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BPSC Mains GS-2 Masterclass · Bihar Economy

Why Bihar Lags BehindConstraints & Backwardness

Rich soil, rivers and people, yet among India’s poorest states: the historical, structural, political, policy and social reasons, the place of natural disasters, and the road to removing Bihar’s constraints.

Growth10.5%Growth, 2019–20

Against 4.2% for the Indian economy.

Income< ⅓Per capita income

Less than a third of the national average.

Population1,106Persons per km²

India’s most densely populated state (2011).

Rural88.71%Live in villages

Depending on agriculture directly or indirectly.

Land97%Small holdings

Landholdings under two hectares.

Disasters73.06%Area flood-affected

68,800 of 94,160 sq km.

Bihar’s economic backwardness

Bihar at a Glance: Promise and Poverty

Three BPSC questions, one story: why a state with fertile land, rivers and people remains among India’s poorest.

A wide view of the Gangetic plain in Bihar at dawn, lush paddy fields beside a broad river, with a small village and a distant factory chimney

Which question?2020Constraints on Bihar’s rapid development and how to remove them (65th BPSC, 2020)2007“Natural disasters are the main causes of poverty in Bihar” (47th BPSC, 2007)2001Bihar backward despite its possibilities (2001) / slow industrial development (1995)

2020

Since independence, Bihar has been among the most economically backward states of India. Even though remarkable growth has been recorded in recent years (e.g. in 2019–20 Bihar recorded a double-digit growth rate of 10.5 per cent, higher than the Indian economy’s 4.2 per cent in the same fiscal year), Bihar still remains the poorest state, with per capita income less than a third of the national average.

2007

Bihar faces multiple natural disasters — for example floods, droughts, earthquakes, cyclones, heat waves, cold waves, landslides, etc. Bihar has a long history of disaster: e.g. a very severe earthquake in 1934 devastated a major part of Bihar, and frequent annual floods take a huge toll on life and property.

These disasters are considered one of the main reasons for poverty in Bihar. However, there are other reasons for Bihar’s current economic condition, including policy shortcomings, the state of education and skills, its geographical position (away from the coast), social issues, etc.

2001

India has experienced impressive economic growth since the 1990s. Its growth pattern, however, is uneven. While states like Maharashtra, Punjab, Haryana and Gujarat developed fast, Bihar has lagged behind.

Even though it has huge human resources, some of the most fertile land in the world and rich natural resources (before the creation of Jharkhand), it has remained one of the most backward states in India. This is because of several reasons, like the agricultural nature of its economy, fragmented land, backward technology, policies like freight equalisation, and a lack of institutional, physical and social infrastructure. Because of its backward economy, it has been categorised among the BIMARU (‘sick’ in Hindi) states.

Persons per km² (2011)

Bihar1,106
India382

Per capita income (Rs)

Bihar43,000
India1,35,000

Poverty ratio (%)

Bihar33.7%
India21.9%

Road km per lakh people

Bihar181
India386

The possibilities of development / rich natural resources

The Possibilities: Minerals, Rivers and People

Before the separation of Jharkhand, Bihar accounted for more than 40% of India’s mineral resources. It had vast mineral resources, ranging from iron ore, coal, copper ore, mica, bauxite and limestone to uranium, etc.

2001

Natural resources

Today, Bihar is mainly a vast stretch of very fertile flat land. But it still produces steatite, pyrites, quartzite, crude mica, limestone, etc.

MicaMuzaffarpur, Nawada, Jamui, Gaya

SaltGaya, Jamui

Uranium & berylliumGaya district

CoalRajmahal coalfield

GoldJamui

Bauxite (some)Jamui district

Agro-climatic conditions

The Gangetic plains, with fertile alluvial soil. Besides the Ganges, a large number of smaller rivers originating in the Himalayas flow through this region to meet the Ganges.
High rainfall, together with melting snow from the Himalayas, feeds the Ganges and its tributaries with water during the dry season and provides a perennial source of irrigation.
This water and the silt from the Himalayas make the soil fertile and suitable for agriculture, fisheries, livestock and forestry.

Human resources

A cheap and hard-working labour force.
The demographic dividend will last longer than in other parts of India.

While there is general agreement that natural resource endowment is important for economic growth, how much it contributes depends on how well the resources are managed. Inefficient management of resources leads to a ‘resource curse’ and slower development.

Classical economists

Consider natural capital the prime basis of economic well-being.

Neo-classical economists

Consider human-made capital the engine of growth. It is not the abundance of natural resources but technology, investment, capital formation and savings that drive the economy; sustained growth needs constant improvement of technology and increased capital investment.

Institutional economists

Investment depends not only on savings and capital formation but also on the institutional environment — property rights, macro-economic management and the rule of law — which can support or undermine expectations of profit.

Structuralists

A nation’s comparative advantage is not its physical or even human capital, but its social structure.

Why the pace of development is still poor

Historical and Structural Causes

Colonial exploitation and de-industrialisation, a huge but low-skilled population, and a weak agrarian structure.

Historical202020072001

British exploitation of this area started right after the Battle of Plassey in 1757. So Bihar had a comparatively longer period of exploitation than other parts of India.202020072001
The causes of Bihar’s poor economic performance can be traced back to British colonial policy, which not only created an exploitative intermediary class through the Permanent Settlement, but also destroyed local knowledge-based industries that provided livelihoods to many urban and rural artisans.20072001
De-industrialisation ruined indigenous enterprise: Bihar was famous for handloom textiles and spinning. In the early 19th century, about 20% of the state’s population was involved in spinning and other industrial work.20072001
- However, because of the British policy of discouraging cottage industries and promoting indigo cultivation, these industries came to employ only 8.5% of the state’s working population.
- This declining trend continued even after independence.
The economic marginalisation that started in the colonial period continued even after independence.202020072001

High population and low skill202020072001

While skilled human resources drive economic growth, a balance between population and economic growth is essential for the manpower to be absorbed by the productive sector.202020072001
As per the 2011 Census, Bihar was India’s most densely populated state, with 1,106 persons per square kilometre (compared with 382 per square kilometre in India).202020072001
- Bihar has the third-largest population, while it is only the 13th-largest state by area.2020
People are an asset when they are skilled enough to use existing opportunities or create new ones through innovation and entrepreneurship. However, a large section of Bihar’s population has remained unskilled and poorly educated.202020072001
Because there is no dynamic non-farm or industrial sector in Bihar (and UP), the growing low-skilled population has put tremendous pressure on agriculture.20072001
- More than 70% of Bihar’s workforce depends on agriculture.
- The agriculture sector employs more people than it needs, which results in disguised unemployment.
Because of high poverty, inequality and a poor education system resulting from low investment and poor governance, the education and health of Bihar (and UP) are poor.20072001
- 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, because the social and economic conditions to absorb the additional population and support innovative technologies were absent.20072001

Weak agrarian structure202020072001

The contribution of agriculture and allied sectors to Bihar’s GSVA is around 20 percent.2020
As per the 2011 Census, around 88.71 percent of Bihar’s total population lives in villages, depending on agriculture directly or indirectly.202020072001
More than 70 percent of the population is engaged in agricultural operations (Economic Survey of Bihar 2019–20).2020
Land fragmentation: land, the primary basis of agriculture, and social and political power have remained in the hands of the elite class.202020072001
- According to the Bihar Economic Survey 2018–19, small and marginal landholdings of less than two hectares make up nearly 97 percent of the landholdings in Bihar, operating about 76 percent of the total area of operational holdings in the state.
The agriculture sector employs more people than it needs, which results in disguised unemployment.2020
Low productivity: Bihar’s foodgrain yield is lower than the national average and less than half of Punjab’s.202020072001
Backward agricultural technology and low private-sector investment.202020072001
- Problems with the marketability of agricultural products, etc.2020
Unequal land distribution and a poor agrarian social structure, including the persistence of feudal elements, hindered the growth of productivity in agriculture.20072001

Economic constraints

Economy and Infrastructure

Thin roads and irrigation, weak health and education, the vicious circle of poverty, jobless growth and poor financial inclusion.

Poor physical infrastructure202020072001

Bihar has the lowest road density, with 181 km per lakh population, compared with 386 km at the all-India level.2020
Only 63% of the cropped area in Bihar is irrigated. Owing to poor public infrastructure for surface water and increased water stress, Bihar’s farmers have shifted to groundwater irrigation, as in other states. This has led to over-exploitation of groundwater.2020
Owing to poor public infrastructure for surface water and increased water stress, Bihar’s farmers have shifted to groundwater irrigation, as in other states.20072001
- There was a huge surge in groundwater irrigation in Bihar in the 1980s.
- Fertiliser and pesticide prices also rose substantially.
- Yet, while input prices rose significantly, the output price of agriculture remained almost stagnant.
Other sectors, like civil aviation, construction, warehousing and ICT infrastructure, lag behind other states.2020

Poor social infrastructure2020

Bihar is the least literate state in India, with a literacy rate of 63.82% according to 2011 data.2020
With one hospital bed per 8,645 people, Bihar has the lowest bed–population ratio.2020
According to the WHO, there should be one doctor for every 1,000 people. In Bihar, however, one allopathic doctor serves 43,788 people (National Health Profile 2019).2020

Other economic constraints202020072001

Low capital, resulting from a low savings rate due to low productivity and a high propensity to consume, reinforces the ‘vicious circle’ of poverty and the ‘low-level equilibrium trap’.202020072001
The per capita income of Bihar is Rs 43,000 (India’s per capita income is Rs 1,35,000).20072001
The overall poverty ratio of Bihar was 33.7 percent (2011 Census), compared with 21.9% at the national level.2020
Jobless growth: the labour-intensive secondary sector has grown slowly. Its share was 18.8 percent in 2011–12 and only marginally higher, at 19.1 percent, in 2018–19.2020
Poor financial inclusion:2020
- Bihar was ranked 32nd in the CRISIL Inclusix index of financial inclusion and 29th in the financial education survey conducted by the NCFE (February 2018).
- People struggle to use their bank accounts effectively because of low financial awareness and inadequate reach of banking channels, especially in rural Bihar.

Political constraints

Governance and Politics

Caste-based politics, chronic instability and input-related corruption: why governments could not deliver development.

20+Governments in Bihar, 1961–1990none completed its term

40Changes of hands in 70 yearsaverage CM tenure 1.5 years

23Chief Ministers in 70 yearsPunjab: only 14

Bihar is among the most poorly governed states of India.202020072001
Political forces are aligned on the basis of caste and ethnic identity.202020072001
- After the 1970s, several parties emerged in Bihar to represent the caste and ethnic interests of less powerful groups. Although this changed Bihar’s political landscape, and parties representing discriminated caste and ethnic groups have won elections, sectarian caste-based politics has 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 on the basis of caste, regardless of their competence or performance.
- The conflict between the so-called ‘backward’ and ‘forward’ castes has been ongoing in Bihar since independence.
Political instability:202020072001
- More than 20 governments were in power in Bihar from 1961 to 1990, and none of them completed its term of office.
- Bihar had 40 changes of hands in just 70 years. On average, Bihar’s Chief Ministers 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-year history. Punjab has had only 14.
- As a result, most governments remained dysfunctional, with a weak capacity to enforce law and order, regulate and guide the private sector, and design and implement programmes and projects effectively.
Input-related corruption in development work:202020072001
- Because of this, the expected development did not materialise.
- In other states, corruption was turnover-based, so projects were at least completed first.
All these adversely affect the quality of governance, the rule of law, financial management, and the implementation of development plans and programmes.202020072001
Because of poor governance, physical and economic infrastructure such as roads, transport and electricity — essential for attracting investment and pursuing other development efforts — has remained inadequate in Bihar.202020072001
Weak administration also undermined the government’s capacity to mobilise local resources effectively to fund development expenditure.202020072001

Adverse impact of certain policies

Policies That Held Bihar Back

Low central transfers and the freight equalisation policy, which took away the advantage of Bihar’s own minerals.

“While colonial India’s Permanent Settlement policy took away Bihar’s agricultural productivity, independent India’s freight equalisation policy destroyed Bihar’s industrial ambitions.”

202020072001

Transfer of resources from the Centre to the states:202020072001
- Bihar has received less per capita allocation from the Centre for development expenditure than any other state. Right from the beginning of planned development, it has received less than half the all-India average.
- Since resource allocation partly depends on the capacity to use resources, 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 utilisation rate in India. Unused funds in Bihar are transferred to more efficient states.
The policy of ‘freight equalisation’:202020072001
- It was introduced in 1952 and remained in force until 1993. This policy further marginalised Bihar.
- Under this policy, railway freight rates for industrial inputs like coal, iron ore, steel and cement were structured so that they were available at the same price in all parts of the country, through government subsidies.
- The impact of this policy was unevenly distributed.
- While it helped some southern and western states build industries with raw materials sourced from Bihar and UP at subsidised transport costs, it neutralised the benefits of proximity and the comparative advantage of Bihar and UP in setting up industries based on locally available minerals.
- While coal and other natural resources of Bihar and other eastern states were made available cheaply to other parts of India, industrial inputs available in other parts of India, such as petroleum products, were not included in the freight equalisation scheme.
- This policy negated the comparative advantage of Bihar’s (and UP’s) mineral resources and affected industrial and economic growth through the dynamic loss of forward and backward linkages.
For instance, the Tata group decided to invest in Bihar because of its natural advantage in minerals, but changed its decision after this policy was introduced, and the bias of industrial agglomeration continued.20072001
Consequently, the economies of Bihar and UP have remained agricultural despite possessing huge mineral resources.202020072001
While the freight equalisation policy was cancelled in 1992, Bihar had already fallen behind.202020072001
- In addition, the states continued to be constrained by an unfriendly investment climate arising from weak physical and social infrastructure and poor governance.20072001
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.20072001
- But Bihar and UP could not use this potential for several reasons, including incomplete land reforms, low investment, inadequate physical infrastructure and poor institutional support.

Natural disasters in Bihar

Natural Disasters: Main Cause of Poverty?

Floods, earthquakes, drought, heat and cold waves, storms and land degradation — and how much of Bihar’s poverty they explain.

A flooded north Bihar village with people moving on boats and an embankment crowded with families and livestock

The south-west monsoon brings most of the state’s rainfall, from June to September, and often causes flood-like situations, especially in the northern districts.2007
Bihar is India’s most flood-prone state, with 76% of the population of North Bihar living under the recurring threat of flood devastation.2007
Bihar makes up 16.5% of India’s flood-affected area and 22.1% of India’s flood-affected population.20202007
About 73.06% of Bihar’s geographical area, i.e. 68,800 square kilometres (26,600 sq mi) out of 94,160 square kilometres (36,360 sq mi), is flood-affected.20202007
Every year, floods destroy thousands of human lives, besides livestock and assets worth millions.20202007
North Bihar districts are vulnerable to at least five major flood-causing rivers during the monsoon — the Mahananda, Koshi, Bagmati, Burhi Gandak and Gandak — which originate in Nepal.2007
Some south Bihar districts have also become vulnerable to floods from the Son, Punpun and Phalgu rivers.2007
Floods in Bihar, particularly in north Bihar, are an annual phenomenon. Because of its flooding, the Kosi river is known as the ‘sorrow of Bihar’.2001

The economic toll

These disasters affect people’s lives and livelihoods and contribute immensely to Bihar’s poor economic condition.2007

Crop damage due to drought has been widespread in the state. Excessive rainfall in the kharif season and overflowing rivers have caused substantial crop damage. According to the Department of Agriculture, more than 5 lakh hectares in the state could not be sown.2007
The state government has to make provision for relief, which drains already scarce economic resources.2007
- In 2019, Rs 772.47 crore was set aside for distributing agricultural input grants to farmers facing crop damage from floods.
- The state government gives financial assistance to farmers whose crops are damaged by natural calamities, under the Bihar Rajya Fasal Sahayata Scheme.

Steps being taken to deal with disasters

(This is not the main demand of the question; mention it only briefly.)2007

Bihar’s 15-year Disaster Risk Reduction roadmap envisages a community-centric approach to disaster reduction in priority sectors such as agriculture.
The State Disaster Management Plan points to the need to set up ‘Sankalp Kendras’ to enable community-based disaster management.
Measures are being taken to revive ponds and reservoirs in north Bihar, and Ahar-Pynes in the south, to conserve water for flood- and drought-like situations.
The Disaster Management Cell oversees measures for better preparedness against natural and man-made disasters in the state.
Further, efforts are being made in capacity building, strengthening District Disaster Management Authorities, organising public awareness campaigns, and investing more in disaster management.

The verdict 2007

Thus, natural disasters are only one of the major causes of poverty in Bihar. The problem is multifaceted and needs a holistic solution.

How can these constraints be removed?

Removing the Constraints

A holistic approach, the government’s steps so far, and the way forward.

There is a need for a holistic approach to remove these constraints:2020

Focus on human development to turn the huge population into an asset for economic development.
Proactively take part in implementing and achieving the goals of the National Health Policy (2017) and the National Education Policy (2020).
To turn the vicious circle into a virtuous circle, increased savings, capital formation and a big push in investment are needed.
Create social infrastructure.
Promote inter-caste and inter-religious harmony.
Empower women and help them participate in the economy and decision-making.
Create institutional and physical infrastructure:
- Land reform, encouraging entrepreneurship, commercial farming, and effective implementation of the agriculture road map.
- Bring more people out of the low-paying agriculture sector and promote the secondary sector.
Attract private investment to boost capital formation, especially in labour-intensive industries.
- e.g. the Bihar Agriculture Investment Policy 2020: to encourage investment in agriculture and attract investment in agro-based industries in the state.
- The 2020 amendment to the Bihar Industrial Investment Promotion Policy 2016: any unit investing more than Rs 25 lakh, OR employing 25 workers, is eligible to apply under this policy.
Promote FDI and other external funding for capital investment.
Boost financial inclusion by strengthening banking infrastructure in rural areas. Schemes like JEEViKA will also help.
The Bihar Industrial Area Development Authority (BIADA) has facilitated industrialisation in Bihar through several reforms. Their impact is visible in the increased level of investment in recent years.
Move towards e-governance for more transparency and effective delivery of services — e.g. the state’s ICT infrastructure has been strengthened through BSWAN, SecLAN, the State Data Centre, Common Service Centres, Wi-Fi projects, Aadhaar, BharatNet, etc.
Achieve the targets of the Sendai Framework by collaborating with other governments and civil society.
Rejuvenating wetlands and other water bodies will help deal with floods and droughts.
Address climate change and land degradation:
- Increase forest and tree cover — e.g. the Bihar State Agroforestry Policy, 2018 seeks to protect and stabilise ecosystems, promote resilient cropping systems, and increase employment for rural households by expanding agroforestry.
- Jal-Jeevan-Hariyali is the state government’s flagship programme to tackle climate change and environmental degradation.

Facts about Bihar’s economy and the conclusion

Bihar in Numbers, and the Road Ahead

Note: some facts about Bihar’s economy from the 14th Economic Survey (2019–20):

Agriculture’s share of GSVA (%)

2013–1422.8%
2018–1919.3%

Rice production (lakh tonnes)

2014–1582.42
2018–1961.56

Power capacity available (MW)

20183,889
20194,767

Economic Survey 2019–20 2001

The state’s fiscal deficit was 2.68% of GSDP and its revenue surplus 1.34% of GSDP, and the state government’s outstanding public debt was 32.34% of GSDP in 2018–19.
Bihar’s total revenue receipts in 2018–19 were ₹1,31,793 crore, and its capital receipts ₹20,494 crore.
The major employment-generating industries in the state in 2017–18:
- for working men: agriculture, forestry and fishing (44.6%), construction (17.1%), wholesale and retail trade and repair of vehicles (12.3%), and manufacturing (9.3%);
- for women workers: agriculture, forestry and fishing, and education.
Per capita electricity consumption rose from 145 kWh in 2012–13 to 311 kWh in 2018–19, a growth of 114% in six years, and power availability rose from an average of 6–8 hours to 20–22 hours in rural areas, and from 10–12 hours to 22–24 hours in urban areas.
Power capacity available in the state was 3,889 MW in 2018, rising to 4,767 MW in 2019; to meet rising demand, the state government planned additional capacity of 5,335 MW from different sources in phases by 2021–22.
The contribution of agriculture and allied sectors to Bihar’s GSVA fell from 22.8 percent in 2013–14 to 19.3 percent in 2018–19.
- Agricultural land makes up a substantial part of Bihar’s geographical area: nearly 56.0 percent was net sown area (52.42 lakh hectares) in 2017–18.
- The gross cropped area was 75.25 lakh hectares in 2017–18, implying a cropping intensity of 144 percent.
Rice production fell from 82.42 lakh tonnes in 2014–15 to 61.56 lakh tonnes in 2018–19, and its productivity fell by 3.61 percent, from 2,525 kg per hectare in 2014–15 to 1,948 kg per hectare in 2018–19.
- The falling productivity of rice could be attributed to inadequate water for cultivation, because of droughts, deficient rain and floods in some districts, along with rising input costs.
- The state government has made significant efforts to promote Zero Tillage methods and the System of Rice Intensification technique to increase rice production.
The Economic Survey also focused on the state government’s flagship programme, Jal-Jeevan-Hariyali, to “tackle issues related to climate change and environmental degradation”.

Conclusion 2020

The state government has been taking numerous measures in these directions. These measures have also yielded positive outcomes, making Bihar one of the fastest-growing states in India. Over the last two decades, Bihar’s economy has undergone a structural change, as seen in the shift in the sectoral composition of Gross State Domestic Product (GSDP) from agriculture to the service sector. Experts have pointed out the need for faster growth of the secondary sector while maintaining the strength of the service sector.

Conclusion 20072001

Bihar’s development is a concern not only for India but also for the global community, because India will find it difficult to achieve the Sustainable Development Goals unless poverty is eliminated in Bihar. In recent years Bihar has started moving fast on the path of development; its GDP growth rate has been in double digits continuously for several years. All sections of society need to contribute actively to realising the vision of a prosperous Bihar.

“There is need of active contribution from all sections of society towards the realisation of the vision of a prosperous Bihar.”

— On Bihar’s development

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