National Council of Applied Economic Research
Opinion: Poonam Gupta.
Bihar’s economy has grown faster than the national economy, but it remains India’s poorest state in terms of per-capita income. It faces challenges such as low urbanization, gender disparities, and low enrollment in higher education. Improving these areas is crucial for Bihar’s prosperity and India’s development goals.
During the past two decades, Bihar’s economy has grown faster than the national economy. Its annual growth rate averaged 7% during the 2000s, and 7.5% during the 2010s (until 2019-20). In comparison, the national economy grew at 6.3% and 6.6% annually during these periods, respectively.
Bihar has also made remarkable progress in closing the gap in education, health and basic amenities. Its gross enrolment ratio (GER), sex ratio at birth, life expectancy, infant mortality, and availability of electricity, drinking water and sanitation have improved significantly to levels only slightly below the national average.
Yet, in terms of per-capita income, it has remained India’s poorest state. This is due to a very low level of initial income preceding the growth spurt and a high population growth rate, which inhibited conversion of higher GDP into the acceleration of per-capita income.
At 3 per woman, its fertility rate is the highest among states. Commensurately, its population growth rate (1.5% annually) is nearly 50% higher than the national average (0.9%).
As a result, Bihar’s per-capita income has been only about 30% of what an average Indian earns. At less than $800 per-capita income, it is still a low-income economy as per the World Bank’s threshold for income groups. Besides the high population growth rate, several other features of Bihar’s economy are symptomatic of its low-income status:
Farm-focused: Dependence on agriculture, construction and non- tradable services, all low-productivity sectors, which account for the bulk of its GDP and employment. A griculture constitutes nearly a quarter of its GDP, and half of employment. Manufacturing accounts for only 6% of total employment, while construction employs three times as many people as manufacturing.
Low urbanisation rate: Only 12% of Bihar’s population lives in urban areas, compared to 35% nationally. Despite showing a rising trend in recent years, its gender indicators remain below the national average. Only 22% of its women were employed in 2023, the majority as self- employed or casual workers.
Low enrolment in higher education: Despite GER in elementary and middle school stages improving to near-national levels, and the literacy rate going up to 61% (compared to 73% nationally), its enrolment ratio in secondary school and above remains low. Dropout rate remains high, and college density (number of colleges per-lakh population) is the lowest across Indian states.
Generous GoI: The state’s tax and non-tax collections are low (at 7% of state GDP). Yet, at close to 30% of its GDP, public spending in Bihar is high compared to other states. The latter is primarily financed by a generous share in taxes and grants distributed by the Centre.
Other challenges include low female participation in labour force and low penetration of digital economy. Under these circumstances, a pathway for Bihar to become a middle-income state in the near future remains elusive. Yet, given that the state accounts for a large (nearly 10%) and increasing share of the population, its prosperity is critical for India to realise its goal of becoming a developed nation by 2047.
So, here are a few things the state might do:
Human capital: Bihar must convert its large population into a resource to reap its demographic dividend. With more than 120 million people, the state would have been the 10th-largest country. It ought to not just further strengthen primary education and health but also prepare its people for technical and professional roles on a war footing. It must develop the human capital that employers nationally and the world over aspire to.
Review agriculture: Bihar is one of the few states that has not shed its share of agriculture in GDP or workforce. The state may commission a holistic review of agriculture to enhance productivity through larger farm sizes, more diversified and higher-value crops, and commercial farming.
Tap into diaspora: Bihar must leverage domestic and international diaspora and investors proactively, not just to attract investments into manufacturing but also into labour-intensive services – that is, activities where future demand for labour would arise globally.
Review public finances: It should look for ways to enhance revenues and ensure accountability and effectiveness of its large fiscal-spending programme. For the latter, public expenditure review and deeper digital adoption could help.
Such policy interventions could unleash a new growth momentum, slow the population growth rate to national levels, and reduce the need for other states to subsidise Bihar perennially. For a Viksit Bharat by 2047, Bihar will have to take a leap out to a more viksit self.
The writer is director general of National Council of Applied Economic Research. Views are personal.