Adding insult to injury

The persistent economic strangulation of Bihar by way of low investments and denial of its rightful share of Central funds right from the First Five-Year Plan has kept the State backward. Narendra Modi’s much-touted development package is all hype.

Women threshing harvested paddy crop at Belaganj near Gaya. Biharm which is almost 3.5 times larger than Punjab, has less irrigated land than the latter.

Prime Minister Narendra Modi tried to deluge the Bihar electorate with huge special “packages” in August. The first one was for Rs.40,000 crore. He followed it up a week later with a gargantuan Rs.1.25,000-crore package. This has become quite a habit with him. On July 12, he announced a Rs.100,000-crore package for Jammu and Kashmir. These packages have no time frames, nor have they been fleshed out. What their implications are for the State’s economy can be fathomed only after carefully disaggregating them. Modi is obviously betting on the people of Bihar taking him at face value. The people of Jammu and Kashmir were not convinced; they rejected his blandishments just as voters of Delhi did before that. One hopes the people of Bihar are not taken in by the announcements and will ask him the questions that need to be asked.

The first question they must ask is why the latest package for Bihar is only a little more than what was announced for Jammu and Kashmir? Has the Centre made a fair allocation to the poorest and most backward State in the country? Bihar has a population of over 103 million, whereas Jammu and Kashmir has a population of 12.5 million. Bihar is eight times as big as Jammu and Kashmir, which has the lowest incidence of poverty. The per capita income of Jammu and Kashmir is approximately Rs.58,000 while it is Rs.29,000 for Bihar. Does Bihar have to become insurgency-ridden before the Centre takes notice of its development needs? Quite clearly, the hoodwinking of Bihar continues. If the Centre had adopted an even-handed approach, it would have given assistance to the Sate as per the national average. In which case, Bihar should be looking at a figure close to Rs.800,000 crore. What Modi probably does not realise is that by providing disproportionately high packages for some States, the Centre will only accentuate Bihar’s distance from not only being the most favoured State but also from being an average State. It is this kind of treatment that has made Bihar the least industrialised (11 per cent of the State gross domestic product is accounted for by industry), the least urbanised (11 per cent of the total population lives in urban centres), and also the poorest and most backward State.

Since its inception in March 1950, the main thrust of the Planning Commission, as stated in the resolution to set it up, has been to “formulate a plan for the most effective and balanced utilisation of the country’s resources; and to define the stages, on a determination of priorities, in which the plan should be carried out and propose the allocation of resources for the due completion of each stage”.

Five-year plans Since 1951, India’s economy has been a planned one and continues to be so even after the so-called liberalisation began in 1992. The growth in the size of the Plans is indicative of the pivotal role of the Plans in shaping the economic destiny of the country.

The First Five Year Plan (1951-56) had an outlay of Rs.1,960 crore while the gross national product (GNP) in 1951 was Rs.9,506 crore. The 12th Five Year Plan (2012-17), by contrast, has grown to Rs.43,33,739 crore while the GNP in 2012 was Rs.48,63,890 crore. Thus, while the GNP has grown by about 510 times, Plan outlays have grown by more than 2,200 times. The per capita income rose from Rs.275 in 1951 to Rs.60,972 in 2012, or by about 221 times.

One obvious inference from this is that the state has been the main engine of economic growth in India and the Planning Commission, as it decided priorities and apportioned resources, the driver of this engine. That is the case, with or without the Planning Commission. It is undeniable that there has been growth and Indian society has undergone a substantial transformation in the past six decades. A good part of the credit for this must accrue to the now-defunct Planning Commission which so minutely plotted the path of growth and change. Having said that, it also follows that what happened as a result of the skewed priorities of the Plans must logically be ascribed to it.

Although the achievement of equalisation of people and regions was not stated explicitly in the Constitution, the very notion of a socialistic pattern of society and democracy implies a determined move towards just that. But, from all available data it is obvious that this did not happen. In fact, the divisions between regions and people have only deepened. The question is why this never became a political issue. Whatever be the reasons, we have come to accept certain stereotypes, such as attributing the relative prosperity of Punjab to the hardworking and innovative peasants, and the poverty of Bihar to the deep divisions in its society, corruption and lawlessness. Like most generalisations, these too are flawed.

Punjab prospered because India made huge investments there, often at the cost of other regions. For instance, in 1955, the total national outlay for irrigation was Rs.29,106.30 lakh. Of this, Punjab got Rs.10,952.10 lakh, or 37.62 per cent. Bihar got Rs.1,323.30 lakh, which is only 4.54 per cent. The Bhakra Nangal dam, one of Prime Minister Jawaharlal Nehru’s grandest temples of modern India, planned at an outlay of Rs.7,750 lakh, irrigates 14.41 lakh hectares in Punjab.

Even after excluding this from Punjab’s irrigation plan, we see that its outlay is almost 2.5 times that of Bihar. Punjab has 50.36 lakh ha of land, 42.88 lakh ha of which is arable. Of the arable land, 89.72 per cent, or 38.47 lakh ha, is irrigated. Looking at it in another way, 76.38 per cent of all land in Punjab is irrigated, much of it owing to the munificence of the Government of India. Given the attitude of the present government in Punjab, the Bhakra Nangal dam may not be a place of worship for all of India, but it certainly is one for Punjab.

In contrast, only 40.86 per cent, or 71 lakh ha, of Bihar’s total area of 173.80 lakh ha is under cultivation. Of this cultivated area, only 36.42 lakh ha, or 51.30 per cent, is irrigated. Thus, Bihar, which is almost 3.5 times larger than Punjab, has less irrigated land than Punjab. This is despite the fact that Bihar has more rivers running across it carrying much more water than Punjab. Even if one accounted for the difference in terrains in the two States, the sheer difference in the irrigated acreage, and the percentage of irrigated acreage, the direct result of public spending on irrigation in Punjab, is telling. It is not without some irony that having benefited at the cost of other States Punjab today denies water to its neighbouring States.

In 2012, undivided Andhra Pradesh had a plan outlay of Rs.49,000 crore while Bihar, a bigger State population-wise and a much poorer one, had an outlay of just Rs.28,000 crore. Gujarat had an outlay of Rs.51,000 crore.

That Bihar is the poorest and most backward State is a fact. But what makes its situation unique is that Bihar is the only State where the incidence of poverty is uniformly high (46-70 per cent) in all the sub-regions. The annual per capita income of Bihar at Rs.27,202 is about 40 per cent of the national average of about Rs.68,000. Bihar is also the only State where the majority of the population—52.47 per cent—is illiterate. Does the Centre have a plan to put Bihar on a par with the national average? If Bihar does not make progress, India never will. You cannot leave a tenth of India far behind and move ahead. Bihar is the country’s millstone.

Urbanisation reflects the transition from an agriculture-dependent economy to an industrialised modern economy with concomitant development in infrastructure and access to basic facilities. In the absence of a strong non-agricultural sector and despite having the second highest density of population, the level of urbanisation in Bihar increased by less than 1 per cent from 10.5 per cent in 2001 to 11.3 per cent in 2011 (the national average for 2011 was 31.2 per cent).

In terms of distribution of age, Bihar is the “youngest” State. But there is a reversal of the trend of increasing urbanisation in Bihar. Urban Bihar actually shrank from 11.4 million in 1991 to 8.7 million in 2001, a decrease of 23.6 per cent although the State’s decennial population growth rate of 28.4 per cent was among the highest in the country. No other State in India has experienced such a decrease in urbanisation. One reason for this is perhaps the loss of Jharkhand with large towns such as Ranchi, Dhanbad and Hazaribagh. The new State accounted for six million of Bihar’s 26.9 million urban residents.

Bias against urbanisation Nevertheless, there is a distinct trend suggesting a built-in bias against urbanisation in Bihar. Since the level of urbanisation is the yardstick by which the Centre allocates funds for urban development, Bihar has again lost out. Thus, while Tamil Nadu has been allotted funds to develop 12 smart cities under the Modi government’s Smart Cities Mission, Bihar has been allotted funds for just three smart cities.

As opposed to an all-India per capita development expenditure of Rs.7,935 in the past three years, Bihar’s is less than half of that at Rs.3,633. While development expenditure depends on a bunch of factors, including a State’s contribution to the national exchequer, no logic can explain away the per capita Tenth Plan size, which, at Rs.2,533.80, is less than a third of that of Gujarat (Rs.9,289.10), Karnataka (Rs.8,260) and Punjab (Rs.7,681.20). The 11th and 12th Plans perpetuate this trend.

Simple but sound economic logic tells us that when a region falls well behind the rest, a greater degree of investment has to be infused into it. But Bihar has been systematically denied not only the additional assistance its economic and social conditions deserve but also what is rightfully due to it.

The result of the persistent economic strangulation of Bihar can be seen in the abysmally low level of investment in the State government’s four major development thrusts. Bihar’s per capita spending on roads is Rs.44.60, which is 38 per cent of the national average, or Rs.117.80. Similarly, for irrigation and flood control, Bihar spends just Rs.104.40 per capita as opposed to the national average of Rs.199.20.

How much has Bihar lost? If the allocation for Bihar was based on the all-India per capita average, it would have got Rs.48,217 crore for the Tenth Plan instead of Rs.21,000 crore. This trend was established in the very first Five-Year Plan and the cumulative shortfall now would be in excess of Rs.10,00,000 crore. That is too huge a shortfall to surmount. But, Modi has announced a package of just Rs.125,000 crore with his characteristic invective-laden braggadocio. Let us disaggregate it and see what it actually has in it for Bihar.

The Rs.125,000-crore package for Bihar includes Rs.54,713 crore for highways, Rs.21,476 crore for petroleum and natural gas, and Rs.2,700 crore for airports. The highways will be passing through Bihar, as there is no other way you can link Kolkata to Delhi, or north India to eastern India. It is part of a national plan. To say this is part of the Bihar plan is bogus. If Bihar had industries and an economy for it, the highways would make economic sense. Biharis might find menial jobs at highway construction projects, which are usually contracted out to outside companies. The only immediate economic benefit for Bihar will come out of selling tea and samosas to passing vehicles on the highway.

The Prime Minister’s petroleum and natural gas (PNG) plan is also very doubtful. Under the PNG plan, which was announced by the United Progressive Alliance (UPA) government in 2013, Gas Authority of India Limited (GAIL) is constructing the 2,050-kilometre Haldia-Jagdishpur pipeline for transmission and distribution of natural gas, of which about 621 km will pass through 14 districts of Bihar. The mainline will pass through Kaimur, Rohtas, Aurangabad and Gaya districts and the spur lines will cover the remaining 10 districts. GAIL will explore the possibility of gas distribution in major towns of Bihar along the pipeline route. There is nothing definite about supplying gas within Bihar. This project, too, appears to be a pass-through.

The airport plan is even more spurious. More than half of the new airports in the country are not being used. Which airline will fly into Sitamarhi or Darbhanga?

The money to be spent in Bihar, on Biharis and for Biharis, is about Rs.38,000 crore. Compare this with what Modi has promised Jammu and Kashmir. The allocation for Bihar is part of the current Five-Year Plan. The rest is typical Modi hype.

Bihar would have got more than Rs.100,000 crore as credit from banks instead of the Rs.6,000 crore it actually got if it were to get the benefit of the prevalent national credit/deposit ratio. Bihar has a credit/deposit ratio of 29, which is the lowest among the States, while Haryana, Andhra Pradesh and Tamil Nadu have 102, 110 and 116 respectively.

Flight of capital Quite clearly, Bihar is not only denied its due share, but there is a flight of capital from the State to finance economic activity in other regions, leading to a higher cycle of taxation and consequent injection of greater Central assistance there. It can be said that Bihar is systematically exploited and destroyed by denying it its rightful share of Central funds. If Modi was sincere, he would have addressed the issue of flight of capital from Bihar.

What Bihar did not get by way of Central assistance hurt the State less than what it gave away under the provisions of the disastrous Freight Equalisation Policy of 1952. Under the policy transportation was not to be considered as an input cost. This meant that a factory could be set up anywhere in India and the Centre would subsidise the transportation of minerals. This policy simply destroyed Bihar’s huge competitive advantage (of holding the minerals) as factories were set up elsewhere and not in Bihar. For instance, it was easier to transport limestone and dolomite to the south and produce cement at competitive prices there compared with the areas where the mines were located. Steel produced in Bihar and elsewhere in the eastern belt was made available at the same prices all over India. By doing so, the Centre ignored the notion of competitive advantage and sank the economic advantages of Bihar and the immediate region. Is there a case for reparations here? The Prime Minister need not think in those terms but he certainly has a duty to address the losses caused to Bihar.

The Freight Equalisation Policy was withdrawn in 1993 after it had wreaked havoc on the industrialisation prospects of mineral-rich regions.

The damage has never been quantified, but one can well imagine the astronomical costs it imposed on eastern India as a whole and undivided Bihar in particular. Should there not be some move towards equalisation now? The Centre does not seem to have given much thought to it.

If Modi even had a clue about what Bihar needed or was serious about pulling Bihar out of the morass, he would have announced a package of at least Rs.600,000 crore.

If there is a problem with Nitish Kumar’s DNA, then there is a problem with Narendra Modi’s DNA, too. He must come to terms with reality and do the right thing.

He must also come to terms with the fact that in the previous three years, Bihar topped the growth charts by registering a per capita growth of 23.7 per cent, a clear 5.6 per cent ahead of Odisha and 8.3 per cent more than the much hyped development in Madhya Pradesh. Clearly, there is something in the DNA of Bihar than can take it out of its present situation, provided the Centre is fair and adopts an even-handed approach towards it.

Mohan Guruswamy, an economist, is a former adviser to the Government of India.