Bihar still trapped in BIMARU shadow with fragile economy, abject poverty

Bihar, once a mineral-rich state, saw all its mineral wealth and industrial cities and towns carved out into the new state of Jharkhand in November 2000.

With that, Bihar slipped into deep despondency. A common refrain at the time was that Bihar had nothing except Lalu (former Chief Minister Lalu Prasad) and baloo (sand).

Although Lalu Prasad had long passed on the baton to his wife Rabri Devi (she headed the Bihar government intermittently from 1997 to 2005), having been implicated in the fodder scam, he was the de facto chief minister and towered over state politics.

Bihar, particularly its northern districts, had got the other moniker baloo because frequent floods ravaged it, covering the fertile farmland in sand and pushing thousands of people back into poverty every year. Both Lalu and baloo came to symbolise everything that was wrong with Bihar then.

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Nitish gave a hope of change

In 2005, his political rival Nitish Kumar came to power. He began building shining new roads and bridges, took electricity to villages, and restored law and order — sparking a new hope of growth and development.

The sight of girls in smart uniforms riding bicycles to schools, both of which were given by his government to promote girls’ education, added the sparkle and inspired many other states to do the same.

However, 20 years down the line, that hope has been belied.

Bihar has a higher share of low-productive and low-paying segments than the national average. This would explain its continued sub-par growth, sub-par incomes, high reliance on central transfers, and massive migration to better-off states.

Bihar remains trapped in a structurally fragile economy. It remains the poorest and one of the most backward in virtually every developmental parameter — seemingly justifying its status as the leader of the ‘BIMARU’ states (signifying bimar, or 'sick'), a term coined in 1985 by economist Ashish Bose to flag “India's demographic malady” in the Hindi heartland (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh).

Poorest and among the most backward

Here are some disturbing facts about Bihar.

1. In the NITI Aayog’s multi-dimensional poverty (MPI) estimate of 2024, Bihar accounted for the maximum poor — headcount of 33.76 per cent. Ironically, Jharkhand — which fought for separation because of prolonged neglect — was in the second place with 28.8 per cent MPI poor.

2. The household consumption survey (HCES) of 2023-24 showed Bihar’s average per capita monthly consumption expenditure was one of the lowest — Rs 3,788 in rural and Rs 5,165 in urban areas — below the national average of Rs 4,247 and Rs 7,078, respectively. Similar was the case in the HCES of 2022-23.

3. The NITI Aayog’s March 2025 report said Bihar’s nominal per capita income was 30 per cent of the national average in 2021-22.

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4. The NITI Aayog report also said, in 2022-23, Bihar’s working population was concentrated in agriculture, forestry, and fishing (49.6 per cent). The rest were in services (28.9 per cent), construction (18.4 per cent) and manufacturing (5.7 per cent). In contrast, the national average was 41.9 per cent in agriculture and allied activities, 45.8 per cent in services and 11.4 per cent in manufacturing. The significance of this divergence will be explained soon.

5. As for human development, Bihar’s literacy rate of 61.8 per cent was far lower than the national average of 73 per cent (Census 2011). In 2016-17, its school dropout rate of 39.7 per cent (Class VIII-X) was higher than the national average and pass percentages were lower at 55.4 for Class X and 67.2 for Class XII — than the national average (NITI Aayog, 2025).

6. Child stunting (below five years) at 42.9 per cent in 2019-2021 (NHFS-5) was far higher than the national average of 35.3 per cent. The same was the case with underweight children at 41 per cent (against 32.1 per cent) and anaemic children at 69.4 per cent (against 67.1 per cent).

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7. Its GSDP growth averaged 5.5 per cent during FY13-FY24 — lower than the GDP’s average of 6.1 per cent (constant prices). Bihar’s GSDP growth for FY25 at constant prices is not available. Its 2025 budget, presented in March 2025, provides only nominal GSDP for the budgeted estimate for FY25.

8. The NITI Aayog’s March 2025 report said, during the past three decades, Bihar’s share in the national GDP (nominal) fell from 3.6 per cent in 1990-91 to 2.8 per cent in 2021-22.

What the GSDP numbers say

Here is a snapshot of the relative growth of Bihar’s GSDP (Gross State Domestic Prodcut) with India's GDP at constant prices for the 12 fiscals from FY13 to FY24. Bihar’s growth lagged the national growth by an average of 0.6 percentage points.

The key to understanding Bihar’s growth pangs is in its sectoral composition.

The following graph provides the sectoral composition of Bihar versus that of the Indian economy during the five fiscals of FY20 to FY24.

The graph demonstrates that Bihar’s primary (agriculture and mining) and tertiary (trade, transport, real estate, financial services, public administration, etc.) sectors play far bigger roles and its secondary sectors (manufacturing, gas and electricity etc, and construction) a much smaller role than the national average.

This reflects far greater dominance of agriculture and services, and too little of manufacturing. This means, Bihar has a higher share of low-productive and low-paying segments, which would explain its continued sub-par growth, sub-par incomes, high reliance on central transfers, and massive migration to better-off states.

Distressing picture

A closer look at the sub-sectors reveals a far more distressing picture in these five fiscals:

(i) In the primary sector, crops (low-productive, low-paying) average 10.4 per cent of Bihar’s value addition (GSVA) — far more than the national average of 8.4 per cent of GVA.

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(ii) In the secondary sector, manufacturing (high-productive and high-pay) plays a far smaller role (average of 8.7 per cent of GSVA) than the national average (17.7 per cent of GVA).

Bihar remains the poorest and one of the most backward in virtually every developmental parameter — seemingly justifying its status as the leader of the ‘BIMARU’ states.

(iii) In the tertiary sector, which is largely informal, its GSVA share averages 58 per cent — higher than the national average of 54 per cent of GVA.

It is because of this structural fragility that Bihar is not even in a position to mobilise adequate revenue on its own to fund growth and development — to come out of its low-growth and low-revenue circles.

At mercy of central tax and grants

The NITI Aayog report of 2025 — “Macro and Fiscal Landscape of the State of Bihar” — flags this lack of revenue resources and heavy dependence on central transfers, by way of tax devolution and grants.

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The devolution of central tax is an ‘untied’ fund that a state can spend per its development priorities, but central grants can be both ‘tied’ (as in centrally sponsored schemes) and ‘untied’ (as revenue deficit grants).

The report says, “Bihar collects less in own tax and non-tax revenues compared to a median state. Transfers from the Centre are significantly above the level of a median state and constitute around 75 per cent of the total revenue receipts.”

PRS Legislative Research’s State of State Finances report of November 2024 (for FY25) also flags this aspect and lists Bihar among Jammu and Kashmir and north-eastern states that are similarly dependent on central transfers.

These are the long-term trends, not isolated instances. The following graph, from the 2025 state budget document, shows how Bihar was hopelessly dependent on central taxes and grants for its total revenue (tax and non-tax) from FY06 to FY24.

Nitish should have woken up to this deeply distressing state of the economy and extreme dependence on the Centre for its revenue years ago. Or the voters should have asked him hard questions.

That none of it happened and Nitish may well win the next month’s elections in Bihar is a grim reminder that their own well-being doesn’t seem to matter when it comes to people electing their governments.