The Bihar Finance Commission estimates that it will take anywhere between 12-28 years for the state’s per capita income to catch up with the all-India figure. Against the backdrop of the impending assembly polls, it is concerning that there is no credible plan to turn things around—labour-intensive manufacturing has to be made the focus and concessions given by the state for encouraging investment must be seen from the prism of jobs generated
The importance of urbanisation and urban jobs for Bihar’s development is recognised in the report of the Fifth State Finance Commission of Bihar (2015-20).
By S Chandrasekhar, Karthikeya Naraparaju & Ajay Sharma
A peculiar feature of the Indian economy in the last two decades is divergence of incomes across states. Among the larger states, Haryana has consistently ranked the highest in terms of per capita state domestic product (PCSDP) while Bihar has the dubious distinction of having the lowest PCSDP. The PCSDP of Haryana was 3.8 times that of Bihar in 1996-97. In 2017-18, two decades later, it was 5.6 times that of Bihar.
That household earnings in Bihar lag that of other states is also borne out from the Periodic Labour Force Survey 2018-19. In half the rural and urban households, the average monthly earning per household member, a measure similar to monthly per capita income, is Rs 2,000 and Rs 2,900, respectively. The average household earning in Bihar is half that of Kerala. What the low incomes in Bihar imply is that the migrants who returned to the state post-Covid-19 lockdown can’t be absorbed in the state’s labour market. Earnings are low and there are just not enough jobs in Bihar. In this sense, Bihar needs the rest of India.
Yes, Bihar has its own peculiarities. For instance, the woes of rural Bihar get compounded with the state getting affected by floods every year. But such peculiarities can’t be an excuse for the lack of an economic vision for improving rural livelihoods in the state. Allocation of funds under the employment guarantee scheme and public distribution system are important when households have low incomes. Political parties ought to focus on the importance of such safety nets. But where is the strategy for how Bihar will get out of the low-income trap that it is stuck in?
What complicates matters further in Bihar is the absence of salutary impact of urbanisation. Less than 15% of Bihar is projected to be urban in 2021. The rural-urban linkages are weak. An example of rural-urban indicator would be the ability of rural households to take advantage of opportunities in the urban labour market. In Haryana, 45% of the earnings of rural households come from urban, while in Tamil Nadu it is 27.5%. This is despite these states not having large distressed pockets in rural areas of the state. In Bihar, barely 15% of rural earnings come from urban areas despite low incomes in rural areas.
The importance of urbanisation and urban jobs for Bihar’s development is recognised in the report of the Fifth State Finance Commission of Bihar (2015-20). It states, “Urbanisation is both the cause (as engine of growth, enabler of economies of scale in providing goods & services and promoter of social mobility) and the consequence of development.” The report acknowledges that more urbanisation means more economic growth, better amenities, infrastructure, education and skill sets, and public service delivery. There is no magic wand for ensuring a vibrant urban Bihar. Setting up marquee institutes like IIT and AIIMS in Patna are minor spokes in the larger game plan. It is unlikely that graduates from these institutes will find a job within Bihar.
There are two fundamental questions. How does the state plan to address the problem of small, unviable landholdings? And the debate over farm laws is of little relevance to this problem. How is Bihar going to manage the transition from a rural to urban workforce? The ratio of average urban to rural household earnings in Bihar is 1.8, in contrast to 1.2 in Kerala. Unlike Bihar, the ratio is low in Kerala because there are no significant productivity differences between rural and urban. In case of Bihar, either rural productivity has to increase or a sub-set of skilled rural workers need to be able to access the urban labour market.
Casual labour and self-employment continues to persist in Bihar, and this is a bottleneck. To this, add the problem of chronic unemployment and underemployment, a concern flagged by the State Finance Commission. Furthermore, rural Bihar is subsistence-oriented rather than market-oriented, and women in particular are engaged in unpaid domestic activities. Technically, this is known as being engaged in non-SNA production where SNA stands for System of National Accounts. Estimates from Time Use Survey 2019 indicate that in rural Bihar women spend 26% of their time in production of goods for own final use, providing unpaid domestic services for household members, unpaid caregiving services for household members and other unpaid work. In contrast, in rural Tamil Nadu, women spend 17% of their time in unpaid activities. Such differences in labour market outcomes and time disposition add up to become important determinants of Bihar lagging the rest of India.
That Bihar lags the rest of India in many an indicator of well-being is old news. Yet, there has been very little articulation on Bihar’s strategy for the next five years. Common sense will suggest labour-intensive manufacturing rather than services as the only option. It is important that any concessions given by the state for attracting investments be seen within the prism of the number of jobs generated. The absence of a credible plan for turning things around within a reasonable time frame is a concern. How quickly can Bihar catch up with the rest of India? Not any time soon! The Bihar State Finance Commission estimated that it could take 12-28 years for the state’s per capita income to catch up with the all-India average. Can this happen sooner, i.e. within the lifespan of senior politicians of Bihar?
(Chandrasekhar is professor, Indira Gandhi Institute of Development Research, Mumbai. Naraparaju and Sharma are associate professors, IIM Indore)