Spending on development and social sector higher and higher, an income gap to close

Bihar’s propensity to spend funds on development projects had been called into question by PM Modi ahead of the assembly elections, when he announced a package for the state on August 18.

If the incremental development expenditure and social sector spends by states over the last few years were to be taken as the yardstick, the Nitish Kumar government in Bihar is clearly among the top three state governments in the country. The other two are the Raman Singh administration in Chhattisgarh and the Shivraj Singh Chouhan government in Madhya Pradesh.

In Bihar, over the last four years, both developmental expenditure and social sector spending have consistently surged, something that is reflected in the overall growth rates too, with Bihar clocking double-digit growth in five of the last ten years, and a 9.45 per cent growth last fiscal — the highest after Madhya Pradesh.

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Incidentally, Bihar’s propensity to spend funds on development projects had been called into question by Prime Minister Narendra Modi ahead of the assembly elections, when he announced a package for the state on August 18.

The Prime Minister had taken a swipe at the Bihar chief minister for “not utilising” central funds but always demanding a “special package or more funds” for the state.

Data compiled by the Niti Aayog captures a different picture. While Bihar’s growth has been consistently higher than the national average since 2005 and in comparison to most states, though on a lower base, the bigger structural shift has been the transformation of the economy from a largely agricultural one in favour of a services-based one with a progressively increasing share of industrial activity, according to the data.

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The estimates of per capita income at constant prices (2004-05) of major Indian states for some selected years during the period 2000-01 to 2013-14 show that while Bihar continues to be at the bottom of the ranking of all states in this aspect, the impact of the strong growth in recent years is reflected in the narrowing gap between the per capita income of Bihar and the national average. In 2009-10, the per capita income of Bihar (Rs 10,635) was 31.05 per cent of the all-India average (Rs 33,901), but in 2013-14, this ratio has surged to 39.22 per cent (Rs 15,650 against the national Rs 39,904).

“The momentum of growth in Bihar’s economy has got to be sustained for many more years if the gap between the per capita income of Bihar and that of India has to be narrowed and ultimately closed,” the state’s annual economic survey for 2014-15 noted.

With economic development, history has shown, the structure of the economy also undergoes change. In Bihar, because the pace of development of various sectors has been different, the labour force has predictably shifted from the primary sector to the more prosperous industrial and services sectors.

If the average for shares of sectoral output for three five-year periods — 1999-2005, 2005-10 and 2010-14 — are assessed, it shows that in the initial five years, the average share of the three major sectors in the total GSDP at constant prices were 34.3 per cent (primary), 11.6 per cent (secondary) and 54 per cent (tertiary).

Thereafter, the share of the primary sector that comprises mainly agriculture has shown a decline over the years, and it came down to 27 per cent for 2005-10, and then to 22 per cent for the period 2010-14. Meanwhile, the relative share of the secondary and tertiary sectors — referring to manufacturing and services sectors respectively — for 2010-14 surged 19.2 per cent and 58.8 per cent respectively.

There are serious shortcomings in the economic development pattern, though. The total bank credit in Bihar does not account for even 1 per cent of the total bank credits in the country. In fact, Bihar’s share in the total deposits of Scheduled Commercial Banks increased slightly, from 2.29 per cent in 2011-12 to 2.34 per cent in 2012-13, and its share of credit also improved marginally from 0.86 per cent to 0.90 per cent in this period.

As on March 2014, the aggregate deposits of all banks in Bihar were Rs 1,83,458 crore, against a credit of Rs 85,334 crore — a credit-deposit (CD) ratio of 46.51 per cent, substantially higher than the 28.96 per cent in 2008-09. In absolute terms, the low CD ratio means that, if the current CD ratio of about 47 per cent in the state were to increase to the national level of around 78 per cent, investments in the state would have to go up by nearly Rs 57,700 crore.

Further, this also indicates flight of capital away from an already disadvantaged state. As on September 2014, the CD ratio was less than 30 per cent in only three of the 38 districts (Bhojpur, Munger and Siwan), compared to seven last year. It was above 40 per cent in 15 districts (Araria, Banka, Begusarai, Kaimur, Kishanganj, Khagaria, Katihar, Muzaffarpur, Purnea, Rohtas, Samastipur, Sheohar, Supaul, and East and West Champaran).