How real is Bihar's high growth story?

Bihar is apparently the flavour of the season. Many famous columnists have applauded the state's stupendous economic performance of 11 per cent annual growth rate between 2004 and 2009 - the highest among Indian states.

There have been equally quick rebuttals based on the state's well-known failings on social deprivation; some have even questioned the veracity of the official figures given the poor governance in Bihar.

Here is an attempt to demystify the story by looking closely at the official documents.

Using the Central Statistical Organisation's (CSO's) compilation, the average of annual growth rates of Bihar's gross state domestic product (GSDP) between 2004-05 and 2008-09 stands at 11 per cent.

However, the same, based on Bihar's Economic Survey 2008-09 (presented before the last Budget), is just 7.3 per cent - lower than the national average of 8.5 per cent.

The discrepancy between the two, both based on official data, should moderate the new-found enthusiasm for the state's growth story, paving the way for a sober and careful scrutiny of the official statistics.

Annual growth rates presented by the two series are broadly comparable during the first three years (see table), but diverge significantly in the following two years, causing all the confusion (and the celebration?). Why do they diverge? 

They should not, in principle, since the same official agency (state statistical bureau) is responsible for preparing the estimates - the CSO merely compiles them for all the states in a comparable format.

As any careful user of official statistics would know, the GDP/GSDP estimates usually undergo at least three revisions - advanced estimates to quick estimates to provisional estimates to the final estimates.

This is true in most countries (barring perhaps China!). The magnitude and sign of the variation between the CSO and the Economic Survey estimates is so pronounced that it would be imprudent to tell a credible story based on such divergent numbers.

To put the record straight, Bihar did not remain stagnant over the medium term during the last decade. Between 1999-00 and 2008-09 (i.e., during the last term of Lalu Prasad/Rabri Devi and now under Nitish Kumar), GSDP grew at an average annual growth rate of 8.5 per cent (CSO series), or at 6.1 per cent (Economic Survey series), with two years of negative growth rate and wide yearly fluctuation.

Yet, its per capita income remained at the bottom of the ranking of Indian states in 2005-06 (the latest year for which complete data are available), with 30 per cent of the national average.

However, even if you assume, for the sake of argument, that there has indeed been a turnaround in the state's economic performance (based on anecdotal evidence or casual empiricism), what could possibly account for it?

On disaggregating the GSDP into its principal sectors, it was found that the bulk of the growth has occurred in the secondary sector at 12.9 per cent per year, while the primary sector has barely grown (at less than 1 per cent per year) and the tertiary sector has grown much more slowly than the national average (at 6.9 per cent).

On further disaggregation, most of the secondary sector growth was found to be in construction - with manufacturing and the utilities stagnating. (For details, refer to our paper in Economic and Political Weekly, February 20, 2010, or visit http://epw.in/epw/uploads/articles/14459.pdf). The value added in construction boomed 2.5 times in three years, from 2004-05 to 2006-07.

What, then, is the source of construction growth when the commodity producing sectors were doing so poorly. Apparently, public works programme did the job, as there is evidence of a substantial reconstruction of roads and bridges (though perhaps not of new roads) funded by the Asian Development Bank (ADB) and national programmes that seem to have boosted overall output growth.

To be specific, value added in construction grew annually at 45 per cent for three years between 2005-06 and 2007-08. The Bihar Road Construction Department website shows that during these years, 2,088 km of national highways and 2,795 km of district roads were reconstructed (with little information on the state and village roads). These accomplishments are much lower than the targets, and even lower than the claims made in the media.

Could the tail (construction sector) accounting for 8.5 per cent of the GSDP wag the dog of domestic output, to make Bihar the fastest-growing state in India? Doubtful.

Compare Bihar's recent record with the one between 1999-00 and 2003-04 when there was massive road construction (that is, during the NDA government) — nationally 4,500 km of golden quadrilateral and 10,000 km of four-laning of national highways were completed (all of which meant laying new roads), with an imperceptible rise in the growth rate of GDP in construction.

So, there is reason to contend that the growth in value added in construction in Bihar in recent years seems over-estimated.

To sum up, Bihar's story of 11 per cent growth during the last five years, as per the CSO's compilation, needs to be compared with Bihar Economic Survey's data that shows a more modest growth rate of 7.3 per cent; the variation between them is entirely on account of the differing growth rates in the two most recent years.

The estimates for the most recent years are by their nature tentative and subject to serious revisions. Assuming the optimistic estimate to be correct, how could construction with a less than 10 per cent share in the GSDP push up growth by over 4 percentage points in three years? Seems unrealistic.

Spinning curious stories may attract a lot of attention, but would remain professionally unacceptable and unworthy of serious attention. Telling credible ones, based on sound facts and theory, is far harder.

The author is a Professor at the Indira Gandhi Institute of Development Research, Mumbai.