Bihar Strategy Note: 2010-2011

Bihar has traditionally been seen as the paradigm of a low growth, low development

state within India. That image is rapidly changing with recent improvements in

governance, increased resource mobilization and investments in infrastructure and

human capital being associated with some of the highest rates of economic growth in

the country. There is, however, recognition that sustaining growth and making it more

equitable still represent key challenges and that research directed at understanding the

key growth constraints that Bihar faces can make policy much more effective. The

analytical capacity for academic, policy-oriented research in the state is, however, very

limited. The establishment of the IGC Bihar operation will thus serve to enhance the

capacity to do frontier research in the state directed at relaxing key growth constraints.

Our approach is distinctive as it combines engagement with a wide range of policy

stakeholders with a strong emphasis on the generation of frontier research and on the

linking of that research to expressed policy concerns. Extensive engagement and

consultation has established a work programme which has prioritized two broad areas

of focus: (1) economic transformation and (2) resource mobilization. The programme

aims to feed the outputs of research and analytical work into the policy debate.

1. State Context

Large upswings in growth always attract attention. But they are particularly significant

when they are observed in one of the poorest states in India which contains almost one

hundred million people and which traditionally had been one of the slowest growing

states. Given the overall poverty of the population, whether or not growth can be

maintained and made more inclusive is a question of enormous importance.

The IGC Bihar programme takes this question head on. We study the process of

economic growth in Bihar, with a focus on design of policies that can accelerate the

growth process. Extensive consultation and engagement with policy stakeholders in the

state revealed that this focus on identifying public policies to promote economic growth

and make it more inclusive aligns well with core policy interests of the state. It is

widely recognized, in a variety of quarters, that only maintenance of high economic

growth over a sustained period will have the power to transform the lives of the citizens

of the state of Bihar.

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Our focus on economic growth in Bihar reflects the belief that growth and expansion of

economic opportunities will raise the standards of living of the people, thereby reducing

poverty. It is well recognized that income is only one of the components of overall well

being, with health, education, access to markets (e.g., credit, insurance) and public

services, quality of infrastructure, law and order, environmental quality, each playing

an important role. However, the surplus generated by economic growth also facilitates

public and private investments in these other determinants of the quality of life.

Exploitation of these synergies between economic growth and resource mobilization are

critical to lifting Bihar out of underdevelopment.

The IGC Bihar work programme comes out of a framework that examines the

determinants of economic growth. In this framework economic growth involves an

increase in the productive potential of an economy as well as that of individuals, in the

sense of shifting the production possibilities frontier out. The productive potential

depends on the inputs that are deployed, both private and public. Private inputs include

capital (organizational, physical and human), labour (skilled and unskilled), land, and

other natural resources. Public inputs include infrastructure, governance (e.g., property

rights, law and order), and quality of institutions (the judicial process, access to

information, political rights). It also depends on technology and skills, investments in

which shifts the frontier out.

Earlier views on economic growth focused on capital accumulation with all the other

factors being lumped into the Solow-residuals. This caused an excessive focus on

saving and investment without sufficient thought on productivity and incentives of

individual economic agents. Modern research on economic growth has attempted to

unbundle these residuals, to try to separate out the respective roles of institutions,

governance, infrastructure, and technology. There has also been a renewed focus on

studying how inclusive is the process is as growth episodes whose benefits are not

widely shared tend to lack overall legitimacy and will run into political bottlenecks. The

sustainability of growth has also attracted increasing attention.

This provides is unifying framework within which different elements of the IGC work

programme can be slotted in. The IGC will draw on the large body of research which

has already been undertaken in the modern literature on economic growth both

theoretically and empirically to understand the specifics of the growth process that is

taking place in Bihar, and to help sustain and accelerate it. The IGC work programme

will also draw upon past and ongoing research and analysis on Bihar’s key growth

policy issues. It’s goal will be to promote original research that addresses key growth

policy concerns expressed by stakeholders in the state and to disseminate widely the

findings of that research. At its core the IGC Bihar programme represents collaboration

between academic researchers and policy stakeholders who share the objective of

finding innovative and effective policies to create and sustain growth in the state.

The challenges to increasing growth and making it more inclusive are considerable.

Bihar is one of India’s most populous states in India. With an estimated population of

about 96.0 million in 2009-10, Bihar is a very densely populated region - with a

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population density of 880 per square kilometres compared to the national figure of 324.

It is also one of the poorest states in the country. In 2005-06, its per capita income

was less than one-third of the national average. According to the new poverty

estimates, during 2004-5, 54.4 percent of the state population was below the poverty

line, compared to the all India figure of 37.2 percent. The state was split into two –

Bihar and Jharkhand - in 2000, and almost all mineral resources and industries of this

previously mineral-rich state went to the latter thus imposing a significant public

finance constraint on the state.

Historically Bihar has been a slow growing state with growth rates amongst the lowest

in the country. However, there has been a remarkable turnaround in Bihar’s economic

performance in recent years leading to a lot of media attention, both nationally and

internationally. Since the mid-point of the last decade, i.e., from 2004-05, according to

the latest figures, the growth rate has been more than 12 percent, making it the

second fastest growing state in India. The timing of this growth increase has led to a

focus on the policy actions of the Nitish Kumar government. Moreover, Bihar’s

economy has been growing at on an average of 7.52 percent for the entire decade

since 2000-01 and it notable that this growth rate over the decade was realized despite

the adverse impact on resources due to splitting up of the state.

The upswing in growth in Bihar has generated a multitude of hypothesis as to its origins

but there is very little rigorous research aimed at identifying causal effects. One oft

cited factor has been the increased investment in infrastructure. Due in part to

increased funds from the central government, Bihar’s spending on planned

development priorities has been 160 billion rupees in the most recent fiscal year,

compared with just 12 billion rupees in 2002. In particular, the reconstruction of roads

and bridges has been stepped up sharply. Observers of Bihar have also pointed to less

tangible factors, namely, how the improvement in governance that reduced crime rates

has helped to increase private investment from both within and outside the state. There

have also been significant investments in human capital in the state, most notably,

through the hiring of some two hundred thousand contract teachers. However, without

a disaggregated growth accounting exercise it is hard to conclude anything definitive.

By employing frontier research methods in economics the IGC Bihar programme aims

to rigorously analyse the growth experience of Bihar with a view to identifying

successful policies and identify innovative means of encouraging economic growth in

the future.

The fact that Gross State Domestic Product (GSDP) has grown rapidly, albeit from a low

base, should not, however, make us complacent about the growth challenges that the

state still faces. On most measures of development – whether related to income,

education, nutrition or health – Bihar is still amongst the most underdeveloped states

in the country. Indeed for a range of development measures it remains the most

underdeveloped state in India.

To delve into the roots of underdevelopment we need to look carefully at the structure

of the economy. Bihar is characterized by having a population that is mainly rural and

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mainly dependent on agriculture. Diversification of the economy overall and particularly

within the rural sector has been extremely limited. 85-90 percent of population is still

engaged in the rural sector, primarily in activities related to agriculture and particularly

subsistence agriculture. As a result, no strategy of economic growth of Bihar can ignore

the rural sector or agriculture. This raises a host of policy concerns. Raising agricultural

productivity, increasing rural diversification, expanding irrigation, improving service

delivery, strengthening local government capacity, avoiding the adverse growth effects

of floods and droughts, improving rural infrastructure (particularly power and roads),

improving access to credit, promoting the use of new agricultural technologies and

making land records more transparent were amongst those mentioned to us.

The flip-side a large primary sector are the very low rates of industrialization and

urbanization observed in Bihar. A factor that has made the situation even worse is the

bifurcation of the state in 2000. In Bihar today manufacturing only takes up 5 percent

of GSDP which is well below the national average with most of this being in the

unregistered sector and growth of the sector overall has been moderate over the past

decade. Significant investments in infrastructure, however, have meant that

construction has been growing a rapid pace over the last decade (26.5 percent) and

has been a key driver of rapid growth of the secondary sector (13.9 percent).

In order to engender industrialization and transition to a higher productivity economy

the private sector needs to be unleashed in Bihar. This is turn raises a range of policy

concerns. Making the supply of power more available and secure, improving

governance and enhancing the reputation of the state, facilitating private investment

into the state including revisiting the industrial incentives and single window policies,

reforming industrial regulations, revitalizing the banking sector, commercializing

agriculture and developing food processing industries, enhancing road infrastructure

and improving amenities in the cities were amongst the policy concerns discussed with

us.

The tertiary sector, which encompasses services, was also a sector focused upon as it is

becoming increasingly important in the Bihar economy. This sector grew reasonably

fast (8.2 percent) over the past decade due largely to the growth in two sub-sectors:

communications (23.1 percent) and trade, hotel and restaurants (13.7 percent).

Services, which are the key driver of growth in the nation overall, are seen as a key

force for driving up productivity and modernizing the Bihar economy. This is particularly

the case as Biharis are well represented in the service sectors outside the state. It was

recognized that expanding sectors such as information technology, higher education,

banking, insurance, communications and trade could make a vast difference to

productivity and growth in the state. This pointed to a range of policy concerns

including raising skill levels in the state, raising education levels in the countryside,

revitalizing the higher education sector, creating the necessary infrastructure to attract

service industries, improving the investment climate, making credit more available

within the state, improving urban amenities and attracting high skilled Biharis back to

the state which were all discussed with us.

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The development and growth objectives of the state are highly ambitious and the

political will to enact policies that will help to economically transform the state is clearly

there. A key constraint is that the structure of economy, with large difficult to tax

sectors, significantly constrains the ability of the government to raise resources from

within the state. This has led to a significant focus on resource mobilization. This

includes a focus on increasing the tax take from within the state via a variety of tax

reforms, improving the utilization of funds in federal and state programs, arguing for

larger fiscal transfers from the centre, repopulating government positions at different

levels in order to enhance the government’s capacity to utilize funds and deliver

programs and attracting international donors to the state to fund various development

initiatives.

2. The Consultation Process

The initial contact with the state, and in particular with the Chief Minister Nitish Kumar,

was made via N.K. Singh who is a long-time friend of Nicholas Stern (IGC Senior

Advisor) at the LSE and via Arunish Chawla, an Bihar IAS officer, who had been a PhD

student at the LSE under Robin Burgess’s supervision. A scoping visit by Gobind

Nankani (IGC Executive Director), Robin Burgess (IGC Academic Director) and Soumya

Gupta (IGC Executive Group Co-ordinator) took place in June 2009. The IGC team met

high-level policy-makers from government including Chief Minister Nitish Kumar and

the Deputy Chief Minister Sushil Kr Modi along with the top-level civil-servants like the

then Finance Secretary, Development Commissioner and Chief Secretary. The Chief

Minister, Nitish Kumar expressed his support for IGC and along with the Deputy Chief

Minister and key civil servants identified the broad areas in which academic work would

be of use in framing growth-oriented policy. The IGC team also met important

stakeholders from the private sector including the President of the Bihar Industries

Association and the President of the Confederation of Indian Industries (Bihar Chapter),

along with civil society organisations and members of faculty of the Asian Development

Research Institute (ADRI).

Discussions continued and took on a sharper focus when Mr Navin Kumar

(Development Commissioner), Dr N K Singh (Member, Upper House of Parliament,

India) and Dr Shaibal Gupta (Member-Secretary, ADRI) participated in the session on

Bihar in IGC Growth Week Conference during September 2009 at the LSE. Mr Navin

Kumar also gave a public lecture on Bihar’s growth challenges to a large audience

during this event. These meetings significantly helped to attract researchers to working

on Bihar. The discussions in these meetings covered the institutional aspects of

structural transformation for sustainable growth in Bihar and led to identification of

broad areas on which IGC could focus in Bihar. It was also agreed that ADRI should

become the institutional partner of the IGC in Bihar.

The broad areas of possible engagement which included service delivery, private sector

development, rural development and growth opportunities were the subject of

deliberations at the first major IGC public consultative event held in the state – the

Bihar Growth Day Workshop on December 17, 2009 (see Annexe 1 for the program).

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This was jointly organized with ADRI and was attended by the Chief Minister, Deputy

Chief Minister, all the high-level policy makers in the Government of Bihar, a delegation

of IGC international researchers, representatives of civil-society organisations, local

and national academics and representatives of private sector in Bihar. In this

workshop, Chief Minister Nitish Kumar and Deputy Chief Minister Sushil Kr Modi

publicly announced, to the audience and to a large media contingent, their support for

IGC’s operation in Bihar.

Along with the high-level support, IGC Bihar also has created an interest in Bihar’s civil

society reflected in the media coverage of its events. This conference along with

smaller group meetings spread over December 16, 2009 to December 18, 2009,

between IGC researchers and the Chief Minister, Deputy Chief Minister, principal

secretaries of various departments, the Development Commissioner, civil society

organisations, bankers and private sector entrepreneurs created a wide consensus on

the broad areas in which IGC could help feed frontier research into policy and provided

inputs for the development of the IGC Bihar programme. These inputs were further

consolidated in a Conference organised by JPAL in January 2010 in Patna in which

IGC/JPAL academics presented a corpus of research relevant to growth policy concerns

in Bihar.

A day-long meeting between Robin Burgess and Diane Mak (IGC Hub Fellow) on behalf

of IGC with the faculty at ADRI on 14th January 2010, also led to the outlining of the

broad contours of collaboration between the two organisations along with identification

of candidates for the IGC Bihar leadership team. Between January 2010 and August

2010, the IGC Bihar programme grew substantially with the appointment of the IGC

Bihar Leadership Team which consists of a Director (Anjan Mukherji), Lead Academic

(Maitreesh Ghatak), Deputy Director (Chirashree Das Gupta) and Senior Advisor

(Shaibal Gupta). Appointment of this leadership team allowed areas of engagement for

IGC Bihar to be refined, for the work programme to be developed and for the

commissioning of research in key areas of growth policy to begin. The fact that the IGC

Director and Lead Academic only came fully on board in August 2010, however, means

that the commissioning of research projects to match the demands of policy

stakeholders is only in its initial stages.

The March 2010 IGC retreat at Oxford provided an opportunity for two IGC Research

Directors Oriana Bandiera and Henrik Kleven, to closely interact with Chirashree Das

Gupta which led to identification of concrete areas in public finance policy in Bihar for

the IGC research network to contribute. This matching of demand and supply for

research led to a session on Bihar at the CEPR/IGC conference on Public Finance and

Development on 18 June 2010 in London which was attended by Chirashree Das Gupta

where she shared the views of stake-holders in Bihar on the question of resource

mobilization in the state. This meeting has attracted many international researchers

from the IGC’s research network to work on issues around resource mobilisation in

Bihar. This was followed by Robin Burgess’s visit to Bihar in July 2010. During this visit,

the research plan of IGC Bihar was expanded to cover various items based on

consultations with the Development Commissioner, the Finance Secretary and the

Special Advisor to the Chief Minister on Industry.

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Consultation and interaction between policy stakeholders and researchers will continue

at the 2010 IGC Growth Week event at the LSE which the Development Commissioner

and Finance Secretary have committed to attending. Arunish Chawla from the

Government of India Planning Commission will also attend this event. A major Growth

in Bihar conference is also planned to take place in Patna in mid-December of 2010.

To sum up therefore the consultation process has been an on-going one, involving a

wide range policy stakeholders from both within and outside the state (see Annexe 2

for a list of individuals and institutions that were consulted). The discussions with

stakeholders at all levels indicated that the primary concerns around growth centred on

two key areas: policies to encourage economic transformation of the state and policies

to mobilize financial and human resources within the state.

3. The IGC Bihar Engagement Strategy

3.1 The Need for Independent, Policy-Oriented Academic Research in Bihar

Interest in the growth turnaround is what initially attracted the IGC to the state. But it

was the openness of policy stakeholders, including those in the highest echelons of

government, to evaluation and experimentation that sustained and enhanced that

interest. Here was a reformist minded government that really wanted to bring frontier

research bear on its growth problems. And this openness is critical to enabling research

to take place in the state. In particular, as much of it requires close collaboration with

government, private sector representatives and other stakeholders.

The common view amongst the policy stakeholders that we consulted with in the state

was that the enormous growth challenges were not being met by high quality, policy

oriented research. It was felt that this type of research was needed to shape the policy

debate on key issues. Whilst scholars and economists are in, in general, held in high

esteem there is currently only very small base of economists from within the state that

can be drawn upon.

Despite historically being a key seat of learning in India, there is a consensus that the

quality of economic research and faculty in universities, think-tanks and institutes has

diminished over the time in Bihar. There is also the additional problem that much of the

research is focussed on the issues that concern policy makers in the state. There is

thus a disconnect between the academic and policy making communities in the state.

And indeed building up local analytical capacity in institutes, think-tanks, and

universities so that young researchers can play a more active role in the policy-oriented

research in the state of Bihar is a key secondary objective of the IGC Bihar programme.

This disconnect is not limited to the state. A survey of published academic economics

work on the state reveals much of the work focuses on subject matter which are in

keeping with Bihar’s former reputation as an anti-development state. There is thus a lot

of work on caste relations, on the role of caste in politics, on forced migration and on

documentation of the abysmal status of income, health, education and nutrition

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indicators in the state. The more forward looking and growth-oriented topics which

currently occupy policy maker minds such as question of how to attract private

investment in order to transform the economy and how to mobilise resources to finance

a set of ambitious developmental goals are very poorly represented in this literature.

Due in part to growth of the private sector and boom in aid there is a growing

consultancy market for work on Bihar. This is in common with the situation in

Bangladesh and Pakistan and in a range of low income developing countries. This

covers both consultants that service the private sector as well as a range of economic

and policy consultants that service the needs of various types of donors and civil

society organizations. These consultants tend to deal with the short term and often

programmatic needs of their clients. These studies are extremely useful in terms of

understanding key programs and policy interventions as well as broad sectoral issues in

the state. But they tend not to get into the kind of analytical depth that is the hallmark

of academic research.

There is also the issue that consultant-led research and analytical work tends to be

produced under tight deadlines and is not subject to the type of rigorous peer review

that academic research is subjected to. There is thus little quality control. Policy

stakeholders also often do not feel that they do not own the findings from this type of

analytical work and research as they typically do not originate the work. These factors

can, in turn, affect the willingness of policy makers to take the findings from

consultant-led research and analytical work into policy.

The growth challenges in Bihar are clearly immense and it clearly makes sense for a

range of actors from governments, international development organizations, NGOs and

the private sector to work on them. We view the work of the IGC in Bihar as

complimentary with the work of these organisations.

The lack of analytical capacity provides the IGC with a natural entry point in the state.

Our consultations during the 2009-2010 period has clearly indicated that there is strong

demand from a range of policy stakeholders for research on growth policy issues

related to economic transformation and resource mobilization.

The demand-led nature of our operations where we devote considerable time to

listening to the views of policy stakeholders is strongly appreciated as it inculcates a

sense of ownership over the findings from research. The close relationship between

researchers and policy makers in the origination and carrying out of research has also

led to close working relationships which will be important in terms of facilitating

research in feeding research findings into policy.

The fact that the IGC is able to mobilise some of the best researchers from around the

world to work on growth policy issues in Bihar is also genuinely appreciated. The IGC,

in effect, forms a link between the international academic economics community and

the policy makers in Bihar which was not present before and this is valued by policy

stakeholders. And the fact that we installing local research capacity in form of the IGC

floor in ADRI which is just being completed and will soon be buzzing with young

researchers working on Bihar’s growth problems is something policy stakeholders feel is

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of immense value. The Chief Secretary on a recent visit to the IGC floor at ADRI after

attending the IGC Floods and Growth Workshop made precisely this point.

That these views come from researchers working in universities and research institutes

is also viewed as being of paramount importance. The policy makers clearly like having

access to independent, academic viewpoints of this type which are not linked to any

grant or loan. Indeed, like policy makers around the world, the often like to have

several viewpoints on the same policy matter. And the IGC provides them with access

to the viewpoint of academic economists, on a subset of the manifold policy issues that

they confront, which is something they value.

The range of growth problems, the paucity of analytical capacity and the clear demand

for independent, frontier economic research means that the IGC Bihar programme

should have a bright future in the state. Its work is distinctive from that being done by

other development actors in the state but is also highly complementary. We now turn

to some key local partnerships which are key to the success of the IGC Bihar

programme.

3.2 Partnerships

The IGC Bihar Growth programme is built upon the the close relationship that IGC has

developed with the Asian Development Research Institute (ADRI) whose campus hosts

the IGC Bihar facility. In fact the relationship grew out of links established with Dr

Sahibal Gupta’s (Member Secretary of ADRI and IGC Senior Advisor) who has been a

key economic adviser to successive Governments in Bihar. One of the most important

contributions that the Government of Bihar has made in recognition of this relationship

is the creation of Centre for Economic Policy and Public Finance (CEPPF) within ADRI as

a separate entity and with Dr. Shaibal Gupta as Director. The CEPPF is as yet small but

performs for the Government of Bihar the tremendous task of producing each year the

Economic Survey for the State of Bihar. It has played a very important role in creating

a research-based consensus on the issue of central devolutions to Bihar both within the

Government of Bihar, which entrusted it with the task of preparing its Memorandum to

the Thirteenth Finance Commission, which brought together all the main political

parties and professional organizations in Bihar.

ADRI had been doing this consensus building on resource requirements for Bihar's

development for earlier Finance Commissions deliberations as well. On the Board of

Directors of CEPPF, are Anjan Mukherji (the IGC Bihar Director) and formerly the RBI

Professor of Economic Theory at Jawaharlal Nehru University, Arunish Chawla who was

then Deputy Finance Secretary, a former doctoral student of Robin Burgess at the LSE

and currently Secretary to Montek Singh Ahluwalia, the Deputy Chairman of the

Planning Commission. The Chairman of the Board is ex-officio, the Finance Secretary

Government of Bihar. There is another link too: Chirashree Das Gupta the IGC Bihar

Deputy Director is Associate Professor at CEPPF and plays a major role in many of its

activities. Thus this relationship is close and provides the IGC Bihar with access to

senior policy makers in the Government of Bihar. In fact without the presence of ADRI

and the interest in IGC expressed by Shaibal Gupta, the project would have been

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difficult to sustain.

Given the long-standing influence that ADRI has exerted in the Bihar policy scene

across successive political administrations, IGC has had the good fortune of leveraging

this influence in many ways as has been documented in the prior section. Not only the

incumbent government, but any other organization, political or otherwise, would come

to ADRI for advice and guidance when working on Bihar or any aspect of the Bihar

economy. Whenever all party position papers on any economic activity has been

prepared, it has been with the active participation of ADRI, as documented earlier. In

fact there is no other organization with this unique presence and authority.

Consequently work done by IGC Bihar will be able to effect policy formulation with the

help of support from ADRI.

Given ADRI’s pivotal importance, JPAL (which is a partner organization of the IGC) has

also found it convenient to locate its staff on the premises of ADRI as well. The

presence a group of young researchers, pursuing different problems using different

methodologies is thus opening up a rich area of discourse in Bihar. Regular seminars by

IGC in-country economists, visiting IGC and JPAL researchers with the active

participation of policy stakeholders and of researchers from local universities and

institutes should provide a very active research atmosphere and will help ensure that

findings from research find their way into policy.

These partnerships with ADRI and CEPPF provide the IGC with three things:

Close access to the top policymakers

Close access to some of most distinguished researchers on Bihar from other

organizations and institutions and finally

A greater chance of influencing policy makers through the IGC research

program.

3.3 Communication and Dissemination

Not only through ADRI but also through the functioning of the CEPPF, all policy

stakeholders will be easily accessible to the IGC Bihar operation. It should be kept in

mind that the stakeholders extend to Confederation of Indian Industry, Bihar Industries

Association, NGO’s, and the State Planning Board and the state and national media

which will be kept abreast of the work done by IGC Bihar. The accessibility of the

Central Government through the Planning Commission and the Finance Commissions is

also to be noted. In fact to emphasize this communication and dissemination aspect,

all commissioned work from the IGC-Bihar Programme is completed in a two step

procedure. The first step involves the presentation of the first draft of any piece of

research or analysis before the stakeholders whose demands are being met. This will

be done in a form which is appropriate to reaching the concerned stakeholder or

stakeholders. The comments from the audience and the concerned stakeholders and

clarifications sought then need to be addressed in the final version to be submitted.

Thus the concerned stakeholders are aware from the beginning what work has been

done and know further that their concerns will have to be met in the final versions.

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While this makes the entire process somewhat more complex to implement, it is felt

that the gains from this procedure in terms of the both policy relevance and ownership

by policy stake holders of the commissioned research are worth the effort.

Seminars, workshops and conferences organized whenever scholars visit Patna provide

another key means for promoting communication and dissemination of research

findings. From December 2009 to date, there have been four public conferences and

seminars. The most recent being the IGC Floods and Growth Conference held at ADRI

on 29 August 2010. Through such meetings and the media coverage that such

meetings receive, work done as part of the IGC-Bihar Growth programme will receive

wide coverage in the state and national media.

4. The IGC Bihar Programme

The 2009-2010 IGC Bihar Programme focuses on two key areas: economic

transformation and resource mobilization. The two areas are hugely interdependent

and there are important economic reasons for their choice. Primary among them is, of

course, that the demands from the policy makers fell into these areas; and on logical

grounds, this is perhaps not surprising. The current state of the Bihar economy, as

described above, requires substantial structural changes to help growth to take place in

a sustainable and inclusive manner. And of course, for this purpose, considerable

financial and human resources need to be mobilised.

4.1 Economic Transformation

Economic transformation consists of: (a) changed importance of various sectors, in

particular the growth of the secondary and tertiary sectors relative to the primary

sector; (b) economic diversification: branching into new activities and industries within

a sector, reflecting dynamic comparative advantage and technological innovations, and

(c) modernisation of the economy in terms of greater investment in skills and

infrastructure, and transforming traditional forms of economic relationships to more

modern forms.

The following projects have been commissioned or are in the process of being

developed. As is evident in Table 1, which is summarises the 2010-2011 work plan,

there are several ways in which responses to policy stakeholder demands will be

prepared: rapid response notes, policy briefs and research papers. The target for the

latter is that they should be publishable in peer reviewed journals. All projects also

involve significant face to face briefings with the concerned policy stakeholder as well

as dissemination via workshops, seminar and conferences.

Timothy Besley and Robin Burgess of the LSE are developing a project on

Growth in Bihar. The study uses panel district and state level data for India to

examine different hypothesis as to what underpins the growth upswing in the

state. The use of district level GDP and other data from Bihar and neighbouring

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states will enable them to look at whether it is the improvements in governance

or other policy reforms introduced by the Nitish Kumar government that are

responsible for increased growth. The data set will also enable the authors to

study how economic growth has been distributed across the state and at which

factors seem to be associated with structural change within the districts of

Bihar. This study will allow policy stakeholders to both evaluate where growth

has come from in the past and to identify where future growth may come from.

Areendam Chanda, Associate Professor of Economics, Louisiana State

University, USA is undertaking study to try to understand the phenomenon of

growth in Bihar in terms of modern growth theory. Most of the discussion of this

subject continues to remain couched in phrases that are reminiscent of “old”

growth theory - investment led growth, agricultural poverty traps, etc. While

this is not to deny the intellectual contributions of development theories from

the mid 20th century, it would be a disservice to the state and its economic

problems if one did not incorporate into the discussion, the lessons of research

in growth theory that has exploded over the past two decades. The main goal of

this project is to visit important elements of new growth theory and see how

Bihar fits in various contexts.

Areendam Chandha is also developing an evaluation of the impact of the

introduction of the Kisan (farmer) Credit Card (KCC) scheme on agricultural

productivity and other economic indicators in Bihari districts. Schumpeter

recognized the importance of well-developed financial intermediaries in

enhancing technological innovation, capital accumulation, and economic growth

almost a century ago. In a nutshell, the argument goes that well- functioning

financial markets, by lowering costs of conducting transactions, ensure capital is

allocated to the projects which yield the highest returns projects that yield the

highest returns, and therefore enhances growth rates. More recently, the role of

dual economies in economic development has seen a revival of interest. Finally,

there is also a well developed literature on the role of microfinance in

agricultural productivity. This paper aims to build upon all these bodies of

literature in the context of Bihar.

Errol D’Souza who is a Professor of Economics at IIM Ahmedabad is developing a

study to better understand constraints on private investment in industry which

is a key policy concern in the state of Bihar. Studies have shown that states in

India with a poor investment climate have lower investment and lower factor

productivity. Using the 2003 and 2006 Investment Climate Surveys this study

will identify whether managers in low income states emphasize certain obstacles

to business which are different from identified by managers in high income

states. On the basis of field visits and meetings with state officials the study will

then map out the steps required to be taken by an investor for setting up an

industrial unit in the state of Gujarat in terms of permissions required from

various authorities. Finally, the study will investigate the role of the single

window clearance system called the Industrial Extension Bureau in Gujarat as an

investment promotion agency and examine its structure and functioning.

13

While there are issues around Bihar’s floods which need to be worked at the

national and international levels (e.g. the causal issues linked to Nepal), and

there are policymakers at the federal level engaged in the task in collaboration

with international agencies and organizations, there are many other areas which

fall under the ambit of Government of Bihar. On these issues, while there are

certain initiatives and interventions by international organizations in some key

areas, the most notable being the World Bank’s Bihar Flood Management

Information System being implemented by the Department of Water Resources,

Government of Bihar; there is a paucity of policy-oriented academic research

based interventions on the multiple dimensions of the link between floods and

economic growth in Bihar. To explore the possibility of building up an inter-

disciplinary research agenda, IGC Bihar held a national meeting of experts on

Floods and Growth in Bihar on 29 August 2010. The workshop involved a range

of experts from the IITs, universities, NGOs and activist organizations, the Bihar

Government and international organizations like the World Bank. The Chief

Secretary and Finance Secretary both attended the event. The plan is to follow

up by identifying a small subset of scholars who will pursue this research agenda

and produce research agenda papers to be presented at an International

Conference, tentatively scheduled for March 2011, where experts from different

countries in South Asia and elsewhere will be required to present their

respective experiences and this will help produce a comprehensive

recommendation to the Government of Bihar.

4.2 Resource Mobilisation

One of the main concerns in Bihar has been medium-term possibilities of raising of tax

and non-tax revenue capabilities given the post-bifurcation resource-allocation. In this

connection the state is also interested in examining the fiscal implications of the

recommendations emanating from the Thirteenth Finance Commission. There is also

keen interest in the fiscal implication of introducing the Goods and Services Tax in the

state. Recent reform efforts in Bihar have led to visible improvements in the law and

order situation and in the perceived effectiveness of top-level bureaucrats and service

providers. However, the lack of state capacity continues to pose major challenges to

public finances, as well as to the delivery of social services, especially at the

municipality, district, bloc and panchayat level.

The following projects have been commissioned or are in the process of being

developed.

Chirashree Das Gupta (ADRI and IGC Bihar) provided the Government of Bihar

with academic inputs for its first response to the Thirteenth Finance

Commission’s recommendations. A note was prepared in collaboration with

Centre for Economic Policy and Public Finance comparing Thirteenth Finance

Commission’s relative and absolute devolution to Bihar and an estimate of the

resource gap that will need to be filled up for Government of Bihar to attain its

14

declared goal of equalising Per Capita Development Expenditure to the national

average by 2014-15. A Rapid Response Note was provided.

Chirashree Das Gupta (ADRI and IGC Bihar) also provided the Government of

Bihar with a detailed assessment of the policy implications of compliance

requirements and eligibility conditions for the grants-in-aid recommended by the

Thirteenth Finance Commission. In collaboration with Centre for Economic Policy

and Public Finance, a policy brief was prepared enumerating the multiple

compliance requirements and the policy options as well as resource constraints

before Government of Bihar to be eligible for the Thirteenth Finance Commission

grants.

The Recommendations of the Thirteenth Finance Commission on state finances

of Bihar provide constraints on fiscal policies available to the state.

Consequently, a proper understanding about what policies are feasible given the

Finance Commission Recommendations is crucial for maximum utilization of

funds available. With this aim an analytical paper needs to be prepared to

examine the following: (a) The implication of new horizontal distribution formula

on the share of devolution to Bihar and its resource needs. (b) Likely impact of

`revised road map for fiscal consolidation’ proposed by the Thirteenth Finance

Commission on the fiscal autonomy and fiscal space of the state of Bihar for

development spending. (c) The implications of various state specific grants

recommended by the Thirteenth Finance Commission and make observations on

the policy steps required for effective utilisation of these funds. Pinaki

Chakraborty of NIPFP Delhi is carrying out this work which will generate both a

research paper and a policy brief.

It is sometimes argued that the key problem with local governments in India is

a lack of revenue, but a look at the statistics may reveal that revenue is not

unusually low (relative to GDP). The key problem may instead be the poor

incentives to make effective use of the available revenue. Given the

performance of the government in Bihar in particular may be the problem is not

providing them too little revenue but instead inadvertently providing them poor

incentives to use this revenue well. With teachers and doctors not showing up

for work, for example, it is clear that incentives are currently very badly

designed. According to some a more interesting question then would be a

project that examines how government behaviour changes in response to

changes in sources of revenue. To what degree is the tax base dependent on

the provision of quality services and a supportive environment for business

activity? It may be argued that changes in tax structure provide a type of

natural experiment to judge the effects of these incentives. Roger Gordon of the

University of California at San Diego is carrying out this work.

Oriana Bandiera (LSE), Robin Burgess (LSE) and Ben Olken (MIT) or looking into

the feasibility monitoring the recruitment process of contract teachers with a

view to better understanding what factors drive selection. There is also interest

in using sample surveys to examine the effectiveness of contract teachers

15

relative to regular teachers in Bihar’s schools. Better understanding the

motivation and effectiveness of public servants such as teachers with a view to

improving service delivery is a topic that key policy makers in the state are

keenly interested in.

GST Implementation: The Department of Finance, Government of Bihar, had

requested research support in implementation of GST in Bihar. As a first

response, the Centre for Economic Policy and Public Finance and IGC Bihar are

working estimating the Revenue Neutral Rate (RNR) of GST for Bihar under

ceteris paribus conditions. The study is an attempt to calculate the RNR for Bihar

extending and adapting the different methodologies that have been used to

arrive at the RNR for the entire country, which has been the basis of the roll-out

of the GST plan for all states by the Union government. An academic researcher

to carry out this work is being sought out.

Training Programme: It has been widely accepted that the involvement of

college teachers in projects or research programs is not possible in general. C

consequently whenever additional personnel are required for any purpose,

mostly persons need to be brought in from outside. For very short time

requirements this is often not possible. To enhance the skills of college teachers

and to contribute to the creation of human resources and to take advantage of

the presence of academic visitors of very high calibre, a training programme of

college teachers in areas of growth and development has been planned during

March 2011.

These IGC Bihar projects will be complemented by an IGC Research Programme project

by Esther Duflo (MIT), Lori Beaman (Northwestern), Pinar Keskin (Harvard) and Rohini

Pande (Harvard) entitled "Strengthening Capacity of Women Leaders in Rural India:

Evaluating the Impact of Training on the Effectiveness of Elected Women

Representatives (EWRs) to Village Councils in Bihar" which evaluates the impacts of a

leadership training programme operated by the Government of Bihar and UNDP on

women leaders confidence, attitudes towards women leaders and perceived

effectiveness of women leaders.

Other research projects will develop in this broad area over the course of 2010-2011.

5. The IGC Bihar Team and Research/Policy Network

The IGC Bihar Leadership Team is made up of:

Director: Anjan Mukherji (ADRI, CEPPF and IGC)

Lead Academic: Maitreesh Ghatak (LSE and IGC)

Deputy Director: Chirashree Das Gupta (ADRI, CEPPF and IGC)

Senior Advisor: Shaibal Gupta (ADRI, CEPPF and IGC)

Anjan Mukherji has recently retired as the Reserve Bank of India Professor of Economic

16

Theory at Jawaharlal Nehru University where he has been teaching for thirty seven

years and has taught generations of students. He is one of India’s most respected

economists. A native of Bihar he has had a close association with ADRI and CEPPF and

with policy issues within the state for a number of years. Maitreesh Ghatak is one of

the most well known scholars in the area of development economics. He is a Professor

of Economics at the London School of Economics. He has been the Editor of influential

journals like the Review of Economic Studies and currently is the Managing Editor of

Journal of Development Economics. He has extensive experience working on public

policy issues in India. Chirashree Das Gupta has been with ADRI since being a lecturer

in Economics at the School of Oriental and Asian Studies in London. She is currently

Associate Professor at the CEPPF where she has been associated with, among other

things, the Annual Survey of the Bihar Economy since its inception. And of course a

very important and key member is Dr Shaibal Gupta who is perhaps the most

knowledgeable person about the economics and politics of Bihar and is credited with

having established Asian Development Research Institute (ADRI) which hosts the

International Growth Centre in Bihar. He is the Founder Member Secretary of ADRI as

well as the Director of the Centre for Economic Policy and Public Finance in ADRI.

Current researchers in the country team and broader research/policy network include

well known and established scholars such as Robin Burgess (Academic Director, IGC

and Professor of Economics, London School of Economics), Chang-Tai Hsieh (Professor

of Economics, University of Chicago and Member of the IGC Steering Group), Tim

Besley (Professor of Economics, London School of Economics and Member of the IGC

Steering Group, IGC), Roger Gordon (Professor of Economics, UC SD), Areendam

Chandra (Associate Professor of Economics at Louisiana State University, a young

growth economist), Errol D’Souza (Professor of Economics, Indian Institute of

Management, Ahmedabad), Pinaki Chakraborty (Professor at the National Institute of

Public Finance and Policy, India), Oriana Bandiera (Professor of Economics at LSE) and

Ben Olken (Professor of Economics at MIT). Clearly this is a growing list and it is hoped

that more scholars from some of the leading institutions in India and abroad, will join in

the exciting task of analyzing the growth experience of Bihar.

The IGC network extends among the policymakers as well. They are the ones who

identify policy requirements and questions and include among others, Mr. Nitish Kumar,

Chief Minister, Mr. Sushil Modi, Deputy Chief Minister and Finance Minister, the Adviser

to the Chief Minister Mr. Vijay Raghavan, the Chief Secretary Mr. Anup Mukerji, the

Development Commissioner Mr. K. C. Saha, the Principal Secretary Finance, Mr.

Rameshwar Singh, two former Principal Secretary Finance, Mr. Bhanu Pratap Sharma

and Mr. Navin Kumar (also a former Development Commissioner) and currently with

the Central Government, as Secretary Minority Affairs and Secretary Urban Affairs, Dr.

Arunish Chawla (a former student of professor Robin Burgess at the LSE) and Secretary

to Mr. Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission. Mr.

Montek Singh Alhuwalia has himself taken an active interest in the work of the IGC in

Bihar. Mr. N.K. Singh is also a key player in the IGC research/policy network in

particular as regards promotion of private sector development in the state. Secretaries

in key government departments also play an active role in the network. Apart from

17

these key government decision makers the research/policy network also contains key

private sector (such as Anshuman Anand who heads up the Bihar chapter of the

Confederation of Indian Industry), banking, NGO and civil society representatives. A

detailed list is provided in Annexe 2 below.

Apart from the above, two in-country Economists should be in place by

October/November of 2010. An office manager for the IGC Bihar operation should also

be in post by this time.

The Financial Agreement between LSE and ADRI has now been signed and are effective

and will cover the cost of running the Centre.

The task of overseeing daily operations is in the hands of the Deputy Director who

resides in Patna in frequent consultation with Director who shuttles between Patna and

Delhi. The Lead Academic, based at the LSE in London, oversees the development of

the portfolio of IGC projects in consultation with the Director. The Senior Advisor plays

a pivotal role both in funnelling requests from policy makers to the IGC, in linking

researchers to relevant policy stakeholders and in disseminating the findings of IGC

research to key policy makers. The work-plan has already been outlined. These projects

were arrived at because of demand made from the highest levels of policy makers in

the state and based on what analytical inputs IGC as a group of academic economists

based in universities and research institutes can provide.

6. Work Plan

Table 1 summarises the work plan for 2010-2010 described in section 4. Particular

attention has been paid to getting messages from IGC research across to key decision

makers in the state. These include via rapid response notes, policy briefs and face to

face briefings, website and media outlets, workshops and conferences. Research papers

which come out from the IGC Bihar programme will be targeted at the top peer

reviewed journals which will give authority to the programme and help to ensure that

the policy influence of IGC Bihar research extend beyond the state itself.

18

Table 1: Summary IGC Bihar Work Plan for 2010-2011

Area of Focus Initial Research Projects Expected Outputs Research Team Indicative Period

Growth in Bihar since Independence Research Paper and Policy Brief

R. Burgess and T. Besley (LSE)

September 2010 – December 2011

Bihar Growth in the context of Modern growth Theory

Research Paper and Policy Brief

Areendam Chanda (Louisiana State U.)

July 2010 – November 2011

Economic Transformation

Kisan Credit Card Scheme and Agricultural Performance

Research Paper and Policy Brief

Areendam Chanda (Louisiana State U.)

December 2010 – March 2011

Single Window Clearance: A Case Study of Gujarat

Survey paper and Policy Brief

Errol D’Souza (IIM-Ahmedabad)

July 2010 – September 2011

Floods and Growth Research Agenda Papers

Chirashree Das Gupta CEPPF/IGC India-Bihar Organizer of National Meeting and International Conference later

August 2010 – March 2011

Growth in Bihar Conference Research Papers IGC India-Bihar December 2010

---------------------

13th Finance Commission Recommendations

Rapid Response Chirashree Das Gupta

CEPPF/IGC India-

Bihar)

June 2010

13th Finance Commission Recommendations: Compliance by the State Governments

Policy Brief Chirashree Das Gupta

(CEPPF/IGC India-Bihar)

July 2010

13th Finance Commission Recommendations: Implications for Fiscal Policy for Bihar

Research Paper and Policy Brief

Pinaki Chakraborty

(NIPFP)

July 2010 – August

2010

Resource Mobilisation

Changes in Government Behavior due to changes in Revenue Sources

Research Paper and Policy Brief

Roger Gordon (UCSD)

December 2010 –

July 2011

Recruitment and Effectiveness of Contract Teachers

Research Papers Oriana Bandiera (LSE), Ben Olken (MIT) and Robin Burgess (LSE)

January 2011 – December 2011

GST Implementation in Bihar Policy Brief and Research Papers

Chirashree Das Gupta and CEPPF/ADRI

December 2010 – May 2011

Training Programme for College Teachers in areas of Growth and Development

Skill Formation IGC India-Bihar Team March 2011

19

Annexe 1: Bihar Growth Day Workshop, December 17, 2009, Patna, Bihar

AGENDA

9:30 a.m. Decentralization / Accountability / Social Service Delivery

Discussion leaders

Rohini Pande, Professor of Public Policy, Harvard Kennedy School

Iqbal Dhaliwal, Director of Policy, J-PAL

Navin Kumar, Development Commissioner of Bihar, Government of Bihar Bhanu Pratap Sharma, Principal Secretary, Department of Finance, Government of

Bihar

C.K. Mishra, Principal Secretary, Health and Family Welfare, Government of Bihar

11.00 a.m. Coffee Break

11:30 a.m. Private Sector Development

Discussion leaders Robin Burgess, Co-Director, IGC and Professor of Economics, London School of

Economics

Vijay Raghavan, Advisor to Chief Minister, Government of Bihar

Ashok Kumar Sinha, Principal Secretary, Department of Industry, Government of Bihar

1:00 p.m. Lunch Break

2:00 p.m. Rural Development

Discussion leaders

Nachiket Mor, President, ICICI Foundation

Anup Mukherjee, Chief Secretary of Bihar, Government of Bihar

Vijay Prakash, Principal Secretary, Rural Development, Government of Bihar

3:30 p.m. Coffee Break

4:00 p.m. Growth Opportunities in Bihar

Discussion leaders

Nitish Kumar, Chief Minister of Bihar, Government of Bihar

Sushil Kumar Modi, Deputy Chief Minister and Finance Minister, Government of Bihar Chang-Tai Hsieh, Executive Group Member, IGC and Professor of Economics, University of

Chicago

5.30 p.m. Concluding Remarks

Discussion leaders

Rohini Pande, Professor of Public Policy, Harvard Kennedy School Shaibal Gupta, founder member-secretary, ADRI

Anjan Mukherji, Professor of Economics, JNU

20

Annexe 2: Summary of Individuals and Institutions Consulted in Preparation

of Bihar Strategy Note

Government of Bihar

Nitish Kumar, Chief Minister

Sushil Kumar Modi, Deputy Chief Minister

N. K. Singh, Deputy Chairman State Planning Board; currently M.P. (Rajya

Sabha)

Anup Mukerji, Chief Secretary

R.J.M. Pillai, Former Chief Secretary

Vijay Raghavan, Advisor to the Chief Minister

Navin Kumar, former Development Commissioner, currently Secretary, Goverrnment of India

T. K. Saha, Development Commissioner

Bhanu Pratap Sharma, former Principal Secretary, Finance, currently Secretary,

Government of India

Rameshwar Singh, Principal Secretary, Finance

C K Mishra, Principle Secretary, Health

Vijay Prakash, former Principle Secretary, Rural Development

Santosh Matthew, Principle Secretary, Rural Development

Ravin Kant, Principle Secretary, Energy

Arunish Chawla, former Joint Secretary Department of Finance, currently,

personal secretary to Montek Alhuwalia (Deputy Chairman, Planning

Commission)

State Level Bankers Committee, Patna

Mr. Ashish Kumar Roy, General Manager-I, State Bank of India, Local Head

Office.

Dr.J.N. Misra, General Manager – II, State Bank of India, Local Head Office.

Mr.V.K. Sharma, Dy. General Manager, State Bank of India, Local Head Office.

Mr.S.K.Rana, General Manager, Canara Bank, Circle Office.

Mr.S.S. Chopra, General Manager, Punjab National Bank.

Mr.C.K.Pandey, Zonal Manager, Central Bank of India, Zonal Office.

21

Mr.Gopichand, Dy. General Manager, UCO Bank, Zonal Office.

Mr.R.D.Groh, Dy. General Manager , Union Bank of India, Zonal Office.

Mr.U.S.Dewedi, Dy. General Manager, Allahabad Bank, Zonal Office.

Mr.R.C.Narayan, Chief Regional Manager,United Bank of India, Regional Office.

Mr.Satish Kumar Singh, Assistant General Manager (SLBC, Bihar),State Bank of

India, Local Head Office

Mr.M.P.Barnwal , Assistant General Manager (SME), State Bank of India, Local Head Office,

Dr.M.M.Mishra, General Manager NABARD , Patna.

Mr.Shri Mohan Yadav, Dy. General Manager, Reserve Bank of India, Patna.

D.B.Mukhopadhyay, Assistant General Manager, Bank of Baroda, Zonal Office.

Private Sector Representatives

Anshuman Anand (Executive Officer), Confederation of Indian Industry, Bihar

Chapter

A.K.P. Sinha, Natraj Iron and Castings Ltd.

Sudhir K.R. Jha, LN Mishra Institute of Economic Development and Social

Change

Arun Prakash (Chairman), Rural Employment Generation Programme Federation

of Bihar

R.G. Krishna (Executive), Harinagar Sugar Mill Ltd., West Champaran

Amitava Bhattacharyya, IL&FS CDI Ltd.

Asha Sintra, Maduta Painting

Pushka Chopra (President), Bihar Mahila Udyog Sangh

Civil Society Representatives

Pyare Lal Kumar, NIDAN

Behzad Larry, Clinton Fellow , NIDAN

Prakah Chandra, Sr. Programme Manager, NIDAN

Deepak Mishra, SEEDS

Shakeel, Charm

22

Misha Gho, Chairperson, Shikshansh Foundation

Nisha Jha, President, Shikshansh Foundation

DFID India

Michael Anderson, Former Head DFID India

Meenakshi Nath, Senior Programme Manager, DFID India

Padma Kumar, Senior Deputy Programme Manager, DFID India

Paul J G Rennie, Programme Manager, DFID India

Think Tanks and Research Institutes

Shubhashis Gangopadhyay, Managing Trustee Indian Development Foundation

Bibhu Prasad Mohapatra, Director Indian Development Foundation

Bappaditya Mukhopadhyay, Fellow Indian Development Foundation

E. Somanathan, Head (Planning Unit), Indian Statistical Institute, New Delhi

Abhiroop Mukhopadhyay, Lecturer (Planning Unit), Indian Statistical Institute, New Delhi

Prabhat P. Ghosh, Asian Development Research Institute, Patna