A state that is usually in the news for the wrong reasons, Bihar has stunned the country by turning in a superlative growth performance, averaging 11.4% annual growth over the five year period starting 20004-05. There are many sceptics to this growth story - reservations over whether the data has been fudged and doubts over the sustainability of such high growth. The first thing to note is that this data is as reliable as other estimates that come through the Central Statistical Organisation. There is of course the caveat that these are provisional estimates, till the state governments release final estimates through the CSO, and such revisions can continue well into the next few years - for now, these estimates cannot be doubted. The sectors powering growth in the state are construction at 35.8% growth per annum in the five year period, compared to 8.4% growth in the previous five years and services at 11.5% compared to 5.4% previously. This data actually corroborates anecdotal evidence coming in from Bihar of improvements in governance and boost by government spending on infrastructure, particularly road construction. The Nitish factor is seen to have worked post 2005 - while all states in India have grown faster in the last five years, it is Bihar that has made the largest jump. Is this growth sustainable? This is a difficult question to answer as it depends on so many factors. To begin with, this growth comes on a very low base. Even after leading the growth charts amongst states in India, Bihar’s per capita income at Rs. 12,643 in 2008-09, a third of the national figure of Rs. 37,490, is still the lowest in the country. The state government understands well that the achievements so far just mark the beginning and much more needs to be done to consolidate the fruits of this growth. As Deputy Chief Minister Mr. Modi said in a recent interview, ‘If Bihar continues with 11% growth rate for the next 15 years, then we will achieve Maharashtra’s current SDP. And by that time, Maharashtra’s SDP will be threefold of what it is today. So, we have a long way to go.’ Sustainable growth is a dream unless the economy is well-diversified and the volatility in year on year growth is a worrisome feature of Bihar’s economy that needs to be tackled. A look at the graph on annual growth will show how growth fluctuates from year to year. The reason behind this volatility is that Bihar’s economy has not diversified enough over the last few years. The share of agricultural sector in the economy has been declining over the last decade but still accounts for almost a quarter of Bihar’s income. A lot needs to be done in irrigation, flood control and drainage schemes to keep agricultural output from suffering tremendous fluctuations. More importantly, manufacturing accounts for just 4-5% of the state income, with the major share coming in from the un-registered sector. That is, organised manufacturing still accounts for just under a quarter of manufacturing activity in the state. What the present government has managed in Bihar so far has been to improve the law and order position and raise the feasibility of investment in the state. The government has attracted significantly larger investment proposals recently, but these need to be converted into actual production facilities on the ground. In a recent note on economic prospects at the regional level, global research agency Moody's Economy.com noted Bihar's stunning economic performance as an example of how government policies help accelerate growth. The note went ahead to say, "If Bihar shows how good regulation can accelerate growth, neighbouring West Bengal highlights how bureaucratic roadblocks and firmly entrenched special interests can inhibit it." The tragedy of West Bengal today is that it is being pulled out as an example of bad governance and constrained growth. Is this a fair picture? It is true that West Bengal has posted the second lowest growth

1. Ray of light emerging in Bihar
while West Bengal remains in darkness
Published in Ananda Bazar Patrika
A state that is usually in the news for the wrong reasons, Bihar has stunned the country
by turning in a superlative growth performance, averaging 11.4% annual growth over the
five year period starting 20004-05. There are many sceptics to this growth story -
reservations over whether the data has been fudged and doubts over the sustainability of
such high growth. The first thing to note is that this data is as reliable as other estimates
that come through the Central Statistical Organisation. There is of course the caveat that
these are provisional estimates, till the state governments release final estimates through
the CSO, and such revisions can continue well into the next few years - for now, these
estimates cannot be doubted.
The sectors powering growth in the state are construction at 35.8% growth per annum in
the five year period, compared to 8.4% growth in the previous five years and services at
11.5% compared to 5.4% previously. This data actually corroborates anecdotal evidence
coming in from Bihar of improvements in governance and boost by government spending
on infrastructure, particularly road construction. The Nitish factor is seen to have worked
post 2005 - while all states in India have grown faster in the last five years, it is Bihar that
has made the largest jump.
Is this growth sustainable? This is a difficult question to answer as it depends on so many
factors. To begin with, this growth comes on a very low base. Even after leading the
growth charts amongst states in India, Bihar’s per capita income at Rs. 12,643 in
2008-09, a third of the national figure of Rs. 37,490, is still the lowest in the country. The
state government understands well that the achievements so far just mark the beginning
and much more needs to be done to consolidate the fruits of this growth. As Deputy Chief
Minister Mr. Modi said in a recent interview, ‘If Bihar continues with 11% growth rate
for the next 15 years, then we will achieve Maharashtra’s current SDP. And by that time,
Maharashtra’s SDP will be threefold of what it is today. So, we have a long way to go.’
Sustainable growth is a dream unless the economy is well-diversified and the volatility in
year on year growth is a worrisome feature of Bihar’s economy that needs to be tackled.
A look at the graph on annual growth will show how growth fluctuates from year to year.
The reason behind this volatility is that Bihar’s economy has not diversified enough over
the last few years. The share of agricultural sector in the economy has been declining

2. over the last decade but still accounts for almost a quarter of Bihar’s income. A lot needs
to be done in irrigation, flood control and drainage schemes to keep agricultural output
from suffering tremendous fluctuations.
More importantly, manufacturing accounts for just 4-5% of the state income, with the
major share coming in from the un-registered sector. That is, organised manufacturing
still accounts for just under a quarter of manufacturing activity in the state. What the
present government has managed in Bihar so far has been to improve the law and order
position and raise the feasibility of investment in the state. The government has attracted
significantly larger investment proposals recently, but these need to be converted into
actual production facilities on the ground.
In a recent note on economic prospects at the regional level, global research agency
Moody's Economy.com noted Bihar's stunning economic performance as an example of
how government policies help accelerate growth. The note went ahead to say, "If Bihar
shows how good regulation can accelerate growth, neighbouring West Bengal highlights
how bureaucratic roadblocks and firmly entrenched special interests can inhibit it."
The tragedy of West Bengal today is that it is being pulled out as an example of bad
governance and constrained growth. Is this a fair picture? It is true that West Bengal has
posted the second lowest growth in the decade amongst large states. On the other hand,
growth has been steadily rising; per capita income at Rs. 31,722 in 2007-08 was way
higher than Bihar’s Rs. 11,135 that year. More importantly, on all social indicators, West
Bengal outperforms Bihar. The problem is that while Bihar is a state that had been
practically given up as an non-achiever, and has therefore surprised observers, West
Bengal has been performing far below expectations, per capita income currently trails the
national average. As one of the leading industrial states in the 60s, West Bengal ranked
with Maharashtra amongst the rich states in the country. While the state has lost much
ground in the decades since then, the manner in which Singur and Nandigram were dealt
with recently has created an atmosphere of uncertainty that is not conducive for
investment and growth opportunities.
The crux of the matter is that Bihar’s achievement has given the people of the state hope -
hope that governance and the economy can change for the better. In West Bengal,
unfortunately, this sentiment is missing. While Bihar has shown that change is possible, it
is for the political forces in West Bengal to realise the vision of the state being back on
the top once again.

3. 35000 Per capita income (Rs.)
30000
25000
20000
15000
10000
5000
0
1999-2000 2004-05 2007-08
Bihar West Bengal INDIA
12% Leading and Laggard States
10%
8%
6%
4% 1999-04
2% 2004-09
0%
Bihar Karnataka INDIA West Assam
Bengal
25% Annual Growth Rate
20%
15%
10%
5%
0%
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
-5% 01 02 03 04 05 06 07 08 09
-10%
Bihar West Bengal
Sumita Kale, Chief Economist at Indicus Analytics Pvt. Ltd. The author can be contacted
at sumita@indicus.net