ExplainSpeaking: Has Bihar’s growth reduced the gap with the rest of India?

In other words, regardless of which political combination ruled it or what policies it chose to implement, has Bihar’s growth trajectory exhibited economic convergence with states (such as Maharashtra or Punjab) where its residents typically migrate? In the same vein, has Bihar outpaced other similarly weaker and contiguous states such as Uttar Pradesh?

There are two diametrically opposite views about Bihar. One, that it was and continues to be a basket case when it comes to economic development. Two, that Bihar’s image does not do justice to the economic resurgence it has staged in the recent past.

Where does the truth lie? Looking at data can help but any analysis will be limited by the choice of variables one incorporates. Here’s an attempt to use data from the Reserve Bank of India’s annual “Handbook of Statistics on Indian States” to attempt answering these queries.

In trying to understand how Bihar has performed, it is important to note not just where Bihar stands today in absolute level of economic output (or any other variable) but also to figure out what is the pace at which the state is improving. Is it, for instance, catching up with Maharashtra/Punjab/Gujarat? Is it lagging behind states like UP and West Bengal?

For the purposes of this analysis, we have compared Bihar with a selection of six states — Maharashtra, Punjab, Kerala, Gujarat, UP and West Bengal. The idea behind this choice is to capture geographical diversity apart from capturing data from states where Bihar residents often migrate for a better life, or the states that have often been bundled along with Bihar as laggards.

Further, the attempt is to look at data going as far back as possible without changing the base year of calculations.

#1: Total economic output

This is the overall size of the economy. For this, the variable use is “real Gross State Domestic Product”. TABLE 1 summarises the change.

TABLE 1.

Bihar’s real GSDP or total real economic output (after taking away the effect of inflation) has grown from Rs 2.47 lakh crore in 2011-12 to Rs 4.64 lakh crore in 2023-24. By itself, that means Bihar’s output nearly doubled over this period of 12 years.

But the more important question is: How did Bihar’s economic output change relative to the changes in the output elsewhere in the country? If other states grow their total output at a faster clip, Bihar, despite an increased economy, would find itself a laggard.

The first column shows how many times was the GSDP of each of the six states relative to Bihar’s GSDP in 2011-12.

For instance, Maharashtra’s GSDP was 5.18 times that of Bihar’s. If this ratio, stated in the second column, comes down then it implies that Bihar has not only grown on its own but also bridged the gap with these states.

As the calculation shows, in terms of the total economic output, Bihar did bridge the gap with a few states in this selection. The biggest improvement (highlighted in green colour) was relative to West Bengal, followed by Kerala.

With Punjab and Maharashtra, Bihar largely maintained the same size difference (the ratio stayed stagnant; highlighted in yellow) whereas the gap increased (highlighted in red) with UP and Gujarat as these states made their total output even bigger relative to Bihar over this period as evidenced with the ratio rising.

For example, Gujarat’s total economic output was less than 2.5 times Bihar’s in 2011-12 but over the next 12 years, it became more than 3 times that of Bihar’s output.

#2: Per capita economic output

The next key variable to consider is the average economic output in these states and how Bihar’s level and growth performed relative to them.

Again, what matters is not just the absolute level of per capita real Net State Domestic Product (the exact variable used to ascertain this) but also whether Bihar moved closer to the level in other states.

TABLE 2 again shows how per capita output has increased in absolute terms — Rs 21,750 to Rs 32,174.

TABLE 2.

But did this increase bridge the gap with the rest of the states here? No.

As the calculations further show, in terms of per capita output, Bihar’s growth was not fast enough and the gap between Bihar and the rest of these states actually widened, as evidenced by the increasing ratios.

Kerala, which has recently declared itself as the first state in India to be free of extreme poverty, is a good example. Even though, as shown in TABLE 1, Bihar’s overall economic output bridged the gap with Kerala, in terms of per capita output, the gulf between the two states widened.

In 2011-12, Kerala’s per capita economic output was 4.5 times that of Bihar’s but 12 years later, it was more than 5 times that of Bihar.

In other words, an average Bihar resident is worse-off (compared to residents in any of these states) in 2023-24 relative to where he or she stood in 2011-12.

Apart from overall increase in economic output, a key underlying factor affecting per capita data is the increase in population. If one uses the population projections by Census India for 2021 and compares them with 2011 data, it becomes clear that while Kerala’s population likely grew by just 6.2% over this decade, Bihar’s grew by 18.2%.

How did UP, which is a larger population base than Bihar, buck the trend and pip Bihar on per capita income? Because even UP’s population likely grew by 15.6% over this decade.

#3: Contribution of the manufacturing sector

Boosting the contribution of the manufacturing sector in any region’s economic output has been a key concern for all policymakers. That’s because a fast growing manufacturing sector often provides the best chance to create lots of jobs for the local population.

TABLE 3 looks at real (that is, after taking away the effect of inflation) value added by the manufacturing sector to the state’s economic output. The variable used is the real Net State Value Added; it basically tells the money value of how much the manufacturing sector contributed.

TABLE 3.

In 2011-12, Bihar’s manufacturing sector value-added Rs 12,681 crore and by 2023-24, this contribution had grown to Rs 31,110 crore.

While Bihar has improved in absolute terms, these numbers, by themselves, are just a fraction of the values in some of the more prosperous states. In Maharashtra, for instance, manufacturing value added in 2011-12 was Rs 2.06 lakh crore.

The key question again is: Did Bihar bridge the gap with the others? Surprisingly enough, on this count, Bihar does uncharacteristically well.

As the calculation in TABLE 3 shows, Bihar seems to have bridged the gap with every state in this selection barring Gujarat. For instance, Maharashtra’s manufacturing value-added in 2011-12 was 16.3 times that of Bihar’s. By 2023-24, it was just 10.32 times.

In fact, apart from Gujarat, only three other large states widened the gap relative to Bihar — Haryana, Himachal Pradesh and Odisha. All the rest witnessed more modest increases in manufacturing value-added.

Does that mean Bihar’s manufacturing sector has been booming, albeit at a lower scale? If so, what explains this counter-intuitive result?

The fact is: Manufacturing value-added has struggled to grow in most states over this period. In Maharashtra, for instance, the value-added by the manufacturing sector was Rs 3.28 lakh crore in 2017-18 but since then it has registered a significant decline, and by 2023-24 end, its value-added stood at Rs 3.21 lakh crore — a level it had first hit in 2016-17.

Upshot

Bihar’s overall base of economic activity is small, as such, its growth rates can often flatter to deceive. Seen in isolation Bihar can give an impression that the state is registering fast economic growth rates but, as shown in this analysis, it is still possible for Bihar to fail to bridge the gap with other states.

Even when Bihar seems to do very well relative to other states — for instance, manufacturing value added — data could prove to be misleading. It may be pointing to a sharp deceleration in other states instead of Bihar catching up with them.

Has Bihar’s politics failed its economy? Share your views and queries at udit.misra@expressindia.com.

Take care,

Udit