Bihar_economy

Bihar Economy

Pankaj Verma

Country Economist, India-BiharInternational Growth Centre (IGC)

[email protected]

January 15, 2016

Pankaj Verma (IGC India Bihar) Bihar Economy January 15, 2016 1 / 23

mailto:[email protected]

Overview

1 IntroductionHistorical PerspectiveState GDP growth

2 Economic DivideRural Urban GapVariation across Districts

3 Sectoral Composition of BiharAgricultureIndustrial SectorServices Sector

4 Economic Growth ChallengesLaw and OrderInfrastructureLow Private InvestmentLand AcquisitionLow tax/GSDP ratio


Historical Perspective

Pre-IndependencePermanent settlement regime during British Raj

No incentive to increase agricultural productivityLow public investment

De-industrialization

Decline in Handloom industries due to influx of cheap industrialproducts from Britain

Post-Independence

Freight equalization policy of central government worked against BiharSteady decline relative to other states since independenceBifurcation of state in 2000


State GDP Growth (2013-14)


Rural Urban Gap in Consumption


Variation across Districts


Variation across Districts


Sectoral Composition of Bihar


Agriculture

81% of workforce dependent on agriculture

Huge fluctuation in production and productivity level across years

The real GSDP in agriculture in the state has not had twoconsecutive years of growth since 1993-94 (Kishore et al 2014)

Cropping pattern has seen very little change over time

Cereals are grown on 86% of the total area

Diversification is key to the agricultural growth

Horticulture needs to be promoted aggressively

The agriculture road map prepared by government acknowledgessome of the challenges and have devised solutions


Industrial Sector

Bihar is one of the least industrialized states of India

The share of industrial sector in total GSDP has increased but theincrease is marginal

14.8% in 2004-05 to 18.4% in 2014-15Manufacturing sector’s contribution has marginally decreased from5.3% in 2004-5 to 4.3% in 2014-15Mainly driven by construction

The fluctuation in the growth rate of manufacturing and constructionis worrying

Ex: Registered manufacturing grew at 63.14% in 2010-11, -20.61% in2011-12 and 5.72% in 2014-15


Industrial Sector

Bihar seems to have a comparative advantage in agro-based industries

But the state is still far below its production potential

Share of agro-based factories is lower than the national average ( In2012: 39% for India; Bihar 34%)The gap is narrowing fast but still a long way to go

Given the extremely high population density(and problems with landacquisition), MSME based industrialization is more suitable


Services Sector

Services contributes to 61% of the state GSDP

Increased from 55% in 2004-5

Like India, Bihar seems to be leapfrogging towards services led growth

The growth in services is mostly concentrated around trade, hotel,restaurant and banking

Trade, Hotel, and restaurant is the biggest contributor to GSDP:increased from 20.2% in 2004-5 to 24.2% in 2014-15

The growth in services has been relatively stable

It has not dipped below 10% in the last 5 years


Economic growth challenges

Law and Order

Infrastructure

Low private investment

Land Acquisition

Low tax/GSDP ratio


Law and Order

IGC has commissioned a study to look at the relationship betweenpolitical change, crime reduction and economic growth

A sharp reduction in violent crimes after 2005

Reduction in murder is strongly correlated with increase in per capitaincome at district level


Law and Order


Infrastructure

Road connectivity has seen a huge improvement in the last ten years

Per capita length of road is still one of the lowest in the country

Per capita electricity consumption is the lowest in the country

Govt is making huge investment in this sectorAccess to electricity has seen tremendous improvementIGC has commissioned a research project to help in increasing revenue:hours of electricity supplied to a feeder is a function of payment fromthat area


Road Connectivity (2001)


Road Connectivity (2011)


Access to Electricity (2001)


Access to Electricity (2011)


Challenges to Growth: Low Private Investment

Contribution of manufacturing sector has remained stagnant around5%

The growth is mainly driven by services and construction sector

Food processing industries holds a lot of potential

IGC funded research is making an attempt to map the foodprocessing industries and identify challenges in their further growth


Challenges to Growth: Land Acquisition

Land acquisition is often cited as the main hindrance to furtherindustrialization

The private players are unable to acquire land on their own andgovernment has failed to create enough land banks for industrial use

IGC has commissioned a study that looks at the challenges in landacquisition and attempts to offer solutions suited for Bihar

Preliminary findings suggest that lack of updated land records is one ofthe biggest problem in executing land acquisition projects


Challenges to Growth: Low tax/GSDP ratio

Tax/GSDP for Bihar is 5.8% in 2013-14 (third lowest in India), 5.16%in 2014-15, and 6.51% in 2015-16 (BE)

Tax potential in Bihar largely remains untapped

Bihar’s tax/GSDP ratio is low even when compared to otherlow-income state in India (despite high economic growth recorded inrecent years in the state)

Are evasion and non-compliance higher in Bihar as compared to restof India?

Does low tax/GSDP ratio have a causal connection with the highershares of informal and non-monetised section in the economy?

Tax Reforms have design flaws by assuming extension of the tax baseat the state level without progressive structural transformation of theeconomy - cart before the horse?


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