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Bihar’s new govt will have a lot on its plate to mend

The per capita income of Bihar is a third of the national average. This shows a lack of economic activity in the state. The state’s literacy rate is the third lowest in the country. Hence, the new government, like the previous ones, will face multiple challenges. Mint takes a look.

The per capita income of Bihar is a third of the national average. This shows a lack of economic activity in the state. The state’s literacy rate is the third lowest in the country. Hence, the new government, like the previous ones, will face multiple challenges. Mint takes a look.

What is the per capita income of Bihar?

In 2019-20, the per capita income of Bihar stood at 31,287. This was around 33% of the national per capita income of 94,954 (in constant terms, adjusted for inflation). This gap, more than anything else, shows the lack of economic activity in the state.

The manufacturing sector in the state forms just 1.3% of the overall size of Indian manufacturing.

Over and above this, the size of manufacturing in the state is just 7.8% of its overall economy, as against 16.6% for India as a whole. These statistics highlight that manufacturing as a route to job creation hasn’t really taken off in the state.

Does  any  other dataset show lack of activity?

In 2018-19, commercial banks raised deposits worth 3,53,279 crore in Bihar, but they were able to lend only 1,20,287 crore. This means that the credit deposit ratio of Bihar was just 34%, against an

all India average of 78.2%. States like Tamil Nadu and Maharashtra had credit deposit ratios of 109.7% and 106.5%, respectively, signifying that banks lent more money in these states than they borrowed in the form of deposits from it. The Economic Survey of Bihar explains this by saying: “The low ratio indicates banks are not making full use of their resources for promoting economic activity in the state".

Major laggard
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Major laggard

Why are banks unable to lend in the state of Bihar?

The Economic Survey of Bihar equates the low credit-deposit ratio in the state to a flight of capital from the poor state. This is really not true. The major reason for such a low credit-deposit rate is the lack of economic activity in the state. While banks can definitely do retail lending in Bihar, they will struggle to give out loans to industry, due to its inactivity.

What else is holding Bihar back on growth?

The literacy rate or the percentage of literate persons among people aged 7 years and above in Bihar, stands at 70.9%, the third lowest in the country. Among women, the rate stands at 60.5%, which means that two out of five women in Bihar, on an average, can’t read or write. This explains the extremely low female labour force participation (LFP) in Bihar. The rate is at 6.4% and 3.9%, in urban and rural areas, respectively. The all India female LFP rate is at 20.4% and 24.6%, for urban and rural areas, respectively.

What does this mean for the new govt?

The new government will have its work cut out on multiple fronts. Along with delivering the promises of job creation and growth, it will also have to look at improving the education delivery system in the state. Even if job opportunities are created, the people need to have the right education and skillset to take on these jobs. All this is going to take time and now is as good a time to start as any.

Vivek Kaul is the author of Bad Money.

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