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Bihar,not bimaru

But to catch up,political economy needs to move decisively away from caste,to governance

Written by Dhiraj Nayyar | October 21, 2010 5:40:37 am

The assembly elections which begin in Bihar today may be a pivotal moment in determining the future trajectory of the state’s political economy and indeed progress,in the near term. Pitted against each other are two contesting visions of Bihar: the incumbent coalition government comprising the JD(U) and BJP are campaigning on a platform of good governance which is supported by the arithmetic of rapid economic growth — around 11 per cent on average — in the last five years of Nitish Kumar’s government. On the other side is the RJD-LJP combine shepherded by Lalu Prasad and Ram Vilas Paswan,which still believes that it can acquire power in Patna by manipulating the state’s caste and religious arithmetic in its favour. The Congress is the third front in this contest — trying to take on the incumbent government on a governance,rather than caste,plank — but not yet powerful enough to be a credible alternative in government.

It would be in the larger interest of the state of Bihar and its people if this election put to rest the notion that power can still be captured based on old social divisions and grievances. It is important for Bihar’s political economy to move on to a politics of aspiration — where people vote for a party or coalition that delivers governance — like much of India has already started doing. That will force all serious political parties (including the RJD and LJP if they want to remain relevant) to contest future elections on a forward looking governance plank,rather than a backward looking social engineering plank.

This time round,such reasoning undoubtedly favours the JD(U)-BJP combine,and a majority of opinion polls,for what they are worth,suggest an easy victory for the Nitish Kumar-led coalition. But a political economy which puts governance at its centre may not favour the incumbent government for all times to come,such are the huge challenges facing any government that is elected to power in Bihar.

To what extent can Nitish Kumar’s government claim credit for Bihar’s apparent turnaround,powered by a growth rate higher than India’s average over the last five years? A dissection of the growth figures shows both the contribution of the government and the challenges that remain. Most of Bihar’s growth these past five years has been powered by construction and services,particularly hotels,restaurants,trade and,to an extent,telecom. The impressive growth in these sectors isn’t matched by the lethargic performance in manufacturing and agriculture — those are challenges that still face the next government.

The state government can claim credit for fuelling the growth in construction,since much of this has come through the building of roads funded through the state’s exchequer. In fact,the government’s public spending record has been good,and a massive improvement on the poor spending record of the RJD government that preceded it. Planned spending was tripled within three years of the Nitish Kumar government taking office. This has spillover effects,in a Keynesian “stimulus” sense. Apart from increasing spending,the government has also taken huge strides in improving the law and order situation. That has helped boost not just construction activity (including roads) but has also given a fillip to service industries like hotels and restaurants which have registered impressive growth.

In short,the government has effected the turnaround in the state’s economic fortunes by simply doing the two things any good government ought to: law and order and spending on infrastructure. In doing so,it has reversed the long decline in the state’s fortunes that took place under 15 years of RJD rule. Even with this reversal of fortune,most of Bihar’s economic indicators are well below the Indian average — for example,according to a 2007 estimate,India’s real GDP per capita is 2.83 times Bihar’s; India’s five richest states have real per capita GDP 3.71 times Bihar’s.

It is also important to remember that a lot of this impressive growth in the last five years has to do with Bihar starting from a very low base — and that there is a limit to the sustainability of a growth rate that is powered largely by government spending and a small section of services industries. For growth to be sustainable it needs to be more broad-based into manufacturing and agriculture.

Here,the task gets a lot harder,and will involve massive policy reform in land,labour and product markets. What makes Bihar’s task of industrialisation harder than that of some other states is the fact that it is landlocked,which reduces its attractiveness as an investment destination. It also lost a lion’s share of its natural resources after the division into Jharkhand. Given the continued policy uncertainty over the extraction and use of mineral resources,this may yet turn out to be an unforeseen advantage.

What may also turn out to be an unforeseen advantage is the rather shambolic state of governance in surrounding states — Jharkhand,West Bengal,Orissa and even UP. If Bihar can consistently outperform these states on governance,it would yet become the industrial hub of eastern India — a region which still trails the rest of India on most economic parameters by some distance.

But to capitalise on these potential advantages,the next government of Bihar will have to do much more than maintain law and order and engage in spending. It will need to take bold policy steps to liberalise rules that deter investment. In doing so it may have to go further than other states which have a head start in attracting investment. The government will,for example,need to take very bold steps to ease labour laws,so that Bihari labour can be gainfully employed within the state. It will need to take aggressive steps to ease land acquisition so that it can have an advantage over neighbouring West Bengal. If the government fails to do this and more,growth will begin to slow. And that will give the opposition plenty of ammunition.

At any rate,Bihar’s future elections ought to be fought on these issues of the future rather than the outdated legacies of the past.

dhiraj.nayyar@expressindia.com

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