EVEN though income figures are hardly adequate for typifying the character of an economy, they do serve as a ‘first information report’ on its health. Recent estimates, adjusting for inflation and making allowance for the remittances Bihar receives from her outmigrants, place the average annual per capita income in 2007 at around Rs 6500, a mere Rs 18 per person per day. The ‘official’ poverty line, now widely regarded as a serious underestimate, in 2007 prices is about Rs 15 per person per day. In other words, an average Bihari just about manages to stand above the official poverty line. As many as 42 per cent in rural and 38 per cent in urban areas, according to the latest poverty estimates relating to 2004-05, fall below the poverty line.

A poor economy with high levels of poverty is not unique to Bihar. But there is one distinguishing fact about Bihar’s economy which is often ignored. Of the ten most poverty stricken zones in India, as defined by the National Sample Survey Organisation (NSSO), six are in the central Indian plateau where the land and water resources, the livelihood base for the rural people, are scarce. However, the remaining four zones (two in Bihar and two in Uttar Pradesh) certainly do not suffer from that limitation. By virtue of being part of the Gangetic plains, the land is fertile, water resources abundant and the bio-diversity enormous. The resource paradox, therefore, assumes serious proportions in Bihar.

A second important feature of Bihar’s economic backwardness is its long history. The roots of the phenomenon spanning the entire post-independence period can be traced to the colonial policy, more specifically the Permanent Settlement introduced by the colonial administration.

It is important to underscore that in the colonial period spanning two centuries, the Indian economy did not uniformly stagnate across the regions. Some regions actually prospered, others stagnated and still others experienced regression. The pattern was dictated not so much by the laws of economic dynamics as the exigencies of colonial interests.

In addition to trade, the principal modus operandi of colonial exploitation, the British were mindful of the political aspects of regional development, invariably differentiating between regions that were obedient to their authority and those which continued to be recalcitrant. Bihar, as a leading site in the 1857 War of Independence, expectedly experienced the repressive and discriminatory face of the British.

 

In 1930, the then administration had prepared a ‘Memorandum for the Indian Statutory Commission on the Working of the Reforms in Bihar and Orissa.’ With the help of statistical data, it demonstrated how the government had ignored both the minimum administrative needs of the state by restricting the size of the bureaucracy and failed to provide needed physical infrastructure. This was true not merely of the facilities for health and education but surprisingly even for arrangements to ensure law and order.

To give just one example, in 1927-28, while there was one police officer for 776 persons in Bombay Presidency, the figure stood at 2372 for Bihar (and Orissa), three times that for Bombay. Under such circumstances, unsurprisingly, public expenditure for economic development was abysmally low. ‘When Bihar and Orissa still formed part of Bengal, the levels of expenditure in Bengal were lower than in any other province of India; within Bengal the standard in the districts now included in Bihar and Orissa was little more than half of what it was in rest of the province.’ Clearly, for the colonial administration, Bihar had fallen off the map.

The deprivation of Bihar during the colonial period was not, however, limited to resource allocation alone. A far more serious misfortune, one which afflicts the economy of Bihar even to this day, was the introduction of Permanent Settlement in 1793, which contributed greatly towards increasing the misery of the common peasantry. In addition to ensuring a high and stable revenue collection from cultivators, the Permanent Settlement institutionalized and consolidated a new rural hierarchy, the beneficiaries of which could be relied upon to support the Raj.

The system also implied an extremely unproductive incentive structure for the agricultural economy of the region, undermining the possibility of fresh investment in agriculture since the primary interest of the zamindars was limited to extracting higher rents by whatever means possible. The Permanent Settlement was introduced by the British in Bengal, Bihar, Orissa, the Central Provinces (part of modern Madhya Pradesh) and some parts of the Madras Presidency. Interestingly, while parts of the Bengal and Madras Presidencies were fortunate to receive some colonial favours, in the remaining areas, including Bihar, the Permanent Settlement resulted in a complete ruin of the local economy.

 

The economy that independent India thus inherited in 1947 was characterized by severe inequality and uneven regional development. It was, however, expected that the new state would initiate corrective policies, and allocate larger resources to regions and sectors in greater need – in short, initiate processes of balanced regional development. Unfortunately, barring the initial years of the early ’50s, the planning process resulted in sharpening the contradictions such that regional inequalities instead of narrowing, further widened. Most analysts have traced the low (and declining) ranking of Bihar in the development index to the distorted working of our federal structure.

Notwithstanding the constitutional provisions of federalism allocating the different social and economic sectors between the central and state governments, the ‘core’ of the development strategy in India has always been decided at the ‘national’ level. Within this framework, the regional level state governments enjoy little ‘autonomy’ and it is, therefore, not surprising that regions that were poor (rich) earlier, continue to be so even now.

 

Even though the national policy framework in the early fifties was informed by neo-Gandhian ideas about rural India, which visualized the village as a ‘basic all purpose unit of rural organisation that should be reformed but not superseded’, and thus stressed rural development and reconstruction, the focus subsequently shifted to industry and the urban economy, relegating agriculture and rural society to the periphery. Whatever the (de)merits of the model, it worked exactly the way it was intended to – during the four decades up to the eighties, even as the non-agricultural sector of the Indian economy grew at about 5.6 per cent annually, the agricultural sector grew at less than half the rate, at about 2.5 per cent. The implications for this national growth pattern were obvious – states with a larger industrial base generally grew faster and those like Bihar with a greater dependence on agriculture grew at a slower rate.

India’s development strategy in the planning era was purported to be only ‘sector-specific’ and, by implication, ‘region-neutral’. But its urban-industrial bias ensured that it turned out to be region-specific as well, much to the disadvantage of states like Bihar. The policy promoted growth of industries primarily in those regions where the industrial economy was already relatively established (to take advantage of the economics of scale). The remaining regions of India remained deprived, including those which had natural comparative advantage for industrialization like Jharkhand, a part of present Bihar till a few years ago.

 

The only exception to this urban industrial bias of India’s overall development strategy was the attempt to escalate farm, particularly cereal, growth through the Green Revolution. But the economic rationale behind this move was not agricultural growth as such. Rather, it was to ensure an adequate supply of foodgrains to the urban market to meet the food demands of the industrial workers. A failure to do so would have resulted in higher foodgrain prices, in turn leading to demand for wage increase and threatening the pace of industrial growth, a key goal of national development policy. This was indeed the scenario in the sixties. Moreover, given the limited objective, it was not at all necessary to promote agricultural growth throughout India; coverage of barely one-fifth of the cultivated area in the country under the Green Revolution was sufficient to attain that goal.

The consequence of the above policy was an extremely low growth rate of agriculture in Bihar up to the eighties, lower than even the population growth rate of about 2.3 per cent, implying a fall in per capita agricultural output. Clearly it is not possible for a traditional subsistence economy with surplus labour like Bihar to fuel an expansion of its modern industrial sector without a sustained growth of the agricultural sector sufficiently above its demographic growth rate.

Despite the federal character of the Indian Constitution, the dice is heavily loaded in favour of the Centre. This is most apparent in the fiscal arrangements, particularly in the generation and distribution of tax revenues. Further, sectors with high revenue potential like industry fall primarily within the purview of the Centre. Alongside the asymmetry in ‘provisions’ is the distortion/discrimination that arises out of the working of the system.

Overall thus, the arrangements can either be (i) transparent and rule based, evolved to facilitate the smooth functioning of the federation; or (ii) those that are opaque and discretionary caused by the balance of administrative and political power and expediency. The first may play an important role in building the nation. In contrast, the second type of asymmetry can have serious repercussions for the future of federalism. One such repercussion is the idea, albeit expressed in informal conversations, that the Indian economy could grow faster if only Bihar’s economy ceases to be its part.

 

Without for a moment underplaying the importance of unjust federal arrangements in explaining the underdevelopment of states like Bihar, it would be erroneous to neglect the negative, if not destructive, role of the local, in particular, rural elites. The basic prerequisite for a structural transformation of Bihar’s agrarian economy was radical land reforms – abolition of intermediaries, enforcement of ceilings on landholding and the distribution of surplus land – all to be carried out by the state government. These reforms were most required in areas under Permanent Settlement like Bihar. But since the government was dominated by traditional agrarian elites, the erstwhile zamindars in the early decades after independence, these reforms were given a short shrift. This despite the fact that Gandhi started his political career with the Champaran struggle in 1917 or that the pre-independence Congress Party consistently advocated land reforms, often working alongside the left parties.

Admittedly, the Congress attitude towards crucial agrarian issues became lukewarm after it formed the provincial government in Bihar in 1937. Nevertheless, after independence, land reforms were accorded a high place in the national agenda, at least in formal plan documents. But land being a state subject, both the legislative and executionary dimensions were fully within the purview of state governments which were generally, and overwhelmingly in Bihar, dominated by the landed gentry. Thus, although Bihar was one of the earliest states to pass the Zamindary Abolition Bill, its execution was extremely flawed.

The only part of the land reforms that did materialize in Bihar, as elsewhere in India, related to the abolition of intermediary rights, resulting in substantial majority of occupancy and settled tenants (not all of them) obtaining titles to the land they cultivated. But the two other dimensions of land reforms – tenancy reforms (comprising regulation of rent, security of tenure and conferment of ownership rights to tenants) and ceilings on landholding and consequent distribution of surplus land – were left completely unattended.

 

The historical task of abolition of feudalism has thus remained unfinished in Bihar, and not merely because its politics continues to be dominated by the landed gentry. Many other sections of Bihar’s society, like the professionals and intelligentsia, too are dominated by the same class. Of particular importance in the context of an anti-feudal agenda are the landed interests of the bureaucracy, many of whose senior members hail from families of zamindars or big landholders. Indeed, in Bihar, the absence of a middle class, thriving mainly on professional and intellectual resources and free from feudal interests, remains a major handicap. It has forestalled the emergence of sustained social movements which could create appropriate social institutions for advancing the development agenda.

The two most serious handicaps arising out of this historical disadvantage faced by Bihar have been the absence of land reforms, preventing any primitive accumulation in the all important agricultural sector and second, the lack of educational growth, responsible for the low level of social capital in the region.

 

Many analysts hoped that the current policies of liberalization of the economy enabling a larger space for the private sector would help correct the historical trends. However, in a small, underdeveloped and distorted market like that of Bihar, the withdrawal of the state instead of stimulating private energies only created a vacuum. This experience is in contrast to the richer and better developed regions of the South and West which have managed to benefit from the enhanced space made available to markets.

Thus the process of widening of regional inequalities, visible even before liberalization, further strengthened during the new economic regime. The ratio between the per capita income of the richest states (Punjab or Haryana) and that of poorest states (Bihar or Uttar Pradesh) has increased from three at the beginning of the eighties, to more than four at present. However, a large part of the research on the economy of Bihar or of other severely lagging regions of the country, continues to focus on such factors as poor infrastructure, low level of social capital or weak health of public finances as the proximate causes of their misfortune. While they are indeed relevant, none of them is a recent phenomenon. Their present status is only a reflection of the accumulated effects of the past – the colonial phase. That the same trend continues even after independence is a reflection of the political economy of Indian federalism.

 

In the short run thus, it is difficult to visualise any basic change or a positive trend in the economy of Bihar. However, in the medium term, some positive trends can be expected. Bihar’s agricultural economy has shown some improvement since the nineties and, for the first time after independence, its growth rate has exceeded the population growth rate, satisfying one of the necessary conditions for the transformation of a traditional agrarian economy. Second, along with a few other states, Bihar has also witnessed the emergence of the middle sections of the agrarian population. Not only are the landholdings and resource base of the middle peasantry larger, this strata has experienced substantial social and political mobilisation, though largely around their caste identifies.

Unfortunately, this emerging elite still seems stuck in the old project of generating wealth and consolidating its social position, not through the introduction of new technology or making use of freshly created market opportunities, but by seeking to control the levers of state power. If, however, the middle peasant strata can be persuaded to focus on transforming agriculture and investing in non-farm activities, Bihar too could move into a new and different phase. Such a process would also demonstrate that social transformation does not always demand a push from the top or from below (revolutionary transformation), but can also be initiated by action from the middle.