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Falling Short

Special package will not have an enabling effect on Bihar’s economy.

Written by Shaibal Gupta |
Updated: August 28, 2015 12:00:17 am
Narendra Modi, bihar special package, bihar package, modi bihar package, nitish kumar, bihar elections, bihar polls, bihar assembly polls, india news It appears that the national highway projects were already in the pipeline before the announcement of the package. Administrative sanction and in-principle approval would already have been accorded to these.

The Rs 1.25 lakh crore package announced by Prime Minister Narendra Modi is being portrayed by some as an economic “game-changer” for Bihar. In addition, Rs 40,000 crore has been allocated for the state for ongoing projects. Modi also announced tax incentives for manufacturing undertakings and enterprises in 21 backward districts. One should note that Jammu and Kashmir, with a much smaller population, got a package of Rs 1 lakh crore, even though it is already one of the few privileged “special category states”. In a comparative framework, the Bihar package leaves much to be desired.

The package was long overdue. It seems Modi has realised that it was the mineral resources of the erstwhile united Bihar and “freight equalisation” that subsidised post-Independence industrialisation, including of Gujarat. Freight equalisation was not extended to cotton and petroleum products, which could have given a spurt to the textile industry of the eastern states. Because of this policy, Bihar lost more than Rs 1.12 lakh crore in just iron ore, almost equivalent to the present package. Discrimination against Bihar continued unabated. Unlike the compensation principle followed after the division of Andhra Pradesh, the question of state-specific packages was ignored by the then NDA government after the vivisection of Bihar.

But many questions remain unanswered. Even if we assume that the Rs 1.25 lakh crore is additional financial deployment, has the package got parliamentary approval? If not, will it be approved in the supplementary budget? What is the time period over which the devolution will occur? Will the package be routed through the consolidated fund of Bihar, and not through the consolidated fund of India? In some sectors, the proposed outlays seem too large to be true. It also appears that a large part of the package is being provided by PSUs and cash-rich Central organisations like the NTPC, ONGC and NHAI, either at the Centre’s prodding or through the budgetary support extended to them by the Centre.

Further, it appears that the national highway projects were already in the pipeline before the announcement of the package. Administrative sanction and in-principle approval would already have been accorded to these, and some would have been budgeted for. Similarly, some of the outlays earmarked for different ministries in the package would also likely have already been budgeted for, particularly under the ministries of rural development, petroleum, agriculture, railways, power and health. Of course, there are some new projects; for example, the Digital Bihar programme and the Mega Skill University. But the establishment of an IIM at Bodh Gaya and the upgrade of the agriculture university in Pusa to the level of a Central university had already been taken care of.

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Bihar could be authentically enabled if the bulk of the resources of the package were directed for irrigation and agriculture, as well as for strengthening school education. The package has not taken cognisance of these two critical needs of the state. Another way of enabling the state is by writing off its debt. Every year, the state has to pay Rs 7,221 crore as interest on its debt of Rs 89,239 crore. This step would not have been novel. In 1997, then PM I.K. Gujral, a Rajya Sabha MP from Bihar, wrote off Punjab’s outstanding debt of Rs 8,500 crore, primarily to get elected from the Jalandhar parliamentary constituency. While the electoral quid pro quo worked for Gujral, will it work for Modi for 243 assembly seats with a meagre package?

Yet another enabling strategy could have been to grant Bihar special category status. Granting tax concessions to select districts will not serve the purpose of industrialisation. A state cannot be front-ranking in development only with the help of public investment. Special category status could have enabled private-sector investment, paving the way for a strong foundation of provincial capitalism. Even if big-ticket investments fail to come, it would give fillip to local capital to leapfrog. But, unfortunately, neither P. Chidambaram nor Modi could live up to the promise of special category status for Bihar.

This package is no substitute for special status. It might fill some of the holes in Bihar’s physical infrastructure, but it doesn’t have enabling implications for the state’s economy. At best, the present package appears to be rather little and too late for the seriously disadvantaged state of Bihar.


The writer is member secretary, Asian Development Research Institute, Patna.

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First published on: 28-08-2015 at 12:00:15 am
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