Of Bihar and ‘Special Status’

Bharat Jhunjhunwala

Nitish Kumar wants the state to be granted 'Special Status' which is presenty given to Kashmir, HP, Uttarakhand, Sikkim and seven Northeastern States. Special Status entitles newly established factories to avail of Income lax and Central Excise exemptions. Also 90 percent of the plan support received from the Central Government is in the form of grants in comparison to 30 percent grant otherwise. Kumar believes that Special Status will enable the state to attract industries as has happened at Baddi in HP and Rudrapur in Uttarakhand. It is necessary to take a comprehensive view of the development potential of Bihar in order to assess the benefits ol Special Status.

Four sources of economic growth are agriculture, manufacturing, government services and market-based services. Share of agriculture in the State income is 35 percent in comparison to percent share of manufacturing. The two service sectors together contribute 56 percent to the income. A substantial part of this is government services. Assuming one-half of the services sector contribution to come from government provision the share of market-based services would be about 28 percent. Clearly, at 35 percent, agriculture occupies the most important place in Bihar's economy. The State is blessed with many rivers that replenish the ground-water regularly. There are two problems though. First problem is that the irrigation potential is languishing. Knowledgeable sources tell that 21 lac hectares of land was irrigated in the Slate in 1990. This fell to 12 lac hectares in 2005 mainly because the canal systems were not maintained. This has gone up marginally to about 13 lac hectares in that last six years of Nitish rule. There is every reason to believe that not much increase may be possible beyond the earlier achievement. There is a long way to go to even reclaim the earlier level. A more important problem is that of declining incomes in the agriculture sector. The share of agriculture in GDP is seen to decline with growth. In the United Slates this is down to a meagre one percent. The share of agriculture in India's GDP was about 50 percent at the time of Independence. It is down to 18 percent now. This happens because only limited amounts of capital can be deployed on a hectare of land. Consequently the productivity cannot exceed a certain level and also the incomes. Thus trying to develop on the back of agriculture is like trying to cross a raging river on a sinking boat.

The second sector is that of manufacturing. Bihar appears to have limited potential here because it does not have the raw materials. Main industries are sugar, tannery and breweries which build on agricultural inputs. There are limits to agriculture-based industries. Minerals have gone to Jharkhand. Bihar also does not have electricity to support manufacturing. The installed capacity is mere 1900 MW against 23,100 MW of Gujarat. Even the 1900 MW is not in operation. Only 550 MW is available. It will be difficult to supply electricity to industries even if the entire installed capacity is made operational because 82 percent of the people are without power today and they will have the first claim on the generation. Nitish Kumar signed many MoUs for new plants but it appears these are with companies of doubtful credentials. Nothing has moved on the ground. Third problem is the mindset of bureaucracy is dubious. The businessman is seen as a thief rather than an honoured person. Fourth problem is of critical mass. "Developed' states already have good supply of skilled labour, roads, spare parts, etc. It is difficult for a new player to enter the competitive arena. Fifth problem is availability of land, it is difficult for the State Government to acquire land in a densely populated state without inviting backlash such as that of Singur. Tax exemptions from Special Status are unlikely to compensate for these handicaps enough to actually jumpstart the state's industrialisation. Consequently the Special Status may prove as a failed experiment.

The third source of economic growth is government services. This is limited by availability ol revenue. The fourth source is market-oriented services such as transport, tourism and software. This sector appears to hold much potential for Bihar. A large workforce of educated Biharis is spread throughout the country. Many would happily come back to their home state if opportunities are available. The requirement of land and electricity in these sectors is about one-tenth of manufacturing. Nitish Kumar may establish software parks near the main cities of the state and invite IT companies. Bihar will be in a strong position to exploit this potential if it improves the quality of education.

Notably, the services sector is not much affected by the Special Status because it does not pay excise duty. In consequence, the Special Status is not likely to deliver in manufacturing and not relevant for services.

Therefore, Nitish Kumar should focus on improvement in quality of education and development of services sectors instead of running after Special Status. Moreover, it may be counter- productive to start a new race for competitive backwardness as they have done for the castes.

Vol. 46, No. 8, Sep 1-7, 2013

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