Bihar’s economic miracle: real, but fragile

When this column revealed in January that Bihar had averaged 11% growth in the last five years, many people asked, “Do you really believe this?” I visited Bihar last week to check.

My conclusion: Bihar’s economic boom is indeed real. But it is fragile and dependent on Chief Minister Nitish Kumar getting re-elected in the state assembly elections in October-November. If instead Laloo Yadav wins, all bets on Bihar are off.

Can we really believe Bihar’s data? The Central Statistical Organisation guides the states collecting and processing data, but does not check whether the job is done correctly. Cynics think Bihar’s notoriously manipulative politicians must have fudged the data for false publicity.

The data show enormous swings in agriculture from year to year. Because of this, Bihar’s growth averaged 11% over the last five years, but only 8.3% over the last six years. Still, we can say that it has been growing at 8-11%, and that is miracle growth.

Second, politicians are uninterested in fudging the state domestic product. No politician can win an election by claiming that economic growth is 11% rather than 6%: such statistics go over the head of voters, for whom personal experience is what matters. Bihar’s politicians did not fudge the data and then hold a press conference to announce record growth. Rather, I was the first to dig out the 11% story from the CSO data bank, and Bihar’s politicians were manifestly surprised to hear about it. Nitish Kumar is reported to have said, “If Swaminomics says so, it must be true.”

Third, if you add up the state data on gross domestic product, the sum is well below national GDP. So, any errors by the states seem to be on the low side rather than the high side.

Fourth, most states, not just Bihar, showed strident growth in the last five years. This fits well with the boom in national GDP in 2004-09, so the state data look plausible.

Fifth, state governments usually want to claim that they are in dire straits and so merit additional funds from New Delhi. Back in the 1970s, I found that Kashmir was for some time the fastest growing state in India, and went to Srinagar to ask what accounted for fast growth. To my surprise, state officials and politicians were dismayed at my questions. They were used to moaning and groaning about their poverty and the need for more central handouts, so they looked on me almost as an enemy.

For these reasons, I believe that the economic boom in Bihar is real, not a statistical fudge. A visit to Bihar provides plenty of anecdotal proof. In Laloo’s time, anybody building a house or booking a new car promptly got a ransom note. Today home construction and car sales are booming. Traffic jams have replaced deserted streets.

In Laloo’s time, swaggering goons showed off their guns in public. Today no gunman is visible. The Nitish administration has convicted dozens of people—including politicians of the ruling party itself–for violating the Arms Act.

The old cloud of fear has been replaced by peace and confidence. Safety has allowed small businesses to burst into activity. Women say they are no longer afraid to walk the streets. Sunil Mittal of Bharti Airtel says Bihar has the fastest growth of talk-time in any state.

The economic miracle has been led by construction, which has averaged a colossal growth rate of 47% per year for the last five years. Government development spending has zoomed from Rs 2,000 crore to Rs 160.000 crore per year. Most impressive has been the rise in road construction, from 384 kilometres in 2004-05 to 2,417 kilometres in 2008-09. Security plus road and telecom expansion have incubated a boom in small business and domestic construction.

However, large-scale industry remains on the sidelines. Organized sector output actually fell in the Laloo era from Rs 1,150 crore in 1999-00 to Rs 790 crore in 2004-05 at constant prices, and has stagnated under Nitish. Many large industries have proposed big investments, but these will be pursued only if Nitish is re-elected.

He swept the polls in the parliamentary elections last May, but then won only four of 18 seats in Assembly by-elections, while Laloo and his allies won nine seats. Optimists theorise that if Laloo returns, he will come back a changed man, full of the efficient technocracy he displayed as Railway Minister in 2004-09. But most people fear that he will release his goon-friends from jail, and that Jungle Raj will return. Hence the future of Bihar’s economic miracle remains in doubt.

3 thoughts on “Bihar’s economic miracle: real, but fragile”

  1. Indeed, Nitish Kumar was re-elected and Bihar is again confirmed on the path of progress……
    Its often said that it takes years to build and seconds to destroy….
    But in case of Bihar, it was destroyed for years and still the progress is much more rapid!

    Hope for a radical change in system of whole country!

  2. If Bihar was not growing then you would have not gone to Bihar. It proves that Bihar is growing and everyone want to take a glimpse of it. Thinking and analysis of different persons could be different for different reasons but the truth is Bihar is growing with the highest rate among Indian states.

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