Bihar needs an economic plan to escape ‘sub-Saharan India’

But despite 15 Finance Commissions and the former Planning Commission, divisions among the states have increased and may have reached extreme levels.

This is exemplified by none other than the case of Bihar, which fits the perfect typology of low-income sub-Saharan states in terms of economic indicators and standard of living.

The debate on regional or population-wise inequality is neither new nor specific to India, but has different manifestations globally. Thomas Piketty fueled the debate by eliminating measures of inequality and showing that India’s top 1 percent own 22.6 percent of income and 40.1 percent of all wealth (among the highest shares in the world).

Economist Surjit Bhalla and others have criticized the findings for methodological shortcomings. Philip Aghion, on the other hand, documents positive correlations between innovation measures and top income inequality and argues that new entrants’ innovation contributes to social mobility.

Other common measures of inequality include gaps between rural and urban areas and between skilled and unskilled workers. However, these discussions do not adequately address environments where per capita income is extremely low.

For example, Bihar’s per capita income is higher than Sub-Saharan Africa’s Sierra Leone, Malawi and Niger. This article considers the case of ‘Sub-Saharan India’ from an economic and development perspective.

The roots of uneven development among regions in India are deeply rooted in history. How did Bihar get here despite its clearly stated goal of balanced development? After all, we were on our path to development as a democracy, even if it was new or complex.

From the beginning, Bihar has been a victim of, among other things, unintended consequences of well-intentioned policies. India’s Freight Equalization Scheme (FES), introduced in 1952, which even sought to encourage industrial development by subsidizing long-distance transportation of key inputs such as iron and steel, likely contributed to this disparity.

Remember, undivided Bihar was a resource-rich state until 2000. Research by John Firth and Ernest Liu suggests that, in the long run, the FES contributed to the decline of industry in eastern India and pushed iron and steel-using industries towards more prosperous states. .

Due to the displacement of processing of essential ferrous materials, resource-rich states suffered from this plan and never fully recovered.

The Green Revolution was another experiment that brought regional inequality in India into sharp focus. Punjab and Haryana benefited the most and helped solve India’s hunger problem.

These states have invested heavily in agricultural infrastructure, although input subsidies and output price support and purchasing policies have helped them in increasing farm production. But it skipped eastern India, where Bihar is located.

Inequality between regions has never been this sharp. While Bihar accounts for 9% of India’s population, it accounts for less than 2% of its GDP. Bihar’s annual per capita income is almost ₹60,000 is the lowest number in the country and is comparable to that in civil war-torn Liberia, one of Africa’s poorest countries.

The poverty rate in Bihar is the highest in India. It is also among the most densely populated and least urbanized states, but it also has the youngest population (close to 60% are under 25 years of age) and has India’s highest fertility rate of 2.98 (NFHS-5); replacement rate 2.1.

Therefore, the number of employees will continue to increase rapidly and the challenges will increase further. According to the Periodic Labor Force Survey 2022-23, the unemployment rate in Bihar is 13%, three times the national rate of 4%. In the 15-29 age group, this rate is 31%, which is three times the national level of 10%.

Bihar’s higher education gross enrollment ratio (14.5 compared to Tamil Nadu’s 51.4 as seen in the All India Higher Education Survey 2021-22 report) and learning scores (National Achievement Survey 2021-22) are among the lowest .

The statistics are appalling for a state with a rich educational history and lofty ambitions; The increasing number of coaching institutes clearly demonstrates this. Bihar also has the lowest labor force participation rates (WPRs) for women, in the low single digits; Compared to India’s rate of more than one-third.

Although Bihar lags significantly behind other states in economic growth and development, what is more striking is that its disparity from other states has increased over time.

At current growth rates across states, Bihar will need 17 years to catch up with Odisha and 61 and 318 years to catch up with half the all-India and Gujarat average respectively.

Bihar could potentially achieve much faster convergence if it increased nominal per capita GDP growth rates by 50%: assuming status quo rates for other states, it would take 16 and 24 years respectively to catch up with India and Gujarat. This scenario would require either faster nominal GDP growth or lower population growth, but the latter seems relatively elusive.

Bihar urgently needs an economic plan with a strategy to capitalize on its demographic dividend and promote rapid economic growth and development. Human capital growth and large-scale trade are two return engines that the state can start with.

These are the personal views of the author.