How Nitish Kumar and past regimes let Bihar down economically
Despite steady growth, Bihar remains trapped in poverty and underdevelopment due to historical setbacks, fiscal fragility and persistent policy failures
Bihar is in the low-income trap despite a decent growth rate averaging 5.5 per cent (national average 6.1 per cent) during FY13-FY24, and this has as much to do with leadership failures as with historical factors.
Among the historical factors is its bifurcation in November 2000, when Jharkhand was carved out. With the new state went Bihar's mineral wealth, industrial towns and economically flourishig cities. This factor needs special mention, though even after 53 years of Independence, those minerals, industrial towns and cities couldn’t change Bihar’s fortunes.
Nonetheless, the bifurcation would remain a milestone in Bihar’s development journey. Here is how it altered Bihar’s economy.
Bihar’s bifurcation
The Union Finance Ministry’s think tank, the National Institute of Public Finance and Policy (NIPFP), provides a comprehensive picture of this development in its working paper of 2012, Bihar: What Went Wrong? And What Changed?
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The paper says the division was “very asymmetric” as “all physical assets” were distributed on an ‘as is, where is’ basis but financial liabilities were distributed using population norms. Thus, Jharkhand “inherited three-fourths of all the assets of the erstwhile Bihar and picked-up only a fourth of all liabilities”.
At the time, the paper says, “serious concerns were expressed about whether the ‘reduced’ Bihar could even form a viable state on economic grounds”. The study listed the changes it brought to Bihar’s economy:
1) The industrial sector constituted 24 per cent of Bihar’s GSDP, which was reduced to 4 per cent after the bifurcation, accentuating the role of agriculture and services.
2) Industry’s share in Bihar’s own non-tax revenue saw “a substantial drop” and its share in Bihar’s own tax declined from 10 per cent of total revenue to 1 per cent during 2000-05. This shrunk its “fiscal capacity to finance development, relief and poverty alleviation activities”.
3) Bihar became “more sensitive” to shocks such as floods. “While earlier, about 55 per cent of Bihar had been flood-prone, with the reduction in land area, 73 per cent of the area after bifurcation was flood prone”.
4) While 70 per cent of the power-generating capacity went to Jharkhand, "about 70 per cent of the demand comes from Bihar”.
Post split blues
Jharkhand, a tribal-dominated area, separated after decades of struggle against gross negligence by Bihar governments run from faraway Patna, and assertion of the tribals’ identity, rights and autonomy as guaranteed by the Constitution’s Fifth Schedule and later strengthened under the Panchayats (Extension to Scheduled Areas) Act of 1996 (PESA), applicable to a large part of its geographical spread.
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Consider another set of data from Census 2011 — one that describes Bihar's predominantly rural economy, home to marginal farmers:
1) In 2011, Bihar’s urban population was just 11.3 per cent, compared to the national average of 31.2 per cent. More shocking, Bihar’s urban population in 2011 was less than the national average of 11.4 per cent 110 years earlier, in 1901 (Census data). In other words, Bihar’s rural population was 88.7 per cent in 2011, far higher than the national average of 68.8 per cent. Also, 49.6 per cent of its workers are engaged in low-productive and low-paying agriculture and related activities for survival (more than the national average of 46.1 per cent).
2) In 2011, Bihar accounted for 8 per cent of India’s total population (104 million) with a population density of 1,106 per sq km – far higher than the national average of 382.
3) Of Bihar's agricultural workforce, 63.8 per cent were landless farmers, far higher than the national average of 54.8 per cent.
4) Per the Agriculture Census of 2015-16, Bihar accounted for 14.9 per cent of India’s total marginal farmers (less than 1 ha operational landholding). Though second only to Uttar Pradesh in this, its neighbour’s operational landholding was 270 times more (174.5 lakh ha vs 64.6 lakh ha).
5) When it came to farmers with larger landholdings, Bihar was among the lowest. In small farmers (1-2 ha), its share was 3.7 per cent; in semi-medium farmers (2-4 ha), 3 per cent; in medium farmers (4-10 ha), 1.5 per cent; and in large farmers (10 ha and more), 0.4 per cent.
Failed by its leaders
These are the consequences of some historical developments, but also the failures of its political leaders and governments.
In the past 25 years, Bihar has been ruled alernately by Lalu Prasad-Rabri Devi (2000-2005) and Nitish Kumar (2005-25). The failures of Lalu-Rabri rule – which began in 1990 – on the development and law and order fronts are well studied (like the NIPFP’s studies mentioned earlier and others that date back to a decade or more, not contemporary).
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But that is not the case with the Nitish Kumar government – running the state for 20 years. It seems complacent and not serious enough to lift Bihar from its current position – the poorest and among the most backward.
Here are a few examples for illustration.
1) Bihar’s 2025 budget doesn’t spell out the ‘real’ growth in FY25, not even a ‘revised’ or ‘quick’ estimate’.
2) No pattern is visible in its growth path – except the very unpredictability of it. Bihar’s Economic Survey of 2024-25 gives data (mapped below) but doesn’t explain the wild fluctuations.
4) Bihar has such low capacity to generate tax and non-tax revenue of its own that it can’t even meet its “committed” (revenue) expenditure on salary, interest on loans, repayment of loans and pensions. As the graph below shows, the gap is widening. It is at the mercy of the central transfers, which accounts for average of 74 per cent of its total revenue receipts during the 19 fiscals of FY06 and FY24.
Malady of distress migration
Just as the Bihar government survives on generous central transfers, its households survive on the remittances of its migrant workers.
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The Economic Survey of 2024-25 merely mentions migration in the glossary of abbreviations: “MCRC – Migration Counselling and Registration Centre”, and then forgets about it.
The Institute of Population Sciences (IIPS) published its study on migrations from the Middle Ganga Plain (MGP) – comprising of 37 of Bihar’s 38 districts and 27 districts of Uttar Pradesh. It said, “more than 57 per cent of households” have “at least one member” who had migrated “mainly” to other states, in the previous year of 2020. There has been a significant rise in migration to the Gulf region also.
Such migrations are mainly for menial and low-paying other jobs.
Two revelations
Prof NK Chaudhary, retired professor of economics from the Patna University, makes two shocking revelations from his own experiences.
One, not just Bihar’s upper caste men but also upper caste women are migrating for low-paid jobs – either they don’t get such work in Bihar or feel shy of being seen in their own areas.
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Two, Bihar’s youth are so desperately looking for livelihood that they are migrating to Uttar Pradesh – equally poor and backward and tops the list in distress migration (EAC-PM report of 2024). This report says: “Uttar Pradesh, Maharashtra, Andhra Pradesh, Bihar and West Bengal together account for about 48 per cent of the total outbound migrants”.
Why Nitish faltered
Chaudhary also blames the loss of initial momentum that Nitish had provided on the rule of bureaucrats in Bihar.
Talking to The Federal, he described Nitish as the “super secretary”, heading a group of “select” secretaries who are status quoists and don’t think about development. “They don’t have a vision for development,” he lamented.
Chaudhary credits Nitish for boosting Bihar’s growth, improving the law and order, providing roads and electricity but those didn’t translate into industrialisation. Among Nitish’s other major failures, he lists the failure to carry out land reforms he had promised having set up the Bandyopadhyay Commission in his first term, and not giving enough attention to skilling and vocational training.
The failures are now being masked with generous election-eve sops, which were announced in the past few months, to win popular votes and perpetuate power.
