‘Double engine growth’ eludes Bihar under Nitish Kumar between 2015 and 2019

The Economic Survey of Bihar continues to be a goldmine of information. Prepared for the Government of Bihar by the Patna-based think-tank Asian Development Research Institute and now in its 14th edition (2019-20) since inception, the document has retained its objectivity despite the political pulls and pressures.

It must be said to the credit of successive dispensations in Bihar that they have not much interfered with the contents of this document – in fact the only document available for understanding the economy of Bihar or to undertake any research – for their narrow political interests. Perhaps they too realise that fiddling with data is fraught with consequences that might prove disastrous even for themselves. With the election being only a few weeks away, this is the only document for assessing the way Nitish Kumar has conducted the affairs of his state during the last five years - since the last Assembly election in Oct-Nov 2015. Among all the general category states of India, leaving aside the eight north eastern and three Himalayan states, Bihar still continues to remain at the bottom in terms of per capita income and many other parameters, but it would be unfair to blame Nitish Kumar alone for this.

But the fact remains that as of March 2019, Bihar had a per capita income of Rs. 30,617 (at constant 2011- 12 prices), less than one-third of the national average of Rs. 92,565. It was Rs. 24,064 in March 2015, again less than a third of India’s per capita income of Rs. 77,659 then. A long time would still be needed for Bihar to catch up with the rest of India.

Structure of the state economy has hardly changed during these years which still remains primarily dependent on subsistence agriculture, with more than 75 per cent of the population deriving sustenance from its share of only 18.7 per cent of the state income or the Gross State Domestic Product (GSDP), making agriculture extremely unproductive and unremunerative.

The share of manufacturing – the engine of growth – in the state income, in fact, declined from 19.0 per cent to 18.2 per cent between 2015-16 and 2018- 19. The fact that the number of operational factories in Bihar has remained the same over the years - 2918 in 2015-16 and 2908 in 2016-17 (latest data) - corroborates that industrialisation has anything but progressed under Nitish Kumar. As regards backwardness, of the 38 districts, as many 13 find place among the most backward 117 districts in India identified by NITI Aayog in 2017 on the basis of poverty, poor health, education and basic Infrastructure deficit for their possible transformation by 2022. Calling them ‘aspirational’ districts, the Aayog prepares annual baseline rankings of them to track their progress. In March 2018, Bihar had none among the top 20 and five among the bottom 20.

In June 2019, it had only one - Begusarai - among the top 20, while it had six among the bottom 20 – Nawada, Araria, Khagaria, Sitamarhi, Banka and Purnia. As indicated by the Economic Survey in 2011-12, these were also among the districts that received the lowest funds for its social sector development in per capita terms.

As regards finance, Bihar has commendably and consistently recorded surpluses in its revenue account ever since 2004-05, but it continues to be overwhelmingly dependent on Central grants and its share of the divisible pool of Central taxes; these two together accounted for 75 per cent of its total revenue in 2018-19, the highest among the major states. In 2015-16, after implementation of the 14th Finance commission recommendations hiking the states’ share of divisible pool by 10 per cent to 42 per cent, they constituted 71 per cent of Bihar’s total revenues. States own tax and non-tax revenues can barely meet even a quarter of the state’s expenditure.

Bihar’s ratio of its own tax to GSDP – a measure of its tax efforts - climbed to a peak of 6.8 per cent in 2015-16, but declined to 5.7 per cent in 2018-19, primarily due to its policy of prohibition which deprived the state of its excise and sales revenue from alcohol amounting to Rs 4500 crore - a huge amount for a poor state.

What Nitish has gained in terms of electoral strategy will be known soon, but economically it was a disaster. Its social benefits are also being questioned, as smuggling of alcohol and bootlegging are rampant. Many other states, Tamil Nadu for example, taxes alcohol heavily and uses the revenue to drive many social welfare programmes that benefit the poor.

In 2017-18, Tamil Nadu earned RS 26,797 crore from excise and VAT on alcohol, which financed more than 90 per cent of its entire social sector expenditure of Rs. 29,543 crore. Consumption of alcohol being rampant, especially in the vast ruralised countryside of Bihar, which ruins families and increases poverty, Nitish banked upon the support of women who arguably are happier due to prohibition, but Bihar has not been able to recover its revenue losses as yet, and perhaps never will.

The social logic is debatable as prohibition has succeeded nowhere in the world, nor even in other states in India. Education and awareness were perhaps better remedies than foregoing a rich source of revenue, since unproductive expenditure could not be curtailed. Government’s salary and pension bill together accounted for Rs 35,996 crore in 2018-19, much more than the state’s own total revenues of Rs 33,539 crore. Constraint in revenue shows up in the quality of delivery of public services - in 2017-18, Bihar spent only Rs 570 per capita against the national average of Rs 1081 on transport; Rs 517 against the national average of Rs 1098 on health and Rs 2079 compared to the national average of Rs 3286 on education.

From its moribund public sector, Bihar cannot expect much. Of the total 74 public sector enterprises (PSEs) in 2016-17, besides 3 Statutory Corporations, as many as 44 are dysfunctional. The Government has invested Rs 53,892 crore so far in these PSEs which employ some 16500 people, and only 10 companies earned a total profit of Rs 278 crore in 2016-17, of which four paid a tiny dividend.

The total accumulated losses of PSEs exceeded Rs 4300 crore in 2016- 17. You can find them everywhere - from corporations for the welfare of backward classes and minorities to the financing and development of every conceivable enterprise under the Sun - dairy, fishery, agro-industries, handlooms and handicrafts, paper, tiles, small industries, pharmaceuticals and chemicals, scooters, electronics, video systems, housing for its police personnel and even for the development of films.

The primary activity of most of these companies is to provide loans for entrepreneurial and sundry purposes, which are refinanced by the Government and their only income. The sector companies lack the economy of scale and are hopelessly short of the massive capital requirements as well as the techno-financial expertise needed – most of them are headed by generalist bureaucrats.

The finance and welfare needs of specific sectors can be addressed much more efficiently by public sector banks and financial institutions which are much better equipped for the purposes. The real reasons for their creation is only to provide cushy parking places for senior bureaucrats, MLAs and powerful politicians as Chairman and Managing Directors so that state largesse can be extended to them through cars, perks and privileges which add to the losses at the cost of taxpayers. While Nitish Kumar may not be responsible for all their creation, he has done nothing to change this awful culture.

As his poll plank, Nitish has just announced the second version of his time-tested strategy of ‘saat nischay’. The first version helped him win the 2015 election. The new strategy now includes skill-enhancement programmes for the youth, entrepreneurship schemes for women, irrigation facilities for farms, additional health facilities for the public and Rs 10 lakh assistance to women for starting business ventures similar to his schemes for the SCs and STs, besides creating a separate skill and entrepreneurship department. These are old wines in a new bottle and may not help fast-track the growth of a battered economy; for that, he needs out-of-the-box ideas which are unlikely to emerge from his existing administrative-bureaucratic set-up.

After winning successively in 2005, 2010 and 2015, Nitish faces the election in 2020 when the economy lies in tatters from the ruthless assault of Covid-19, and even being a part of the ruling NDA has not helped matters.

With its low tax base, Bihar remains perhaps worse affected by the GST compensation imbroglio than any other state, and when its economy will be back on the rails is anybody’s guess. However, the opposition is also in complete disarray, without any credible leadership.

(The author is a former Director General at the office of the Comptroller & Auditor General of India and an academic)