Why Bihar's economic growth is picking up despite absence of big industries

Even as national GDP growth declined to 6.1% in 2018-19 and to 4.2% the next year, Bihar's GSDP growth rose to 9.3% and 10.5%, respectively

The Nitish Kumar government, which took charge in November 2015, later broke its alliance with the RJD and joined hands with the BJP to assume power again in July 2017. It is now pitted against RJD alliance in the state assembly polls. 

In 2015-16 and 2016-17, when the Nitish government was in power with its first ally, the GSDP of the state grew by 6.08 per cent and 8.9 per cent respectively. While the former was lower than the national GDP growth of 8 per cent, the latter was higher than 8.3 per cent growth at the national level. However, in 2016-17, the alliance was in power for only five months. 

The first year of alliance no. 2 of the Nitish did not fare too well on the growth numbers. However, 2018-19 and 2019-20 yielded much better results. The first year produced just 6.45 per cent growth in GSDP, while the national GDP growth stood at seven per cent. Even as the national GDP growth declined to 6.1 per cent in 2018-19 and then to 4.2 per cent the next year, Bihar's GSDP growth rose to 9.3 per cent and 10.5 per cent respectively. 

Bihar deputy chief minister and finance minister Sushil Modi tells Business Standard that GDP growth rose despite the fact that there was no major industrialisation in the state. 

"No major industry would ever come to the state as we don't have land to give. This is because the state is land-locked and the land is fertile with small, fragmented holdings. The average holding is less than one hectare," Modi says.  

He says it is very difficult to acquire land in Bihar. "If we need 20 acres of land, we will  have to deal with 20 people," he points out. 

Only public sector industries were set up in this part of Bihar, none of the big companies came from the private sector.

"Companies such as ITC, Britannia are trying to set up industries, but there is no land. We accept that it is not possible for Bihar to have large industries,' Modi says.

He cites an example of the sugar sector in Bihar. He says there was bidding thrice for sugar factories in the past 15 years, but none materialised. "The Cabinet has decided to give land acquired for that purpose -- about 2,200 acre -- to non-sugar firms. We have this much land only," he says. 

However, the state now has three cement units. These include acquisition of one closed unit by Dalmia and setting up of another by Ultra Tech. "These industries can come but the big-ticket industry cannot due to land constraint," the state deputy chief minister explains. 

"If you take the last ten years, the average annual GDP growth is in double digits," Modi said, attributing it to low base and high public expenditure, besides performance of agriculture. "We promoted agriculture and husbandry industries," he emphasises. 

However, D M Diwakar, professor of economics at A N Sinha Institute of Social Studies, Patna and its former director,  insists that one needs to break down these macroeconomic numbers.

"When you are saying that GDP has grown post-RJD alliance, please look at the break-up. The agriculture growth rate came down and crop growth rate went negative," he says. 

He points out that the majority of people stay in agriculture in Bihar. Therefore, they had less income in the last few years even if there was a high growth rate due to road, construction, power, building construction in the secondary and tertiary sector.

"The primary sector did not perform well despite having a krishi cabinet and agriculture roadmap. Macro growth rate does not give you a clear picture, the real picture comes from the break-up of the growth rates into the sectors," he says .

Bihar has had three agriculture roadmaps. The first of these was implemented between 2008 and 2012. It launched several programmes such as the seed extension scheme and the seed gram scheme, apart from giving a big push to bio-farming and use of agriculturalequipment. This roadmap also laid stress on the availability of certified seeds for 23 crops.

The second rodmap aimed at ensuring the safety of food grains and nutrition, raising the income of farmers. These were to be achieved by ensuring the adequate supply of electricity to cultivators, enhancing storage facilities, and promoting food processing initiatives to help achieve the rainbow revolution that would make Bihar self-reliant in agricultural production and make the sector export-oriented.

The third roadmap was launched in November, 2017 for 2017-2022. It entails the allocation of a sum of Rs 1.54 trillion for the agriculture and allied sectors, including for food processing, irrigation, flood protection and dairy development projects.

So far as the revenue position of the state is concerned, the first year of the JD(U)-RJD alliance did well as the own-tax revenue (OTR) grew by 23 per cent. However, the next two years, which included one year of the first and the second alliance of JD(U), showed de-growth. 

Modi explains that it was because of prohibition which was put into effect from April 1, 2016. There was a permanent loss of Rs 4,500-5,000 crore, he explained. 

The next two years saw a growth rate in OTR at 27 per cent and 16 per cent respectively. The revenues again came under  pressure in 2020-21 due to Covid. Even Budget Estimates, which are generally ambitious, showed that OTR was projected to grow just 1.9 per cent in the current financial year. 

Diwakar says ,"When you see GST returns, Bihar has lost thousands of crores every year. Besides, the  Centre did not give to the states the compensation in the last two years to the full extent of promise. In 2018-19, the Centre was to give Rs 10,051 crore and they gave only Rs 3539 crore," the professor of economics rolled out figures to buttress his point.

He said the Centre on record in the lok sabha had said that the GST revenues could not come up as expected. Therefore, if total revenue flow is less, the logic says that the state's share would also be less. .

Bihar on Monday was allowed to go for borrowing to the tune of Rs 3,231 crore to partly meet the gap between the requirement and cess collections for compensation under GST.

Despite huge OTR growth in 2018-19, the Bihar government cut capital expenditure by 11.96 per cent that year. This was to offset the revenue expenditure that rose 21.70 per cent that year. The capital expenditure growth was highest in the first year of the JD (U)-RJD alliance government at 29.75 per cent, if one takes out 2019-20 because the numbers shown that year are exaggerated. 

The 2019-20 revised estimates gave some huge numbers such as capital expenditure growth of 61 per cent, revenue expenditure growth of 36 per cent that would widen the fiscal deficit of the state to a whopping 9.45 per cent of GSDP as the total receipts growth were pegged at 16.84 per cent. The fiscal deficit number was huge as the states are required to keep their fiscal deficit at 3 per cent of their respective GSDP.

Modi explains that these numbers would be corrected once actual figures come. "Fiscal deficit was projected to rise to 9.5 per cent of GSDP because actual numbers have not come. What we do is to transfer the money to those departments who utilised their allocations from those who have not. However, the projection had both the allocations -- the earlier one for those departments which had not used the money and the new one for the departments which had used their allocations and got more money," he says. 

As such, it would not be correct to compare 2020-21 expenditure projection with overstated numbers in 2019-20. All the expenditures -- be it capex, revenue or total-- showed de-growth in projections in the current financial year.