How Bihar got left behind?

— MOHAN GURUSWAMY —

Prime Minister Narendra Modi, tried to storm the Bihar electorate with huge “packages.” The first one was for Rs.40,000 crores. Then he followed it up a week later with a gargantuan Rs.125, 000 crores package. This has become quite a habit with him. On July 12 he announced a Rs.100, 000 crores package for J&K. These packages have no time frames nor are they fleshed out in detail.

What their implications are for the state’s economy can be fathomed only after carefully disaggregating them. Mr.Modi is obviously betting on the people of Bihar taking him at face value. The people of Kashmir did not and rejected his blandishments just as Delhi did before that. One hope’s the people of Bihar are not taken in and will ask him the questions that need to be asked?

The first question they must ask is why the latest Bihar package is only a little more than what was announced for J&K? is he being even handed between J&K, the state with India’s lowest incidence of poverty, and Bihar, which is India’s poorest and most backward state? Bihar has a population of over 103 million and J&K has a population of 12.5 million. Bihar is eight times as big as J&K and many times poorer. The per capita income of J&K is approximately Rs.58, 000 while it is half that at Rs.29, 000 for Bihar. Where is the justice in this? Is the moral of this is that Bihar too needs to become insurgency ridden before the central government takes notice of it?

Quite clearly the hoodwinking of Bihar continues. If the central government were more even handed it would, even if it cannot give assistance at J&K levels, give it as per the national average. In which case Bihar should be looking at a figure nearer Rs. 800,000 crores. What Mr. Modi probably doesn’t realize is that by showering disproportionately larger largesse’s for some states will only accentuate Bihar’s distance from not only the most favored and also from the average. It is exactly this kind of behavior that has made Bihar India’s least industrialized state (11% of SGDP), the least urbanized state (11% of the total population), and also the poorest and must backward state.

Since its inception in March 1950, the main thrust of the Planning Commission, as stated in the resolution to set it up, has been to “formulate a plan for the most effective and balanced utilization of the country’s resources; and to define the stages, on a determination of priorities, in which the plan should be carried out and propose the allocation of resources for the due completion of each stage.”

Since 1950 India’s economy has been vigorously planned and continues to be so even after the so-called liberalization began in 1992. The growth in the size of the ten Plans is indicative of the pivotal role of the Plans in shaping the economic destiny of India. The First Five Year Plan (1951-56) had an outlay of Rs.1, 960 crores while the GNP in 1951 was Rs.9, 506 crores. The 12th Five Year Plan (2002-07) by contrast has grown to Rs. 43,33,739 crores while the GNP in 2012 was Rs.48, 63,890 crores. Thus while GNP has grown about 510 times over, Plan outlays have grown more than 2200 times over. During the same period per capita income has risen from Rs.275 in 1951 to Rs.60972 in 2012, or by about 221 times.

One very obvious inference from this is that the State has been the main engine of economic growth in India and the Planning Commission, as it decides priorities and apportions resources, is the driver of this engine. With or without the Planning Commission, that is the case. It is undeniable that there has been growth and Indian society has undergone a substantial transformation in the past six decades. A good part of the credit for this must accrue to the now demised Planning Commission that so minutely plotted the path of growth and change. Having said that, it also follows that what happened as a result of the skewed priorities of the Plans must also be ascribed to it.

Though the achievement of a greater equalization of people and regions in India was not explicitly stated in the Constitution, the very notions of a socialistic society and democracy implies a determined thrust towards just that. Unfortunately from all available data it is obvious that did not happen. In fact the divisions between regions and people only deepened. Many studies are available that detail this.

The question that remains is why this never became a political issue? Is it that our leaders do not care? Or is it that they do not know? Or has it never become an issue because the people in general do not care? Whatever be the reasons, we have come to accept certain stereotypes. Such as the relative prosperity of the Punjab is due to the hardworking and innovative peasant, while the poverty of Bihar is due to the deep divisions in its society, corruption and lawlessness. Like most generalizations these too are seriously flawed.

Clearly Punjab prospered as India made huge investments in it. These huge investments were often at the cost of other regions. Take the year 1955. In this year the total national outlay for irrigation was Rs.29, 106.30 lakhs. Of this Punjab got Rs.10, 952.10 lakhs or 37.62%. By contrast Bihar got only Rs.1, 323.30 lakhs, which is only 4.54% of the irrigation outlay. The Bhakra Nangal dam, one of Jawaharlal Nehru’s grandest temples of modern India, planned at an outlay of Rs.7, 750 lakhs, alone irrigates 14.41 lakh hectares.

Even after excluding this from Punjab’s irrigation plan; we see that its outlay is almost 2.5 times that of Bihar. Punjab has 50.36 lakh ha. of land and of this 42.88 lakh ha. is arable. Of this arable land 89.72% or 38.47 lakh ha. is irrigated. Looking at it in another way 76.38% of all land in Punjab is irrigated. Much of it owing to the munificence of the Government of India. Given the recent attitudes of the present Punjab government, the Bhakra Nangal dam may not be a place of worship for all of India, but it certainly is one for Punjab!

In contrast only 40.86% or 71 lakh ha. of Bihar’s total area of 173.80 lakh ha. is under cultivation. Of this cultivated area only 36.42 lakh ha or 51.30% is irrigated. Thus Bihar which is almost 3.5 times larger than Punjab has less irrigated land than Punjab. This is despite Bihar having bigger and many more rivers running across it and carrying much more water in them than Punjab. Even after accommodating for the difference in terrains in both states, the sheer difference in the irrigated acreage and the percentage of irrigated acreage, the direct result of public spending on irrigation in Punjab is telling. It is not without some irony that having benefited at the cost of other states; Punjab today denies any water to the neighboring states.

This is not a new story. Bihar has been systematically exploited by denying it its rightful and deserved share of central funds from the First Plan. For instance, in that plan the total national outlay for irrigation was Rs.29, 106.30 lakhs. Of this Punjab got Rs.10, 952.10 lakhs or 37.62%. By contrast Bihar got only Rs.1, 323.30 lakhs, which is only 4.54% of the irrigation outlay.

This continues even now. In 2012 undivided Andhra Pradesh had a plan outlay of Rs. 49,000 crores while Bihar, a bigger state population wise and a much poorer one, had a plan outlay of just Rs.28, 000 crores. Gujarat did even better than AP and had a plan outlay that year of Rs.51, 000 crores.

The question for Narendra Modi is whether he has any plan to pull up Bihar to the national average or will it be the way it is now? If Bihar doesn’t progress, India never will. That is the truth. You cannot leave a tenth of India far behind and move ahead. Bihar is now India’s millstone.

That Bihar is India’s poorest and most backward state is undeniable. The facts speak for themselves. But what makes its situation truly unique is that Bihar is the only state in India where the incidence of poverty is uniformly at the highest level (46-70%) in all the sub-regions. The annual per capita income of Bihar of Rs. 27,202 is about 40% of the national average of about Rs.68000. Bihar is also the only Indian state where the majority of the population – 52.47% – is illiterate.

Urbanization reflects the transition from an agriculture-dependent economy to an industrialized modern economy with concomitant development in infrastructure and access to basic facilities. In the absence of a strong non-agricultural sector, despite a large population, the urbanization rate in Bihar is just 11.3 % as of 2011, vis-à-vis 31.2% for all-India.

Apart from being India’s poorest and most backward state Bihar also has the second highest density of population despite being the least urbanized. In terms of distribution of age, it is also the “youngest” state in India. But more interestingly in Bihar we see a reversal of the trend of increasing urbanization, seen not only in the rest of the country, but also the entire developing world.

More significantly there seems to be a reverse flow in the last decade of the last century with urban Bihar actually contracting from 11.4 million in 1991 to 8.7 million in 2001, a decrease of 23.6% though the state’s decennial population growth rate of 28.4% was among the highest in the country. No other state in India has had a decrease in urbanization. One reason for this has to be the “loss” of Jharkhand with large towns like Ranchi, Dhanbad and Hazaribagh and with the urbanized population accounting for 6 million of its 26.9 million urban residents.

Nevertheless there is a distinct trend suggesting a built in bias against urbanization in Bihar the level of urbanization has moved by less than 1% in the past decade from 10.5% in 2001 to 11.31% in 2011. Since the level of urbanization is the yardstick by which the Central Government allocates its funds for urban development, Bihar again loses out. Thus, while Tamil Nadu has been allotted funds for 12 smart cities by the Modi government, Bihar has just been allotted three.

As opposed to an All-India per capita developmental expenditure during the last three years of Rs.7935.00, Bihar’s is less than half at Rs.3633.00. While development expenditure depends on a bunch of factors including a state’s contribution to the national exchequer, no logic can explain away the per capita Tenth Plan size, which at Rs. 2533.80 is less than a third of that of states like Gujarat (Rs.9289.10), Karnataka (Rs.8260.00) and Punjab (Rs.7681.20). The 11th and 12th Plans perpetuate this trend.

Simple but sound economic logic tells us that when a region is falling behind, not just behind but well behind, it calls for a greater degree of investment in its progress and development. It is analogous to giving a weak or sick child in the family better nutrition and greater attention. Only in the animal kingdom do we see survival of the fittest with the weak and infirm neglected, deprived and even killed. But instead of this we see that Bihar is being systematically denied, let alone the additional assistance its economic and social condition deserves, but also what is its rightful due.

The results of the persistent economic strangulation of Bihar can be seen in the abysmally low investments possible in the state government’s four major development thrusts. Bihar’s per capita spending on Roads is Rs.44.60, which is just 38% of the national average, which is Rs.117.80. Similarly for Irrigation and Flood Control Bihar spends just Rs.104.40 on a per capita basis as opposed to the national average of Rs.199.20. Does the PM’s latest package address any of these? No!

Now the question of how much did Bihar “forego”? If Bihar got just the All-India per capita average, it would have got Rs. 48,217 crores for the 10th Five Year Plan instead of the Rs.21, 000.00 crores it was allocated. This trend was established in the very first five-year plan and the cumulative shortfall now would be in excess of Rs. 10,00,000.00 crores. That’s a huge handicap now to surmount. But our unfazed PM announces a package of just Rs.125, 000 crores with his characteristic invective laden braggadocio. Lets disaggregate it and see what it actually has in it for Bihar?

The PM’s latest Rs.1.25 lakh crores package for Bihar includes Rs.54713 crores for highway, Rs.21476 for petroleum and gas, and Rs.2700 crores for airports. The highways will be passing through Bihar, as there is no other way you can link Calcutta to Delhi, or North India to Eastern India. It is part of a national plan. To say this is part of the Bihar plan is a bit spurious. Now if Bihar had the industries and economy for it, the highways would make economic sense to it. Biharis might get some bottom feeder labor jobs out of the highway construction, which will be by outside companies. The only immediate economic benefit otherwise for Bihar will come out of selling tea and samosa’s to passing vehicles.

The PM’s announced PNG plan is even shakier. It was first announced in 2013 by the UPA government. Under this, GAIL is constructing the 2,050 km. Haldia – Jagdishpur pipeline from transmission and distribution of natural gas, of which about 621 km. will pass through 14 districts of Bihar. The mainline of the Haldia Jagdishpur will cover 04 districts of Bihar such as Kaimur, Rohtas, Aurangabad, Gaya and 10 districts for the spur lines. GAIL will explore the possibility of city gas distribution in major towns of Bihar along this pipeline route. Nothing definite here about supplying gas within Bihar. Otherwise it too is a pass through.

The airport plan is even more spurious. Over half the new airports in the country are not being used. Who will fly into Sitamarhi or Darbhanga?

The money to be spent in Bihar, on Biharis and for Biharis, is about Rs.38, 000 crores. Compare this with what Modi has said he would be giving J&K? This Bihar “allocation” is just part of the current Five Year Plan. Nothing new here. The rest is all typical Modi hype and jadugiri. If he were sincere Modi would have addressed the flight of capital taking place even now from Bihar.

Bihar would have got over Rs.100, 000 crores as credit from banks instead of the Rs. 6000 crores it actually got, if it were to get the benefit of the prevalent national credit/deposit ratio. Bihar has a C/D ratio of 29 while those of Haryana, AP and TN are 102, 110 and 116 respectively. Bihar’s C/D ratio is the lowest in India.

Quite clearly Bihar is not only being denied its due share, but there is a flight of capital from Bihar, India’s poorest and most backward state. This is a cruel paradox indeed. The cycle then becomes vicious. This capital finances economic activity in other regions, leading to a higher cycle of taxation and consequent injection of greater central government assistance there. If one used harsher language one can even say that Bihar is being systematically exploited, and destroyed by denying it its rightful share of central funds.

What Bihar didn’t get in terms of central assistance hurt it less than what it gave away by the disastrous Freight Equalization Policy of 1952. The Freight Equalization Policy simply meant that transport was not to be considered an input cost. This meant a factory could be set up anywhere in India and the transportation of minerals would be subsidized by the central government. This in turn simply destroyed Bihar’s huge competitive advantage (of holding the minerals) and factories were set up everywhere else but in Bihar.

For instance limestone and dolomite became easier to transport to the south and cement could be produced there at prices competitive with where the mines were. Steel produced in Bihar and the eastern belt was made available at the same prices all over India. By doing this, the central government rubbished the notion of competitive advantage and sank the economic advantages of Bihar and the immediate region. Is there a case for reparations here? The Prime Minister need not think in those terms but he certainly has a duty to address the losses caused to Bihar. But he didn’t?

This policy was withdrawn in 1993, after wreaking havoc on the industrialization prospects on India’s most mineral rich regions. The damage has never been quantified, but one can well imagine the astronomical costs it imposed on eastern India as a whole and the undivided Bihar in particular. Shouldn’t there be some move towards equalization now. It doesn’t seem that people in Delhi have given much thought to it?

If Prime Minister Narendra Modi even had a clue about what Bihar needs or was even serious of pulling Bihar from the deep hole it is in now, he would have announced a package of Rs.5-600, 000 crores at least, instead of the Rs.125, 000 crores he announced. If there is a problem with Nitish Kumar’s DNA, then there is a problem with Narendra Modi’s DNA also. He just cannot come to terms with reality and do the right thing.

He must also come to terms with the fact that in the previous three years it is Bihar that topped the growth charts by registering a per capita growth of 23.7% a clear 5.6% ahead of neighboring Orissa and 8.3% more than the much hyped up development in MP. Clearly there is something in the DNA of Bihar than can take it out its present situation, provided the Central Government is fair and even-handed with it?