The New Bihar

By Nicholas Stern

Well-known economists and policy makers look at the Bihar model of development and discuss the challenges ahead During the 1990s, Bihar's development failed to benefit from the acceleration in India's economic growth, principally because of a steep decline in the already low standards of governance. this changed dramatically after November 2005, when The Nitish Kumar government came to power. Within a short time, major initiatives were launched in improving governance, infrastructure, education, especially primary and for girl children, health and agriculture. The last six years have shown that rapid economic development is possible in Bihar. To maintain the momentum of growth, the recent improvements in governance have to be consolidated and strengthened. Eminent economists like Amartya Sen, Kaushik Basu, Montek Singh Ahluwalia, Meghnad Desai, Shankar Acharya and Arvind Virmani analyse the remarkable turnaround witnessed by Bihar. Experts Tarun Das, Deepak Parekh, Lord Billimoria, K.V. Kamath and Isher Judge Ahluwalia speak of the opportunities and challenges ahead. This is a must read for anyone interested in governance and development.

• Language: English
• Publisher: HarperCollins
• Release date: Jul 10, 2013
• ISBN: 9789350296424

Book preview

Preface

ANECDOTES ABOUT THE Bihar success story had gathered powerful national and international currency: there was intense interest in understanding how such a radical change had come about. When the two co-editors met in Patna during the Global Bihar Summit in February 2012 they felt that a book containing essays on different aspects of the new initiatives taken by Bihar could be of great value in enhancing public understanding. It should analyse both the success and shortcomings of the growth strategy pursued by Bihar. The New Bihar is therefore an account of the significant achievements but equally daunting unfinished agenda. There is special emphasis on innovative and creative social change and restructuring represented by the Bihar Model which has managed to combine inclusiveness with high growth. This book provides an in-depth account by those who have been involved as actors and observers and who combine a careful analytical approach with close knowledge.

The contributors have been generous in writing these essays rapidly and carefully and unhesitatingly adhering, more often than not, to difficult timelines.

We are also thankful to Prachi Mishra, senior economist, office of the chief economic advisor, Ministry of Finance, Government of India, both for contributing an essay and in helping craft the introductory chapter. Our special thanks are also due to Siba Prasad Tripathy, associate fellow, Observer Research Foundation, for his invaluable support.

HarperCollins India has worked overtime to bring out this publication in somewhat record time.

Last but not the least, the editors are grateful to Bharti Dayal, well- known Madhubani artist, for contributing seven original paintings for the book. These represent the traditional Madhubani art blended with

modern themes. The cover painted in the Madhubani style shows a girl on a bicycle, symbolic both of the empowerment of women and the quest for education. The floating fish in the painting represents ‘rainbow agriculture’ in which allied agricultural activities can boost farm income. Bharti’s use of the traditional style on contemporary themes can contribute to the revival of Madhubani art.

May 2013 N.K. Singh and Nicholas Stern

Introduction

N.K. SINGH AND NICHOLAS STERN

BIHAR: AN ENIGMA

THIS BOOK IS relevant as it seeks to decipher an enigma called Bihar. How is it that a large geographical part of eastern India rose to unprecedented heights of civilizational achievement and collapsed to become a basket case of irrelevance other than in its poverty? Is it a case of internal failures (suicide instead of murder) or exogenous events which led to its progressive decline commencing during colonial rule, accentuated by distortionary policy in independent India, and finally crumbling with two decades of misgovernance? It borders on the inexplicable that the considerable political clout of the state and the important Cabinet and administrative positions held by both politicians and civil servants from Bihar were of little avail in improving the development capability of the state. It requires a study of society to seek any credible explanation for this asymmetry between political and economic power.

Arnold Toynbee, the famous historian, says, ‘Apathy can be overcome by enthusiasm, and enthusiasm can only be aroused by two things, first, an ideal which takes the imagination by storm, and second, a definite intelligible plan for carrying that ideal into practice.’ It is surely extraordinary that having reached the nadir Bihar rejuvenated itself in less than a decade to become the fastest-growing state even as India’s own growth gathered momentum. Many have attributed this rapid turnaround to Nitishnomics at work, meaning improved governance and a more inclusive growth strategy. This book also explores the several facets of Nitishnomics.

Economic theory has now a respectable literature, which seeks causation between governance and development. That development outcomes are not driven by adequacy of capital or human resources alone has been demonstrated in large parts of the world, particularly in Africa and America. Smaller resources, if they are put to better use, can overcome multiple handicaps. Governance is defined in a rather broad way as the manner of governing. For our discussion and context, it is how the government through its functioning influences the ability of individuals and firms to take decisions in an effective and productive way. Bad governance can arise through corruption, harassment, lack of credibility, cumbersome or arbitrary regulation, malfunctioning of individual systems, stultifying bureaucracy and so on. Bad governance will have a damaging effect across the board, particularly in distorting or discouraging investment.

It is difficult to define governance or identify an improvement with any precision, but is easier to describe it when one sees it in action. It is more often than not a product of both institutions and leaderships. Autocratic leadership can secure short-term results but outcomes fade away if institutions do not outlast the leader. On the other hand, credible institutions need to be blended with enlightened leadership to generate strong and positive outcomes.

This book seeks to analyse the synergic relationship between development and governance. Broadly speaking, it supports the hypothesis that there is a latent entrepreneurial energy in each one of us waiting to be unleashed. If the future looks pessimistic, despondency and inaction are inevitable. If the outlook is cheerful, the balance between work and action on the one hand and leisure or inaction on the other can alter dramatically. If governance is bad and the prospects weak, then decisions at the individual or household level in such ordinary things as building a house, buying a new property, improving transport and communications are postponed. Micro decisions when aggregated alter the macro picture.

In many ways this is the essence of The New Bihar story. A greater guarantee for security of life and property, improved road connectivity, improving health facilities, enlarging access to education, imparting vocational education and unleashing plans for creating centres of educational excellence have rekindled the lost pride of Bihar. The matrix of improved governance, with the application of law much more uniform and much more free from partisan bias, delegation of administrative and financial powers, enacting important legislations for faster project implementation and improved tax enforcements have resulted in greater tax revenues and economic growth which have enabled a fivefold growth in public outlays. The special emphasis on gender empowerment and the development of Mahadalits, Dalits, minorities and extremely backward classes (EBCs) have engendered the hope that they could become part of the economic mainstream. The political empowerment of women by reservation of seats in panchayats and other local bodies, among school teachers and in the police constabulary has begun to empower and energize 50 per cent of Bihar’s large population of 115 million. The initiatives for minority welfare may have begun to persuade the minority communities, who constitute 15 per cent of its population, that they could be both secure and able to seek a better future. The special emphasis on Mahadalits, Dalits and the EBCs has made the growth agenda more inclusive in a society historically riddled with stratified class and caste hierarchies.

Long years of neglect cannot be overcome in a short period. Nor should the achievements be exaggerated. Perhaps, we can argue that in terms of improving governance and galvanizing entrepreneurship the glass is becoming half full.

BIHAR’S PAST GLORY

Historically, Bihar has had a glorious past. The Mauryan Empire that had its capital in Pataliputra (present-day Patna) is to date the first real example of a unified India. Besides this distinctive political feature, Bihar has also been a pioneer in several other areas including education, health, governance, infrastructure, and social equality.

In education, Bihar had an illustrious past. It housed the oldest university in the world, Nalanda, along with other seats of learning such as Vikramshila, which flourished between the fifth and twelfth centuries AD. Nalanda, at its prime, sustained an academic community with more than 10,000 students and faculty. For centuries, Nalanda was a beacon that attracted scholars not only from within India, but from all over Asia including China. Apart from its intellectual pursuits, Nalanda also played a strong role in the spread of Buddhism. It served as a role model for libraries in East Asia. The descriptions of ancient Nalanda found mostly in Chinese sources helped India recover a large part of its Buddhist history in recent times.

Some of the pioneering works in mathematics come from Bihar. Aryabhata, the famous mathematician became a resident of Pataliputra in the early fifth century. The work done by Aryabhata and his team was crucial to the development of both mathematics and astronomy. Bihar also has the unique distinction in India for being a very early, perhaps the first, contributor to the theory of law and governance through Arthashastra by Kautilya.

Pataliputra was also a pioneer in the provision of social services, most importantly in public health. Pataliputra was known for its tradition of universal and free medical services for its citizens. The state of health services greatly impressed the Chinese Buddhist monk, Faxian, who separates Bihar from the rest of the world because of its uniqueness in provision of health services.

A further glorious era in India’s history is the rule of Sher Shah, whose empire was also centred in Bihar in the early sixteenth century. Sher Shah’s vision of infrastructure was way ahead of its times, as exemplified by the development of the Grand Trunk Road which to this date remains the principal arterial route in the country.

For key periods in its past, Bihar has been a centre for enlightenment and social equality. Bihar is where the earliest rebellions against traditional caste- and gender-based hierarchies and discrimination originated.

Active engagement on socio-political issues has been a noticeable Bihari characteristic. During the freedom struggle, Mahatma Gandhi, the exponent of satyagraha (insistence of truth), staged his first movement in 1917, in Champaran, Bihar. This non-violent movement, the first seedling of satyagraha in India, is sometimes referred to as the ‘Indigo Movement’. During this movement, he championed the cause of the poor indigo growers of Champaran district, who had extended an invitation to Gandhi to see for himself the abject condition of the exploited peasants, and the coercive methods employed against the peasantry by the British landlords.

In the post-Independence period, another testimony to Bihar’s political conscience is the so-called ‘Bihar Movement’ of 1974, which was initiated not by any political party but by students of Bihar. The movement led by the veteran Gandhian socialist Jayaprakash Narayan initially challenged the misrule of, and the corruption in, the Government of Bihar. Very soon it became a pan-Indian movement against the Indira Gandhi government. It resisted corruption and the use of state agencies to repress human rights. The so-called Total Revolution or JP movement (named after Jayaprakash Narayan) constituted the foremost challenge to the Central government against the imposition of internal Emergency.

These observations relating to ancient as well as contemporary history of Bihar are important not only because of their cultural or historical value, but also because they are relevant to both the problems of Bihar and how they might be tackled. The primary challenges facing the state currently are its low levels of education, poor health care services, underdeveloped infrastructure, low energy availability and social inequity compounded by caste and gender inequalities. Although these problems may be pervasive throughout India, they are relatively more acute in Bihar. Given its glorious history, there are valuable lessons to be learnt from its own past, its traditions, and the political responses observed since ancient times.

WHY AND HOW BIHAR DITHERED?

Arnab Mukherji and Anjan Mukherji provide a lucid discussion of the reasons behind the decline in the past glory of Bihar.¹ There are several factors at work, some of which were intrinsic to Bihar (for example, weak governance, inadequate focus on infrastructure, and inaction on land reforms), but many of which were exogenous such as the loss of resources from the bifurcation of the state and the freight equalization policy.

Several policies during the British rule over a long period of time adversely affected the development of Bihar. First, the Permanent Settlement of 1793 under Lord Cornwallis, which introduced the Zamindari system was seriously detrimental. Under this system, tax revenues were fixed for each Zamindar and revenues were delinked from agricultural output. This policy limited incentives for public investment in raising agricultural output in Bihar. Unlike the eastern regions, the southern and western parts of India like Madras and Bombay provinces followed the Ryotwari system. The Ryotwari system determined revenue in relationship to agricultural output, which led to better administrative efforts and created incentives for improving productivity in the Ryotwari areas in terms of high public expenditure on health, education and infrastructure.

Second was the Freight Equalization Policy of 1948, whereby basic raw materials like iron ore, coal and other minerals became available at the same price throughout the country. This undermined the comparative factor advantage for Bihar, which was rich in mineral and other raw materials for developing manufacturing and value-added activities. It also destroyed incentives for industry to locate in a mineral-rich state like Bihar since they could purchase all inputs at the same price in other states as well. Several automobile producers which require steel as an input located themselves in far-off western states rather than Bihar. This stymied manufacturing activity and indeed the process of industrialization. It thus had serious consequences for a more balanced composition of the state domestic product with the continued dominance of the primary sector.

Third, in more recent times, as pointed out by Mukherji and Mukherji,² development issues ceased to receive priority attention between 1990 and 2005. It has been argued that the then ruling establishment tapered off all hiring believing that both fresh recruitment and expenditure would primarily benefit the upper castes. The principal focus was on social issues and empowerment of those perceived as underprivileged, and these were pursued in ways which seemed to de-emphasize the broader development issues of the state. Real per capita income was almost stagnant between 1990 and 2005 (see Figure 1), with an average annual growth rate of less than 1 per cent between 1990-91 and 2005-06.

Another external factor beyond Bihar’s control was the persistent stepmotherly treatment extended to it by the Central administration not only in recent times, but going back to the British rule. During the early twentieth century, the allocation of revenue, for example, was skewed away from states like Bihar and Orissa, leading to the lowest expenditures per capita on public administration, health and education in these states. Even after Independence, the poor allocation of resources to Bihar continued. The distribution of resources continued pretty much according to the same principles as before Independence, thus exacerbating regional inequality, and disadvantaging Bihar.

FIGURE 1: REAL PER CAPITA INCOME: 1980–2005

(NET STATE DOMESTIC PRODUCT PER CAPITA, 2004-05 PRICES)

Finally, a lack of coherent and coordinated action by the state leadership only compounded the problem of insufficient and failing support from the Centre. The meagre resources available were either underutilized or yielded poor outcomes, leading Bihar to perform far below its potential.

WHY THIS BOOK IS IMPORTANT AND TIMELY?

A keen desire to go back into the past cannot be a lasting solution to Bihar’s problems. A phase of decisive change began in November 2005, when the National Democratic Alliance (NDA) won an absolute majority in the state legislature, and Nitish Kumar became chief minister of Bihar, bringing an end to the fifteen-year rule of the Lalu Prasad Yadav–led Rashtriya Janata Dal (RJD). The NDA came to power again in 2010, with Nitish Kumar continuing as chief minister for a second consecutive term. He inherited an economy which was beset by multiple problems— low growth, poor delivery of social services, weak administration and governance, education and health system in crisis, poor infrastructure and the loss of faith of the average citizen in the government machinery. Pessimism reinforced itself believing that any positive change was an unrealistic expectation.

FIGURE 2: REAL PER CAPITA INCOME: 2006–2012

(NET STATE DOMESTIC PRODUCT PER CAPITA, 2004-05 PRICES)

Half Full

The pace of change since 2005 has been significant and Nitish Kumar’s success as a leader is illustrated by the picture of growth in Figure 2. There was a turnaround, and Bihar’s growth took off after 2005-06. The average growth in real per capita income increased from an average of 0.9 per cent during 1991–2005, to 10.4 per cent between 2006 and 2012.

Consistent with the dramatic increase in growth rates, poverty also declined with the percentage of people living below the poverty line declining from 61 per cent to 54 per cent between 1993-94 and 2009-10 (based on the Planning Commission methodology) although the magnitude of the decline in Bihar has been relatively muted compared to some of the other states like Jharkhand, Orissa, Rajasthan, and Uttar Pradesh.

The four key elements of the Bihar turnaround story that deserve attention are improvement in law and order, education, health, and infrastructure.

The first is clearly illustrated by the steep reduction in crime rates, which is supported by data from the National Crime Records Bureau. Crime rates diminished relative to all-India levels for many crime categories (see Figure 3).

FIGURE 3: BIHAR TO ALL-INDIA CRIME INCIDENCE RATIOS

Source: Mukherji and Mukherji (2012)

Much of the success in improving law and order can be attributed to the new leadership and management. Rajesh Chakrabarti, in his recent book on Bihar,³ offers a keen insight into how several senior officers in police and administration were also responsible and acted in consort with the political leadership for bringing about innovative changes. One example is the imaginative use of the Arms Act: it was segregated from the other charges in the charge sheets filed against criminals, which brought about speedy trials and higher rate of conviction.

The strategy included increases in expenditures allocated to state police and also the creation of a new State Auxiliary Police (SAP) composed mostly of ex-army staff, who were better trained in handling criminals. Importantly, trials were speeded up under the Bihar Special Courts Act of 2008, and criminals were prosecuted irrespective of party affiliation. There was a clear change in the operational style of maintaining law and order.A politically neutral approach to the criminal justice administration contributed to increased confidence in the system, both in the people and in the administrative hierarchy.

The second bright spot in Bihar’s success story is elementary education. The regime from 2005 has also been marked by an impressive and unprecedented success in elementary education. The success has been characterized by a massive increase in inputs such as the number of teachers, classrooms, schools, as well as a doubling of the elementary education budget between 2006-07 and 2010-11. Importantly, the enhanced inputs have translated into dramatic improvements in educational outcomes. For example, the percentage of out-of-school children in the 6–14 age group declined from 12.8 per cent in 2006 to about 3 per cent in 2011. The drop is even more dramatic for girls in the age group of 11–14 years, where the proportion of out-of-school girls has declined from 17.6 per cent to 4.3 per cent over the same period.

What explains the remarkable progress of Bihar in elementary education? To begin with, the government embarked on an active education agenda with massive increase in school inputs. This was accompanied by targeting of specific populations like women and girls and backward social groups with very low incidence of enrolment. Literacy campaigns and bicycles for girls completing class eight proved to be instrumental in raising enrolment rates and creating an environment favourable to education. Above all, strong political will and focused implementation of the strategies by an able administration led to big changes in enrolment.

The third significant change is in the health sector, where various outcome indicators show progress between 2006 and 2011. For example, the period between 2006 and 2011 has been characterized by a drop in infant mortality rate, an increase in the number of safe deliveries in health facilities, a decline in deaths due to black fever, reduction in the number of polio cases, and a dramatic increase in immunization coverage from 18.6 per cent in 2005 to around 70 per cent in 2011. Similar to education, the strategy has been to increase the general health inputs such as the number of primary health centres, accompanied by various targeted initiatives. Primary health centres were made accountable with guaranteed availability of medicines and improved attendance by the erstwhile absentee doctors. The average number of patients visiting the health centres per month increased from 3,077 in 2006-07 to 9,317 in 2010-11. The bed occupancy rates have also increased, from 22.6 per cent to 77.1 per cent during this period.

The fourth distinctive feature in Bihar’s turnaround is the development of infrastructure—in particular, the expansion of roads and bridges. New roads and bridges were constructed under various schemes such as the Mukhya Mantri Gram Sadak Yojana (Chief Minister’s Rural Roads Programme), and the Bihar Rajya Pul Nirman Nigam (Bihar State Bridge Construction Corporation Limited). In road construction, although the Central government had a scheme in 2000 to connect rural areas with cities, the implementation of the scheme proceeded very slowly which led to a reduction in allocation of funds to Bihar by the Central government. Starting in 2005, the new state government brought road construction under its jurisdiction, made it a high priority and showed remarkable success during its first term.

This book is important as it summarizes and characterizes the Bihar turnaround story and helps understand how strong progress has been and can be made. It is timely because it is absolutely crucial for both the government and the citizens to realize at this juncture that despite the recent optimism, the challenges that Bihar faces are formidable. Although growth rates or change of various indicators in different areas have been impressive, the levels still remain abysmal. The Bihar story can therefore be viewed as both a glass half full and a glass half empty.

Half Empty

Despite strong growth in the last six years, poverty has declined only marginally. In 2009-10, Bihar still had the highest ratio of population below the poverty line at 53.5 per cent, 80 per cent higher than the all-India average. In particular, the incidence of rural poverty is shockingly high at 60.5 per cent. The higher poverty rates are combined with an exceptionally low rate of urbanization with 11 per cent of the population living in urban areas (compared to 31 per cent for India as a whole, reflecting both an unbalanced economy and lack of opportunity). Even though the rate of urbanization is low, urban poverty is higher than in other poor states.

Enrolment in elementary education has increased dramatically, but the reality of the classrooms is something diff erent. The level of learning is poor; although this is a nationwide issue, the problem is more severe in Bihar. According to Annual Status of Education Reports, 50 per cent of the children enrolled in standard five are not able to read at the second standard level. Further, the age composition of children is distorted. Children in Bihar in specific grades are much older compared to their peers in other states. Less than one-fifth of rural families in Bihar have anything else to read other than textbooks.

While elementary education has seen some improvement, the higher education sector has been largely neglected. Bihar fares poorly on most outcome indicators of higher education compared to other states. The share of the highly educated in the working-age population has exhibited a steady downward trend. The sector is marked by several fundamental problems such as low quantity of schooling inputs relative to its rising population, distorted incentives for teachers, as well as inadequate emphasis on the quality of education as reflected in outdated syllabi and teaching practices.

The story is similar for the health sector. Per capita health expenditure in Bihar still remains low, for example, only a third of Kerala. According to the Annual Health Survey, 2010-11, fertility rates in Bihar remain higher than the national average. Maternal mortality continues to be as high as about 300+ deaths per 100,000 live births. Less than 6 per cent of women are able to avail of the full package of recommended antenatal care during pregnancy, and 52 per cent of them still deliver babies outside of formal health institutions.

The Bihar growth story is explained primarily by an increase in the share of construction and services. For example, the share of construction in Bihar’s net domestic product increased from 3.6 to 12.1 per cent between 1993-94 and 2011-12, while the share of trade, hotels and restaurants increased from 15.2 per cent to 35 per cent over the same period. In contrast, the share of manufacturing has been stagnant at 4.5 per cent.

Although there has been some improvement in infrastructure through the expansion of road networks as discussed above, power remains the most critical constraint to the development of manufacturing. The situation has become worse after the bifurcation of the state in 2000, as many generation plants and coal mines were located in the newly created state of Jharkhand. Bihar has the lowest electrification rates in the country, with only 16 per cent of the households having access to electricity, much lower than the national average of 67 per cent. Forty per cent of the electricity is consumed only in one city, Patna, which itself does not have constant supply of power. One striking feature of the power situation is that 98 per cent of the electricity consumed in Bihar is imported from other states. Bihar hardly has its own generation capacity. Moreover, the state electricity board is in poor financial health and is running huge losses with its revenues hardly covering half its cost.

The development of manufacturing is also perhaps constrained by the general climate for doing business in the state. According to the World Bank’s Doing Business 2009 report, Patna was ranked fourteenth out of seventeen Indian cities in terms of its ease of doing business. It estimated that it took, on average, 185 days in Patna to deal with a construction permit, eighty-seven days to register a property, and 7.3 years to close a business. These numbers are higher than the best performing city of Ludhiana, the inefficiency of even the best city in India in a global context notwithstanding.

The share of agriculture in Bihar’s net domestic product has fallen dramatically from 47.9 per cent in 1993-94 to 15.4 per cent in 2011-12. However, agriculture continues to employ 80 per cent of Bihar’s population. Thus, the majority of Bihar’s population is employed in the sector with the lowest productivity. The majority of farmers are small landholders. Foodgrains still dominate agriculture production. Infrastructure problems (e.g., lack of proper storage) continue to hinder the development of high-value agriculture commodities like fruits and vegetables.

Overall, although Bihar has recorded impressive growth in the last half-decade, it still remains India’s most economically backward state with the lowest score on the Human Development Index (HDI), low levels of urbanization and industrialization, high poverty rates, and inadequate infrastructure, especially, power, water and sanitation.

Bihar can indeed rejoice over being one of the top performers among Indian states in terms of changes in various development indicators over half a decade. However, it cannot afford to be complacent as the levels of most indicators continue to be desperately low. Bihar’s robust performance is a relatively recent phenomenon. It will require many more years of strong performance for Bihar to overcome its poor development legacy of decades. This book is timely as it sends an early warning against any sense of complacency amongst policymakers in Bihar.

Crystal Gazing

We remain optimistic about Bihar’s future for the following reasons. First and foremost, it has a young demography, younger than in the rest of India, which has just begun to taste the fruits of development. Improved education and health prospects will generate significant pressures to keep improving and make electoral outcomes increasingly dependent on development outcomes. The traditional arithmetic of caste coalitions in electoral politics suggestive of a stratified social order has been dented. The second term of the present government is recognized as reward for improved governance and development. The mutual reinforcement between electoral outcomes and better governance will continue to create virtuous cycles in the foreseeable future. It is unlikely to be able to turn back the hands of the clock.

Second, the concerted effort of the ruling political class in Bihar to secure what is called a special category status for the state has several implications. These go beyond any political rhetoric. The rationale of the demand is embedded in the recognition that in a federal polity like India all federal states have a right to development. Fiscal transfers through multiple ways have some progressivity but are not progressive enough to reverse the growing inequalities between regions and states. As Bihar has been consistently ranked at the bottom of the pyramid on virtually every accepted development indicator—whether per capita income, energy consumption, education, health or infrastructure—the demand for a more rational policy on fiscal transfers would be difficult to resist. Recognition of this is reflected in the recent Economic Survey⁴ and the finance minister’s

Budget speech.⁵The recently constituted Raghuram Rajan Committee recognizes this and is designed to suggest the mechanisms and the modes of implementation. It would be reasonable to expect that there would be larger fiscal transfers and the enabling policy framework will also catalyse greater private investments.

Third, variations in employment prospects and uneven levels of urbanization would continue to drive migration from Bihar. The migrant labour would increasingly seek higher-value-added employment. The acquisition of skills and vocational training therefore will have high preference. Emigration would also enable enhanced remittance flows.

Fourth, sooner than later the current comparative factor advantage of Bihar in agriculture, given the abundance of water, would boost agricultural productivity and the pursuit of what is called rainbow agriculture would improve farm income. Bihar will seek to become an agricultural hub as declining water aquifers in other parts of India would become problematic.

Fifth, the generation of new employment opportunities will remain a challenge. So there can be no escape from promoting value-added manufacturing activity; and the regulatory regime both for land and labour would need to be suitably modified. This will enable the GDP composition of the state to become more balanced and also generate additional employment.

Sixth, Bihar is a landlocked state with a long international border with Nepal. It is well known that rivers emanating from Nepal inundate large parts of north Bihar, destroying crops and infrastructure and causing deep human suffering. For long, an international agreement with Nepal for reforestation, river-taming programme and dams in the upper catchment area in Nepal has remained elusive. The fragile relations between India and Nepal and the jealousness with which India guards its turf for any bilateral arrangement with Nepal prevent multilateral international institutions like the World Bank or the Asian Development Bank from seeking arrangements which would be both ecologically and economically beneficial. The adverse implications of climate change are becoming sharper and more visible.

Seventh, Bihar is the home to some of the oldest heritage sites in India. As the seat of the Gupta and Mauryan Empires and from where Buddhism travelled to other parts of Asia, Bihar has immense tourism potential. Even the modest improvement in infrastructure has resulted in a fourfold increase in foreign tourist flows from 1.77 lakh in 2007 to over 7.95 lakh in 2011. Rising incomes in China and other Asian countries could bring exponential increase in tourism flows. Improved air and road connectivity and strengthening the hospitality sector in Bihar to cater to this rising tourist demand could have a strong and beneficial multiplier effect.

Eighth, it has often been asked, what is unique about the Bihar model? What lessons does it have for other states or emerging markets in similar circumstances? The most important lesson is of transiting from identity politics to a development-centric politics. Electoral psychology undergoes changes if people experience and perceive a change for the better. Class and caste stratifications become malleable with the increasing quest for, and expectation of, an improved quality of life. This is a force for modernization as also for strengthening democracy. Equally, if development has to be meaningful it must benefit all segments of society. This is particularly important for the extremely backward sections within the ‘Backward’ category, or, say, the Mahadalits within the Dalit category as also for minorities and women. Making them an integral part of any growth strategy and mainstreaming their contribution would lead to added social cohesion. Empowering women unleashes skill and talent which have multiplier economic and social benefits.

The uniqueness of the Bihar model is its inclusiveness in the broadest sense of the term. It also implies that growth rates need not be compromised while pursuing a more inclusive growth strategy. It is in this sense that the Bihar model is worth replication in other states.

Finally, one must recognize that Bihar is still only at the start of radical change. The significant achievements of just the past seven years have made everyone sit up in acclaim and expectation. However, the drama of development has only begun. Rekindling of the lost Bihar pride together with the new confidence of its very successful migrant community, both national and international, create enormous possibilities and pressures. Rising aspirations and expectations would push policymakers to fill the half-empty glass. And thoughtful crystal gazing can enable them both to boost and deliver on current initiatives and to seek and foster innovational approaches.

There is a strong determination in Bihar not to make the present, much less the future, a hostage of its recent past.

ORGANIZATION OF THE BOOK

The book is organized into seven sections.

The first section, ‘The Big Picture,’ provides an overview of the past, present and future of Bihar from a socio-economic, political and cultural perspective. Chapter 1 (‘Bihar: Past, Present and Future’) by Amartya Sen provides a historical background of the distinguished past of Bihar—going back a thousand years. Chapter 2 (‘The Bihar Economy: An Overview and Some Field Notes’) by Kaushik Basu then discusses the decline of Bihar in recent history and finally the turnaround since 2005 marked by dramatic progress on various development indicators. Chapter 3 (‘Ensuring Regional Balance in Indian Planning’) by Montek Singh Ahluwalia and Chapter 4 (‘Development in Bihar: An Unfinished Agenda’) by Alakh N. Sharma, however, argue that despite there being a basis for optimism, the challenges in going forward for Bihar are immense.

Section II focuses on the ‘Growth Turnaround’ in Bihar. Chapter 5 (‘Equity, Growth and Governance: The Bihar Story’ by Meghnad Desai), Chapter 6 (‘Progress and Poverty in Bihar’ by Shankar Acharya), Chapter 7 (‘Bihar’s Growth: Learning from Experience’) by Arvind Virmani, all document how the state, the leading candidate among ‘BIMARU’ states, turned around to take a lead in terms of growth in per capita GDP after 2005. The section gives importance to how strong leaders committed to improving governance and economic development can successfully reverse the economic downslide.

The Bihar turnaround can be primarily attributed to a dramatic improvement in law and order through strengthening of the police system, creation of an alternative State Auxiliary Police force, and most importantly expedited trials of hardened criminals. Once the law and order situation improved, it provided the basic preconditions for progress in other sectors such as primary education, health and infrastructure. Chapter 8 (‘Lessons in Development from the Bimaru States’) by Swaminathan S. Anklesaria Aiyar argues that Bihar sets an example for other states on how to bring about a quick turnaround in law and order and in social indicators like health and education despite the shortage of doctors and teachers. Bihar offers lessons on the importance of roads and bridges in spurring economic activity. It also contributes to an understanding of the changing electoral patterns in the country. From the 1990s to 2004, three quarters of all incumbent governments at the Central and state levels lost elections. But that changed dramatically after 2004, after which three quarters of incumbents started winning. This can perhaps be attributed to faster GDP growth in the three non-Congressruled states: Bihar, Chhattisgarh and Orissa.

Section III discusses some key issues in fiscal and financial management. Chapter 9 (‘Raising and Managing Resources for a Stronger Bihar’) by Sudipto Mundle stresses the role of the strengthened fiscal situation in Bihar in explaining its strong performance. The emerging revenue surplus, the rising share of capital spending and rising development spending are central to explaining the remarkable success in Bihar’s development performance. The chapter also stresses the fact that Bihar still has a long way to go. The author proposes a three-pronged strategy for inclusive growth: (i) a special assistance package for Bihar to compensate the state for the shortfall in warranted Central transfers and other disadvantages that Bihar faces, (ii) a concerted effort by the state government to mobilize more resources through expansion of the tax base and better IT-enabled administration, and (iii) a larger deployment of government expenditure for infrastructure, education and health care.

Chapter 10 by M. Govinda Rao (‘Dynamics of Centre–State Relations: Emerging Trends’) discusses more generally the emerging trends in Centre–state relations, and Chapter 11 by Y.V. Reddy and Usha Thorat (‘Financial Inclusion and Economic Growth’) gives an overview