abundant

water resources.

Agriculture in Bihar is crucially dependent on the monsoon which is quite uncertain. Bihar receives a high rainfall of 1,009 mms per annum; however, neither the rainfall nor the distribution of the water resources is uniform across the state, causing uneven exploitation of irrigation potential in the state. Therefore, Bihar needs artificial watering in the fields. The ultimate irrigation potential in the state is estimated to be around 117.54 lakh hectares, including major, medium and minor irrigation schemes. While major and medium irrigation schemes have an ultimate potential of 53.53 lakh hectares, the minor irrigation has a potential of 64.01 lakh hectares. Bihar had 46.80 lakh hectares of irrigated area against its total geographical area of 93.60 lakh hectares in 2013-14. During the 13-year long period (2001-02 to 2013-14), the total irrigated area increased from 44.60 lakh hectares to 46.80 lakh hectares, registering an increase of only 4.5 per cent. The food-grains production in Bihar has shown high volatility, but there was a long-term trend of falling production in the State due to fall in acreage and low productivity. Fortunately, however, in the last 6 years (2010-11 to 2015-16), it is found that the quantum of cereal production has grown annually at 2.51 per cent. This has enhanced the food security of population, particularly its marginalised section.

The most important negative feature of the state is recurrent floods which annually cause immense damage to human lives, cattle, standing crops and infrastructures like roads, building, dams, water supply and other installations. The National Commission on Floods has identified Bihar as the most flood prone state in India. Total flood prone area in the state is 73.06 per cent of its total geographical area and 17.2 per cent of the total flood prone area in the country. Flood situation is most severe in the northern plains of Bihar.


During 2004-05 to 2014-15, the industry sector (manufacturing) in Bihar recorded a growth of 6.90 per cent. The size of industrial sector in Bihar in 2004-05 was only 5.6 per cent of GSDP, as against the national average of 15.3 per cent. In 2014-15, this share declined to 4.1 per cent of GSDP for the state, compared to national average of 16.4 per cent. The division of the state meant major changes in the structure of the industry in the present state of Bihar. The major constituents of the present industrial structure are food and non-metallic minerals. As per the Annual Survey of Industries (ASI) in 2004-05, there were only 1,674 industrial units, with the total fixed capital investment of Rs 2967 crore and the total working capital investment of Rs 2281 crore in the state . In 2013-14, the number of industrial units rose to 3420 units, with the total fixed capital of Rs 8037 crore and the total working capital investment of Rs 5880 crore in

the state. Another important limitation of industries in Bihar is the comparatively lower value addition for their products, which is largely because of their lower capital base and lower employment. For India as a whole, gross value added products account for 16.2 per cent of the gross value of output (2013-14); for Bihar, this ratio stands at only 10.6 per cent. Recently, the state government has adopted a policy to promote those industries which have higher value-added ratios. Bihar suffers from the problem of a sizeable number of sick units. For example, out of 28 old sugar mills in the state, 18 are sick and closed and only 10 are working, all in the private sector. The lack of working capital, non-availability of raw material, inadequacy of roads network and communication services coupled with poor and uncertain power position and weak research support led to poor industrial scenario in the State.

Physical Infrastructure

After bifurcation, 70 per cent of the generation capacity of erstwhile Bihar had fallen within the jurisdiction of Jharkhand, but 70 per cent of the load is left with present Bihar. There are 45,103 villages in Bihar. Out of these, 17,717 were electrified till 2002-03 (39.3 per cent). By 2004-05, this figure was 47 per cent and had reached to 52.7 per cent in 2015-16. The per capita electricity consumption which was 85.9 kwh in 2004-05 has reached to 144 kwh in 2012-13. There has been significant improvement in power availability in Bihar from 1712 MW in 2011-12 to 3769 MW in 2016-17, implying a growth of about 120 per cent in six yeaRs

Roads have been accorded high priority under the present government. The road transport plays a decisive role in the economic development; because of its wide network, it is the only means of transport available to a majority of the rural people in Bihar. Investment in the road sector has increased three fold from Rs 2,696 crore in 2007-08 to Rs 7,696 crore in 2016-17, indicating an annual growth rate of more than 10 per cent. In 2014, Bihar reported only 201.5 kms of road length per lakh of population, as against 371.9 kms for all-India. All major states are much ahead of Bihar in terms of total road length per lakh of population, except Uttar Pradesh, Jharkhand and Haryana. The state government has decided to expand the road network in the state so extensively that the capital city of Patna can be reached in less than five hours from any place in the state. Indian Railways is one of the world’s largest rail network, with 65,808 kms of route length. As on March 2014, the share of rail route in Bihar is 5.5 per cent of all-India. The density of rail route in Bihar is 38.6 kms per 1000 sq. km of area, compared to the national average of 20.0 kms. However, in terms of rail route per lakh population, Bihar is the second lowest (3.5 kms), after Kerala (3.1 kilometres).

Social Sector

In conformity with its ranking with respect to Per Capita Income, Bihar also ranks at the bottom with respect to its HDI among all the States. For around two decades, the HDI for Bihar has been about 20 per cent lower than the national HDI. As per 2011 census, Bihar had a literacy rate of 61.8 per cent, which was lower than the national average of 64.8 per cent a decade earlier in 2001. Thus, the state is more than a decade behind the nation vis-à-vis its literacy status. However, the literacy rate in Bihar increased from 47.0 per cent in 2001 to 61.8 per cent in 2011, implying an increase of 14.8 per centage point during the decade. The gross enrolment ratio (Upper Primary) has also increased from 42.4 in 2007-08 to 107.9 in 2015-16. The credit of this increase may be attributed to SSA, Mukhyamantri Cycle Yojana and other such relevant schemes.

Health is an important component of human development and commands great significance for the welfare of the population. The Life Expectancy at Birth (LEB) reflects the overall mortality level of a population. The LEB for the state was 59.3 years in 1991-95, which improved to 61.0 years between 2001-05 and to 68.1 years between 2010-14. The Infant Mortality Rate (IMR), another important indicator of health status, was 69 in 1991 in Bihar and has reduced to 42 in 2014, which is close to national average of 39. Similarly, Maternal Mortality Rate (MMR) of Bihar has also shown a declining trend from 531 in 1997-98 to 208 in 2011-13, which is a positive indication of proper distribution of public health services. As per Table 2, the institutional delivery, Total Fertility Rate and full immunization coverage has shown positive trend in the recent years. Poverty is a multidimensional phenomenon. The strategies to eradicate poverty include not only economic growth, but direct interventions as well in many areas such as employment, education, health and a few otheRs Between 2004-05 and 2011-12, the poverty ratio in Bihar was reduced by 20.7 per centage points, from 54.4 per cent in 2004-05 to 33.7 in 2011-12. It is heartening to note that this reduction in poverty level in Bihar was more than the reduction at all-India level (15.3 per centage points).

Financial Sector

As on June 2016, Bihar accounted for 4.8 per cent of all banks branches in the country. Out of the total 661 branches of commercial banks in Bihar, 55 per cent were located in rural areas, 25 per cent in semi-urban and 20 per cent in urban areas. Till the 1990s, CD ratio in Bihar was one of the lowest in the country; even in 2014-15, it is still one of the lowest in the country (32.8 per cent). The deposit in Scheduled Commercial Banks is only 2.4 per cent while credit is barely 1 per cent of all-India.

During the last decade, the revenue receipt and expenditure of the state grew uniformly at about the same rate, with expenditure outstripping in growth of receipts marginally. The revenue account in Bihar had a deficit till 2003-04, implying that funds meant for capital purposes had to be diverted to the revenue account. However, this deficit has turned into surplus in revenue account to the extent of Rs 1076 crore in 2004-05, Rs 6316 crore in 2010-11 and Rs 12,507 crore in 2015-16.

Total debt of the state constituted 38.6 per cent of its GSDP (1996-97). More seriously, the Debt-GSDP ratio increased steadily from 38.6 per cent in 1996-97 to 56.4 per cent in 2004-05. The interest payments constitute a perennial burden on state finances. Such interest payments increased steadily from Rs 1942 crore in 1996-97 to Rs 3474 crore in 2004-05. Thereafter, several fiscal reforms and measures were taken by the state government, guided by the Finance Commission norms which has reduced the debt-GSDP ratio to 23.9 per cent in 2015-16.

Fiscal Scenario of Bihar

The Gross Fiscal Deficit (GFD) of Bihar was consistently high till 2004-05. It was particularly high in 2003-04 (Rs 4363 crore) which constituted 6.6 per cent of GSDP. The state government has passed FRBM Act in 2006 and maintained the GFD within the limit of 3 per cent of GSDP till 2015-16. Development expenditure of Bihar constituted an about 54 per cent of its total expenditure in 1996-97 which has been gradually increasing over the period from 58 per cent in 2004-05 to 63 per cent in 2010-11 and further reached the figure of 70 per cent in 2015-16. All these years, the capital expenditure has been growing steadily, indicating creation of more and more infrastructure and assets. The tax-GSDP ratio was only 2.6 per cent in 1996-97 which had increased to 4.5 per cent in 2004-05 and reached to 6.2 per cent in 2015-16. Due to several tax measures taken by the current government like implementation of VAT, online tax returns and other reforms in tax administration, the tax collection has increased by around 20 per cent annually during the last decade.


Several measures and reforms were taken by the recent government after 2005. The governance is the top priority for the present government which can be seen from the reforms like Right to Information, Right to Service, Bihar Public Grievance Redressal Act, 50 per cent reservation for women in local governance etc.

The state finances were not in proper shape in 1990s. In the recent period, an initiative has been taken in the form of fiscal management policies that are premised on lowering the overall fiscal deficit to less than 3 per cent of GSDP according to the Fiscal Responsibility and Budget Management Act (FRBM) that was promulgated in February 2006 and again revised in 2016. The state government has also prepared a mid-term fiscal plan to foresee the future financial needs of the state. To raise own resource base, the Value Added Tax (VAT) was introduced in 2005-06 and Goods and Services Tax (GST) has been introduced in 2017. These reforms have helped state government in prudent management of the state finances.

A series of incentives in the form of tax rationalisations, infrastructure assistance and skill-enhancing training programmes in industry are contingent on an increase and effective use of public investment. To promote investment in the state, Industrial Incentive Policy was formulated in 2006 and revised time to time. The new Industrial Policy, 2016 of the state government is aimed at creating an industry-friendly environment for maximising investment in Bihar, especially in the priority sectors The overall objective is to maximise the value addition to the state’s natural resources by setting up industries across the state, generating revenue and creating employment. The state government has also prepared a Start-Up Policy which tries to address the specific needs of a new industrial unit. The Bihar Industrial Promotion Act, 2016 also has clear provisions for State Investment Provision Board, Integrated Clearance System, Financial Incentives, Self-certification and mechanism for redressal of grievances.

Saat Nishchay

To develop physical and social infrastructure of the state, the government has taken up seven commitments (Saat Nischay). These seven commitments are — (i) Arthik Hal, Yuvaon Ka Bal (Economic solution is the strength of the youth), (ii) Aarakshit Rozgar Mahilaon Ka Adhikar (Assured employment is the right of the women), (iii) Har Ghar Bijli Lagatar (Constant supply of electricity for each household), (iv) Har Ghar Nal Ka Jal (Running tap water for every household), (v) Ghar tak Pakki Gali-Naliyan (Paved road and drains for every house), (vi) Shauchalay Nirman Ghar Ka Samman (Construction of toilets makes decent houses) and (vii) Awsar Badhe, Aage Padhe (Better facilities for higher education). Other interventions have been more directly people-oriented and are intent on making the service delivery mechanisms in health, crime prevention and education accountable. It is hoped that with the reform initiatives taken by the new government, the state will sustain the new era of economic development.


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