Bihar, a state in eastern India, is the third most populous state in the country. Once an ancient centre of power, knowledge and culture, Bihar now lags behind other Indian states in terms of both human and economic development.
Not only does Bihar have the lowest GDP per capita in India, it is also at the bottom of the table in terms of the human development index, literary rates and per capita development expenditure. Among the state’s many problems are dismal law and order, weak finances, lack of administrative capacity, poor governance and unsatisfactory service delivery.
Since the new government came into office in 2005, significant strides have been made in addressing these issues. Improvements in the law and justice system, the introduction of tax, financial management and administrative reforms, alongside greater investments in health care, education and infrastructure, have gone some way to increasing confidence in Bihar’s economic future.
Despite these improvements, much remains to be done. Although GDP grew by 5.1% a year in Bihar between 1999 and 2008, this was still below the average for India as a whole of 7.3%.
Moreover, nearly 90% of Bihar’s population live in rural areas, and it is unclear whether the recent economic growth has translated into greater life satisfaction in rural areas. A key policy challenge therefore, is to gain a better understanding of the impact of economic growth on the rural poor. There is a need for the broadening and deepening of conventional approaches to poverty measurement and analysis.
Related to the wellbeing of the rural poor in Bihar is the lack of implementation and poor service delivery. A key challenge for the Bihari government concerns the devolution of financial, administrative and service delivery functions to ‘panchayats’ (village assemblies). As devolution progresses, it becomes essential to develop the capacity of these local government institutions and to put management systems in place that facilitate communication between the state and the panchayats.
Another major problem for Bihar is that it is one of India’s most flood-prone state. In 2008, Bihar had one of the worst floods in the history of the state, when there was a breach in the Kosi embankment near the India-Nepal border. A broader regional or sub-regional institutional framework for managing the rivers shared by Bihar, other Indian states and other countries might play a catalytic role in reducing the damage caused by flooding and even help harness the energy potential of the rivers.
A combination of frequent flooding, lack of credit and private sector involvement, land fragmentation and poor propagation mechanisms for new technology and advancements has contributed to low agricultural productivity in the state. Finding the policy framework to reduce inefficiencies and to provide the right incentives in agriculture will be a crucial step in fostering economic growth in Bihar.