Why is Bihar Poor

Bihar shouldn’t be poor: with its (erstwhile) abundance in natural resources - mineral wealth

and coal, its network of rivers spread across wide plains, we should be a model of prosperity.

Yet - despite these ‘advantages’, Bihar has, over the years, remained one of the poorest states of

our country, and lagged the national average in all indicators of prosperity and progress.

WHY IS BIHAR POOR ? Here we present some historical factors that have cumulatively

contributed to this paucity and poverty. This list highlights the rootedness of the problem of our

Bihar’s poverty.

We will view this in 3 phases: Pre Independence, 1947-2000 & Post 2000

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Permanent Settlement Act effectively established a predatory zamindari, disincentivizing

investment, encouraging predatory tax collection practices: leading to far reaching and

long term consequences for the development of Bihar

British investment in Bihar was the lowest among all provinces setting a trend of

backwardness

Droughts and floods demolished any symbol of progress.

Predatory policies, lack of investment and natural disasters created adverse

environment for agriculture leading to extreme poverty

Central Policy

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Poor infrastructure and abject poverty could not foster entrepreneurial activities.

Predatory practices by money lenders and absence of organized financial sector

led to adverse conditions for growth

Poor road and rail linkages further discouraged industrial investment

Lack of strong military base in Bihar meant no auxiliary industries prospered

Bihar faced a ‘Catch-22’ where low investment dis-incentivized further

investment and weakened infrastructural capacity of the state

Industrial Investment

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Except the GT Road, metaled in the late 19th century, no roads were developed.

The state was left with ‘kachcha’ roads, with improper drainage and prone to

seasonal damage, impacting the movement of goods and development.

Development of rail linkages was also de-prioritized due to low strategic

importance of Bihar

Military objectives of the colonial government guided the neglect of Bihar

in infrastructure development

Infrastructure Development

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Another Catch 22 Central Sponsored Schemes required states to provide matching grants.

Bihar, with its poverty and low tax base, could not provide matching grants to use these

schemes. Rich states prospered while Bihar lagged.

Discretionary plan assistance by Center to State depended on the above approach and rose with

respect to formula based assistance. Bihar further lost over Rs. 77,000 Crores due to inability to

secure adequate assistance. After reforms in 90s, rich states attracted investment while poor and

infrastructural backward states languished. In Bihar, growth rates halved.

Share of central investment in Bihar declined: from 20.7% in 1975 to 8.2% in 1990 and 0

thereafter. Public investment in agriculture in Bihar remained extremely low even through

Green Revolution. Bihar ranked 23rd in the 8th Plan in Investment per Acre of Net Sown Area.

Central Policy, Planned Expenditure

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dia Roads: Bihar’s density of roads per population is the lowest in India. Post separation of Jharkhand,

this has worsened, as most roads built in the mineral rich South Bihar have been lost. Further, over

50% of habitations lack all-weather road connectivity

Railways: Bihar’s rail density per lakh of population (4.15 KM) is lower than comparable states

Power: Bihar’s installed power capacity is a meager 0.4% of the national total, while population is

~9% of the total. Per capita power usage is one seventh of the national average

Irrigation, Floods: Bihar receives ~3/4 of its rainfall during the monsoons, highlighting need for an

irrigation infrastructure. Additionally, most of the rivers and tributaries in Bihar are prone to

flooding, causing extensive damage annually.

Bihar ranks lowest amongst Indian states on the Infrastructure Index

Infrastructure Development

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dia United Bihar was rich in minerals. However, the policy of ‘Freight Equalization’ prevented Bihar

from capitalizing on it. These policies mandated availability of minerals at constant price

throughout the country. So, this killed the incentive to setup industry in Bihar.

Royalty on coal was fixed on a per-ton basis (as opposed to an ad-valorem revenue: or based upon

actual value, as is the case with oil producing states). This further diluted the resources of Bihar.

Independent estimates of these losses amount to Rs. 1,20,000 Crores.

Several states considered developed today industrialized at the cost of Bihar and

using the raw materials available in Bihar. This was the result of Industrial Policy

taken by Government of India.

Industrial Policy

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Central expenditure in Bihar has continued to decline in the new millennium,

highlighting an urgent need to both revisit the allocation of funds to backward states, like

Bihar and the need to reconsider Bihar’s plea for being granted a Special status

Bihar’s share of the total tax devolution has steadily declined - from ~15% in the 11th

Financial Commission to ~11% now.

For many centrally sponsored schemes, there is still a matching contribution requirement,

which places states such as Bihar at a disadvantage (compared to developed states like

Maharashtra, Gujarat), preventing full utilization of allocated funds.

Central Policy, Planned Expenditure

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eVarious schemes, such as the PMGSY have had speedy implementation in the state in the

past five-seven years. In addition, the MMGSY (Mukhya Mantri Gramin Sadak Yojna)

have been launched to ensure connectivity of hamlets of more than 100 people with main

roads.

Bihar’s infrastructure is still not at par with the nation. It is significantly behind.

Lacking coal linkages, plants that are complete or nearing completion are unable to operate

due to lack of fuel, furthering the state’s infrastructure challenges.

Oversight in inclusion of flood prone zones (such as Madhepura, Begusarai etc) in the

central AIBP program prevents the state from benefiting on the 90% central subsidy needed

to secure these areas

Infrastructure Development

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e Bihar has taken various steps to invite industrial investment in the state, leveraging its

natural advantages where available. Under such initiative, companies such as Britannia

India set up a biscuit manufacturing plant in Bihar

However the state still suffers from a chronic Power shortage, and lack of well-connected

land, which prevents industries from taking the plunge and investing.

Further, inherent gaps in the socio-political environment due to decades of apathy have

given rise to an environment in which entrepreneurial activities demand greater stamina

to succeed.

The Government has recently set up an Innovation Council to view this.

Industrial Policy

This is a snapshot of the plethora of issues that over time led to a severely disadvantaged position for Bihar.

Bihar has begun to make progress: the key problems of law and order, socio-economic indicators have

been comprehensively addressed, with strides being made in the state on infrastructure development.

However, to succeed, we need an end to the step-child treatment meted out to Bihar. Bihar presents a unique

case for being granted a Special Status, that would help the state carry forward the momentum of change and

take a place in this nation as a contributing, prosperous and shining state.

British started the story of Bihar’s decline and neglect.

Post Independence, Central Government instrumented policies that accelerated the pace of poverty in Bihar

THIS IS WHY BIHAR BECAME POOR.

SPECIAL CATEGORY STATUS WILL CATALYZE RAPID PACE OF DEVELOPMENT

NECESSARY TO REACH PARITY