The document discusses why Bihar, India has historically been one of the poorest states despite natural resources. It analyzes factors over three periods: pre-independence, 1947-2000, and post-2000. Predatory British policies like the Permanent Settlement Act and lack of investment established a legacy of poverty. Post-independence, central government policies further disadvantaged Bihar through infrastructure and industrial neglect. While recent decades saw some progress, Bihar still lags due to the cumulative effects of this historical neglect. The document argues special category status could help Bihar achieve parity.

1. Why is Bihar Poor

2. On the face of it, Bihar shouldn’t be poor: with its (erstwhile) abundance in natural resources -
mineral wealth and coal, its network of rivers spread across wide plains, we should be a model
of prosperity.
Yet - despite these ‘advantages’, Bihar has, over the years, remained one of the poorest states of
our country, and lagged the national average in all indicators of prosperity and progress.
WHY IS BIHAR POOR ? Here we present some historical factors that have cumulatively
contributed to this paucity and poverty. This list highlights the rootedness of the problem of our
Bihar’s poverty.
We will view this in 3 phases: Pre Independence, 1947-2000 & Post 2000

3. Pre Independence India Central Policy
Permanent Settlement Act effectively established a predatory zamindari,
disincentivizing investment, encouraging predatory tax collection practices: leading to
far reaching and long term consequences for the development of Bihar
British investment in Bihar was the lowest among all provinces setting a trend of
backwardness
Droughts and floods demolished any symbol of progress.
Predatory policies, lack of investment and natural disasters created adverse
environment for agriculture leading to extreme poverty

4. Pre Independence India Industrial Investment
Poor infrastructure and abject poverty could not foster entrepreneurial activities.
Predatory practices by money lenders and absence of organized financial sector
led to adverse conditions for growth
Poor road and rail linkages further discouraged industrial investment
Lack of strong military base in Bihar meant no auxiliary industries prospered
Bihar faced a ‘Catch-22’ where low investment dis-incentivized further
investment and weakened infrastructural capacity of the state

5. Pre Independence India Infrastructure Development
Except the GT Road, metaled in the late 19th century, no roads were developed.
The state was left with ‘kachcha’ roads, with improper drainage and prone to
seasonal damage, impacting the movement of goods and development.
Development of rail linkages was also de-prioritized due to low strategic
importance of Bihar
Military objectives of the colonial government guided the neglect of Bihar
in infrastructure development

6. Central Policy, Planned Expenditure
Another Catch 22 Central Sponsored Schemes required states to provide matching grants. Bihar,
Independent India
with its poverty and low tax base, could not provide matching grants to use these schemes. Rich
states prospered while Bihar lagged.
Discretionary plan assistance by Center to State depended on the above approach and rose with
respect to formula based assistance. Bihar further lost over Rs. 77,000 crores due to inability to
secure adequate assistance. After reforms in 90s, rich states attracted investment while poor and
infrastructural backward states languished. In Bihar, growth rates halved.
Share of central investment in Bihar declined: from 20.7% in 1975 to 8.2% in 1990 and 0 thereafter.
Public investment in agriculture in Bihar remained extremely low even through Green Revolution.
Bihar ranked 23rd in the 8th Plan in Investment per Acre of Net Sown Area.

7. Infrastructure Development
Roads: Bihar’s density of roads per population is the lowest in India. Post separation of Jharkhand,
Independent India
this has worsened, as most roads built in the mineral rich South Bihar have been lost. Further, over
50% of habitations lack all-weather road connectivity
Railways: Bihar’s rail density per lakh of population (4.15 KM) is lower than comparable states
Power: Bihar’s installed power capacity is a meagre 0.4% of the national total, while population is
~9% of the total. Per capita power usage is one seventh of the national average
Irrigation, Floods: Bihar receives ~3/4 of its rainfall during the monsoons, highlighting need for an
irrigation infrastructure. Additionally, most of the rivers and tributaries in Bihar are prone to
flooding, causing extensive damage annually.
Bihar ranks lowest amongst Indian states on the Infrastructure Index

8. Industrial Policy
United Bihar was rich in minerals. However, the policy of ‘Freight Equalization’ prevented Bihar
Independent India
from capitalizing on it. These policies mandated availability of minerals at constant price
throughout the country. So, this killed the incentive to setup industry in Bihar.
Royalty on coal was fixed on a per-ton basis (as opposed to an ad-valorem revenue: or based upon
actual value, as is the case with oil producing states). This further diluted the resources of Bihar.
Independent estimates of these losses amount to Rs. 1,20,000 Crores.
Several states considered developed today industrialized at the cost of Bihar and
using the raw materials available in Bihar. This was the result of Industrial Policy
taken by Government of India.

9. Bihar in last decade Central Policy, Planned Expenditure
Central expenditure in Bihar has continued to decline in the new millennium,
highlighting an urgent need to both revisit the allocation of funds to backward states, like
Bihar and the need to reconsider Bihar’s plea for being granted a Special status
Bihar’s share of the total tax devolution has steadily declined - from ~15% in the 11th
Financial Commission to ~11% now.
For many centrally sponsored schemes, there is still a matching contribution requirement,
which places states such as Bihar at a disadvantage (compared to developed states like
Maharashtra, Gujarat), preventing full utilization of allocated funds.

10. Bihar in last decade Infrastructure Development
Various schemes, such as the PMGSY have had speedy implementation in the state in the
past five-seven years. In addition, the MMGSY (Mukhya Mantri Gramin Sadak Yojna) have been
launched to ensure connectivity of hamlets of more than 100 people with main roads.
Bihar’s infrastructure is still not at par with the nation. In fact, it is significantly behind.
Lacking coal linkages, plants that are complete or nearing completion are unable to operate due to
lack of fuel, furthering the state’s infrastructure challenges.
Oversight in inclusion of flood prone zones (such as Madhepura, Begusarai etc) in the central AIBP
program prevents the state from benefiting on the 90% central subsidy needed to secure these areas

11. Bihar in last decade Industrial Policy
Bihar has taken various steps to invite industrial investment in the state, leveraging its natural
advantages where available. Under such initiative, companies such as Britannia India set up a
biscuit manufacturing plant in Bihar
However the state still suffers from a chronic Power shortage, and lack of well-connected land,
which prevents industries from taking the plunge and investing.
Further, inherent gaps in the socio-political environment due to decades of apathy have given rise to
an environment in which entrepreneurial activities demand greater stamina to succeed.
The Government has recently set up an Innovation Council to view this.

12. The picture presented here is a snapshot of the plethora of issues that have, over time, led to a severely
disadvantaged position for Bihar.
Bihar has begun to make progress: the key problems of law and order, socio-economic indicators have
been comprehensively addressed, with strides being made in the state on infrastructure development.
However, to succeed, we need an end to the step-child treatment meted out to Bihar. Bihar presents a unique
case for being granted a Special Status, that would help the state carry forward the momentum of change and
take a place in this nation as a contributing, prosperous and shining state.
British started the story of Bihar’s decline and neglect.
Post Independence, Central Government instrumented policies that accelerated the pace of poverty in Bihar
THIS IS WHY BIHAR BECAME POOR.
SPECIAL CATEGORY STATUS WILL CATALYZE RAPID PACE OF DEVELOPMENT TO REACH PARITY