President Zardari is hosting a Diwali dinner for Bihar’s Guru-Governor, Nitish Kumar, who has managed a dramatic turnaround of the state. An interesting if dated (yet prescient) article, “Bihar needs an icon”, on what held Bihar back all these year from it’s true potential.
Did Bihar, despite its massive resources (before the creation of Jharkhand), miss out on industrialisation?
There are many reasons for this.
First is the most ridiculous policy introduced in 1948, the freight equalisation policy, which meant that transport was not to be considered an input cost. This meant a factory could be set up anywhere in India and the transportation of minerals would be subsidised by the central government.
This in turn simply destroyed Bihar’s huge competitive advantage (of holding the minerals) and factories were set up everywhere else but in Bihar. Now the freight equalisation policy has been removed, but now Bihar simply lacks the infrastructure to compete with other states.
Second, in Bihar, the Bania (trading) caste is part and parcel of the backward castes whereas in western and southern India, they are seen as forward castes. Thus, the Banias had little influence and few resources for them to exploit this wealth (some of the biggest industries set up in what is now Jharkhand was set up by people from western India).
Third, the zamindari class, that had the wealth and education to do something, looked down upon labour and trading as a vocation. It is the Bengali bhadralok (big people) mentality that meant you become a professional or live off the land’s earning. In western India, either the Banias were treated with respect, almost like Brahmins, or the forward castes took deep interest.
Let me give an example. D R Gadgil, who founded the Gokhale Institute of Economics in Pune, was himself a great economist. When he was setting up his Institute, he was also working on setting up the sugar cooperatives. In his room, you would find researchers and others working out all the modalities of setting up the cooperatives and Gokhale was intimately involved. By contrast, Amartya Sen too is a great economist but you will never see him involved in the actual task of setting up cooperatives or trading centres.
Finally, as mentioned above, there was no intermediary as there were in western India who could become the entrepreneurs that society needs. It is not just the trading community but also the other intermediary castes that often own some land and are therefore educated, who imbibe the entrepreneurial spirit. Bihar has just rich and poor.
To end on a positive note, “Understanding the Bihar miracle”
Unsurprisingly, the task facing Kumar was Herculean. He began with a per capita income that was barely two-thirds of the average of India a solid 25 years earlier. The law and order situation was in a shambles with rampant corruption and skyrocketing rates of crime. Infrastructure was among the worst in the country. A whopping 78% of the rural workforce depended for livelihood on low-productivity agriculture.
What has Kumar accomplished? Between 2005-06 and 2010-11, total incomes in Bihar have grown 9.9% annually. If we take out the first year of his administration during which his initiatives could not possibly have had any impact, growth in the remaining five years averages 11.7%. In addition to being the period of highest growth in the recorded history of Bihar, these five years have also been characterised by the least fluctuations.
In terms of other indicators, the most impressive progress has been in the literacy rate, especially among women. The proportion of the rural workforce employed in agriculture has declined from 78% in 2004-05 to 67% in 2009-10. Prudent fiscal management has helped bring the debt burden down significantly.