Economy of Bihar

Economy of Bihar

The economy of Bihar is largely service oriented, but it also has a significant agricultural base. The state also has a small industrial sector. As of today, agriculture accounts for 35%, industry 9% and service 55% of the economy of the state [] Manufacturing has performed very poorly in the state over the last 5 years, with an average growth rate of 0.38% compared to India's 7.8%. []


Attempts at Industrialisation

The sugar and vegetable oil industries were flourishing sectors of Bihar. Until the mid fifties, 25% of India's sugar output was from Bihar. Dalmianagar was a large agro - industrial town. There have been attempts to industrialize the state between 1950 and 1980: an oil refinery in Barauni, a motor scooter plant at Fatuha, and a power plant at Muzaffarpur. However, for a combination of factors, these attempts failed and the economy struggled to grow from 1990 to 2005.

Reasons for Failure

There are many factors behind the economic decline of Bihar: many in Bihar blame the freight equalisation scheme, poor political vision, under-investments in the key sectors of agriculture, infrastructure and education.

Others view cultural and political factors as reasons behind economic decline, espically in the 1980's and 1990's. Many observers believe that a combination of poor governance, caste based politics, caste based society, and rampant corruption by politicians & bureaucrats were the main causes for the lack of development.

tate GDP from 1980 to 1990

Indian government data form 1980 to 1990 ("see Economic Indicators below") also show that the GSDP of the undivided Bihar grew by 72% in this period despite the socio-economic prooblems of the state. The data also shows that the state GSDP grew by 49% between 1980-1985, which means that the economy was one of the fastest growing in the country during the early 1980s as well.

Rashtriya Janata Dal: 1990 to 2005

Caste and Criminalisation

Lalu Prasad's support of social justice has ensured that Bihar politics was dominated by Mandal dynamics and caste rather than development. Also, the criminalistion of politics during this period created a business unfriendly climate and contributed to the economic collapse [] . [] [] . The biggest crisis business faced was with organised kidnapping, which the local BJP leaders claimed was linked to the ruling RJD. [] . The resulting crisis led to a flight of capital, middle class professionals, and business leaders to other parts of India. The the flight of business and capital increased unemployment and this led to the mass migration of Bihari farmers and unemployed youth to more developed states of India.

Non RDJ Factors

During this time Bihar's share of revenue from the Central pool declined by Rs.5,000 crores in the 1990s as the Centre's revenue collection had gone down. According to Shaibal Gupta, this, coupled with the fact that the government failed to get its plan allocation released because it could not contribute the matching non-plan grant, aggravated the financial crisis. []

The division of Bihar in 2000, when the industrially advanced and mineral-rich southern-half of the state was carved out to form the separate state of Jharkhand, had a strong impact on development in the north mainly through a loss of revenue. Divided Bihar produces 60% of the output of the undivied Bihar. Even today, the 2005 to 2006 combined state GSDP for Undivided Bihar was almost as large as the Indian state of Karnataka, where Bangalore is located, and larger then its Hindi speaking states of Madhya Pradesh, Rajasthan, and Chattisgarh. []

Economic Indicators under the RJD

In the non-agricultural sector, the growth rate of GSDP in Bihar was 6.62% against 6.61% for India as a whole during the 1980s. During the 1990s when the growth rate of GSDP in Bihar was 3.19% while for India it rose to 7.25%. This gets reflected in the per capita income as well. While the per capita income in Bihar grew by 2.45& per cent only during the 1980s against 3.32% per cent in India as a whole, the situation changed drastically in the 1990s when the per capita income grew only 0.12% per cent in Bihar as against 4.08% per cent in India. The growth rate in agriculture was 2.21% during the 1980s against India's 3.38%, during the 1990s it was 2.35% in Bihar while at the all-India it stood at 3.14% [] . The economic indicators ("see below") shows that there was a serious recession between 1990-1995, which resulted in an employment-development-crime crisis between 1995-2004.

Today and Government Intervention

Poverty, Income, and Urbanisation

The state has a per capita income of $148 a year against India's average of $997 and 30.6% of the state's population lives below the poverty line against India's average of 22.15%. However, Bihar's GSDP grew by 18% over the period 2006-2007, which was higher then in the past 10 years. [] . Hajipur, near Patna, remains a major industrial town in the state, linked to the capital city through the Ganga bridge and good road infrastructure.

The level of urbanisation (10.5%) is below the national average (27.78%); and behind states like Maharastra(42.4%). Urban poverty in Bihar (32.91%) is above the national average of 23.62%. [] Also using per capita water supply as a surrogate variable, Bihar (61 litres per day) is below the national average (142 litres per day) and that of Maharastra(175 litres per day) in civic amenities.

tate GDP from 2004 to 2007

Despite this, under Presidents rule (Feburary to November 2005)and the current NDA government (Nov 2005 till date) the state's GSDP is growing on average by 12% per annum. And from 2004 to 2007, the state's GSDP has grown by 22%. The growth rate has resulted in visits by Indian business leaders to Patna making commitments to invest in the state's fast growing economy. [] [] ("see Economic Indicators below")

Government Intervention

After November 2005, the government of Bihar has introduced several laws, which it hopes, will provide a positive contribution the furture development of the state's industries.

*Bihar Single Window Clearance Act-2006

*Bihar Infrastructure Development Enabling Act 2006.

*New Industrial Policy -2006

*Price Preference Policy-2006

*New Policy Initiatives for Entertainment, Tea Processing and Sugar Sectors -2006.

*Policy for establishing higher Technical Institutions in Private Sector -2006.

*Simplification of VAT Regime -2006.

*VAT reimbursement @80% of the deposited amount for a period of 10 years with a ceiling of 300% of the capital investment.Provisions for incentive even in zero VAT cases.

*Reimbursement of 50% of the amount spent on plant & machinery for captive power generation.

*25% of the VAT reimbursement for the existing units.

*Exemption from electricity duty for new units.Exemption from Stamp Duty and registration fee on land transfer.Incentive granted on land/shed in Industrial Area/ Industrial Park etc.

*Incentive granted on land/shed in Industrial Area/ Industrial Park etc.

*Corpus fund creation for sick & closed units.

*Exemption from annual minimum guarantee/ monthly minimum guaranty.CST reduced to only 1% for small & medium industries.

Improvements in the Economy

Government Strategy

The NDA Government, and Chief Minister Nitish Kumar, has made 'development with justice' an aim of the state. The Finance Ministry has given priority to create investment opportunities for big industrial houses like Reliance. Improvements in law and order, with a more proactive bureaucracy has led to a gradual improvement in the economy of the state. NDTV dubbed this as the "Quite Transformation" []

Roads Construction and Investment

The government is working on the expressway from the Purvanchal border through Bihar to Jharkhand, and has also decided to expand the state highway from Patna to Muzaffarpur from its current poor one lane to a four lane expressway [] . The central government funded north-east corridor expressway will run through the northern part of the state making the north better connected with the rest of India. The state now spends (2007-2008) Rs 2,222.08 crore on roads, compared with Rs 51.2 crore between 2003-2004. []

In September 2008, $420 Million (USD) loan from the Asian Development Bank (ADB) was provied to the government to improve nine state highways. The loan would be used to convert nine state highways into double-lane roads covering a total stretch of 820 kilometres. The governments aim is to convert these roads into double-lane traffic corridors as per international standards and bids have been invited for the conversion of these roads in accordance with international bidding procedures. The ADB had also given its consent for development of 1,500-kilometre stretch of state highways into two-lane roads as per international standards under Bihar State Highways Project (BSHP). BSHP will be executed in two phases. The nine roads have been included in its first phase [] .

Mobile Phone Growth

Bihar also has the largest growing mobile phone market in India. Bihar registered the maximum increase in annual telecom subscribers, marking a growth of 88.2 per cent in the fiscal 2007-08 as compared to the 51.1 per cent in 2006-07. The total number of mobile phones in Bihar increased from 57,73,370 in 2006-07 to 108,69,459 in 2007-08. [] .

Industrial Development

For industrial development, the NDA government has cleared a total of 135 proposals worth Rs 71,289.64 crore, submitted by big entrepreneurs for setting up medium and large industries. The proposals are related to sugar mills, ethanol, engineering and medical colleges and power production in the state. A sum of Rs 602.54 crore had already been spent on various activities pertaining to the cleared projects, which are likely to create job opportunities for over 114,000 people. The proposals include opening of 23 new sugar mills and the expansion of seven existing ones, apart from the production of ethanol in two sugar mills and five sugarcane juice production plants. The projects regarding five power plants, 12 food processing units and 15 steel processing and cement plants have also been cleared by the state. []

Tax Collection Improvements

There has been an improvement in tax collection by the state government. Tax collection growth in the first half stood at 265%. Patna witnessed a growth of 43.09% in personal income tax collections at Rs 559 crore [] .

Impact of the NERG

The implementation of the National Rural Employment Guarantee (NREG) scheme has also led to a dramatic fall in the number of migrant workers in India's Punjab state. []

Income Distribution; North-South Divide

In terms of income the districts of Patna, Munger and Begusarai in Bihar were the three best-off districts out of a total of 38 districts in the state, recording the highest per capita gross district domestic product of Rs 31,441, Rs 10,087 and Rs 9,312, respectively in 2004-05 [] .

Public - Private Partnership

Indian Railways Contract

Indian Railways announced contracts to manufacture electric locomotives in Bihar. The electric locomotives will be manufactured at a factory in Madhepura and the diesel ones at Marora. Five multinational companies have been shortlisted for two separate contracts, jointly worth an estimated $8 billion (Rs37,600 crore) [] , to manufacture and supply locomotives for the Indian Railways.

In the past, Indian Railways manufactured locomotives at the Chittaranjan Locomotive Works in West Bengal or from state-owned Bharat Heavy Electricals Ltd, and diesel locomotives from Diesel Locomotive Works in Varanasi. These factories now have developed capacity issues.

Germany’s Siemens AG, Bombardier Transportation India Ltd, a unit of Canada’s Bombardier Inc., and France’s Alstom SA is attempting to secure an order to build and supply at least 660 electric locomotives for the railways. General Electric Co. (GE) and Electro Motive Diesel Inc. (EMD) will compete for the second contract—to build and supply 1,000 diesel train engines for the national transporter. []

ectors, Companies & Organisations



Bihar has significant levels of production for the products of mango, guava, litchi, pineapple, brinjal, cauliflower, bhindi, and cabbage in India. [] Despite the states leading role in food production, investment in irrigation and other agriculture facilities has been inadequate in the past.


caption = "Average Per Capital Income in various Indian Cities"

GSDP at Current Prices 2000-2007 from the "Ministry of Statistics and Programme Implementation [] (Feb 2008 Data)

Rupee value in Crores

(Not including Jharkhand)

Macro-economic trend

This is a chart of trend of gross state domestic product of Bihar at market prices [ [ estimated] ] by "Ministry of Statistics and Programme Implementation" with figures in millions of Indian Rupees.

includes Jharkhand


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