Bihar’s development: a miracle of GDP numbers

Bihar’s development: a miracle of GDP numbers

For starters, let’s take a look at the economic survey of the Government of Bihar for 2008-09. The chart shows the difference in growth rates for the state (GDP at constant prices, 1999-2000 base) as mentioned in the state government’s economic survey and as reported on the CSO website. The growth rates were identical or nearly so between 2000-01 and 2003-04. From 2004-05, however, the rates of growth in the two sources are very different. It’s very probable, of course, that the data for 2007-08 and the estimates for 2008-09 have been revised, although the difference between the economic survey’s estimates for 2007-08 and 2008-09, and the figures they have furnished to CSO is glaring. But surely, the numbers for 2004-05 and 2005-06 should be similar? The absolute numbers for the state GDP given in the economic survey and those furnished to the CSO show inconsistencies. These discrepancies cast severe doubt on the state’s data.

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Graphics: Yogesh Kumar / Mint

What about the quality of growth? The state government’s economic survey for 2008-09 says that the construction sector grew by 23.3% in 2004-05, a huge 83.58% in 2005-06 and 30.2% in 2006-07 and it estimated that growth in the sector would be 43.85% in 2008-09. That ties in neatly with the rising cement off-take in the state. The December data, for instance, show that Bihar tops the cement consumption list for the country, with an annual growth rate of 36%. It also supports anecdotal evidence of a large number of bridges and other public works being constructed. According to the state’s figures, construction now contributes 13.4% of the state’s GDP compared with 4.2% in 2003-04. The other sectors that did well are manufacturing, communications, trade and hospitality. The share of agriculture in the economy has been declining, but floods and droughts impart great volatility to the state’s growth numbers.

Much of the money for the public works is being given by the Union government. The state’s economic survey says, “For Bihar, this dependency on the Central government for meeting its expenditure needs is very high. From around 40% in 2003-04, this ratio (ratio of gross transfers from the Central government to aggregate expenditure) has increased steadily to as much as 72% in last two years, indicating an overwhelming dependence of the state on the Central government." The survey shows that, in addition to the state’s share of divisible taxes from the Centre, grants-in-aid have increased from 13% of total expenditure in 2003-04 to 26% in 2008-09. For instance, under the Indira Awaas Yojana for rural housing, the allocation for Bihar for 2009-10 is the highest among the states, at Rs3,043 crore. So far the percentage of utilization of funds has been 67%, around the all-India average of 68%. But the larger allocation means a lot more money going into rural housing in Bihar.

What seems to be happening is that the Bihar government has been successful in mobilizing funds, largely from the Centre, to spend on the creation of infrastructure. Whether that will result in the shift of industries to the state is anybody’s guess—manufacturing constituted 5.45% of the state’s economy in 2008-09, according to the state’s economic survey, compared with 5.63% in 2003-04. Relying on the state’s data to rush to any conclusion would call for a heroic leap of faith.

Manas Chakravarty takes a weekly look at trends and issues in the financial markets. Your comments are welcome at