"When will India catch up?" - The New Bihar: Rekindling Governance and Development

Until I attended this event at the LSE my perception of the Indian federal state of Bihar, I suppose in concert with many others, was quite limited. I remember being quite concerned some 20 years ago when my parents were due to attend a wedding in the then Bihari city of Deoghar, although it is now in the new state of Jharkhand. Bihar had a reputation for lawlessness and the presence of dacoits or bandits. I was equally concerned when my mother went to Bodh Gaya to scatter my father’s ashes. Thankfully both visits passed without incident.

Karan Bilimoria on the panel acknowledged this perception during the discussion when he recounted how friends and family responded to his plans to set up a brewery in Bihar: “What are you doing? Do you have kidnap insurance?” In addition, I did read that Patna, the capital of Bihar, was one of the few places to suffer from falling or stagnant living standards for a long period after independence.

In its previous incarnation Bihar had a lengthy contiguous border with West Bengal which has now been dramatically shortened after the creation of Jharkhand. The links between West Bengal and Bihar were quite strong with many Biharis migrating to Kolkata in search of jobs.

At face value it’s difficult to imagine why Bihar should be worthy of a special event at the LSE. But all became clear: it was to launch a book “The New Bihar” which to some extent eulogises the progress Bihar has made in recent years. The book is a collection of essays and writings from leading economists and businessmen including (Lord) Nicholas Stern, (Lord) Meghnad Desai, (Lord) Karan Bilimoria, NK Singh and Amartya Sen amongst others. The book had also been launched in Kolkata recently with Sen leading the speakers.

For someone with limited knowledge of Bihar I was quite astounded at some of the growth figures reported by the panel and how such growth had been achieved. NK Singh outlined Bihar’s recent growth numbers of 12% in 2012, 13.5% in 2013 and forecasted to be 11.8% in 2014. This growth had been achieved since Nitish Kumar of the Janata Dal party was installed as Chief Minister in 2005.  NK Singh also noted that Bihar had been at the centre of empires in the past and had a rich cultural history.

The panel at the LSE a few days ago comprised Stern, an LSE professor who let’s not forget was the author of a very influential report on climate change, NK Singh, formerly a leading Indian civil servant and now a member of the Upper House of the Indian Parliament, Bilimoria, founder of Cobra Beer, Danny Alexander, a UK Treasury Cabinet minister in charge of allocating funds to spending departments, Suhel Seth, a leading consultant, and Ranjan Mathai, the Indian High Commissioner to the UK, and previously Indian Foreign Minister. The presence of Alexander might be surprising but he had fairly recently returned from a trip to India and Bihar and was interested in how the UK Department for International Development (DFID) was spending its funds in Bihar. Stern and Singh jointly chaired the panel and contributed at times.

NK Singh began his comments with a quote from the current Indian Prime Minister Manmohan Singh when Finance Minister in the early 1990s: “India will only really prosper if Bihar ceases to be a basket case”. NK Singh had recently met with the Prime Minister and in view of Bihar’s economic performance said to him: “When will India catch up?” Continuing, NK Singh divided the Bihar “growth story” into two main strands. Firstly, the peace dividend which has resulted in greater personal safety and that of property, to buy property and to make investments. This has shifted the culture from one of pessimism to optimism. Secondly, a direct targeting of beneficiaries such as women, and the young, with an indirect focus on infrastructure, health and education. This Singh, expounded, was the “Bihar Model” but there are still challenges ahead to equal the quality of life in the rest of India. Bihar would need to grow at 12% for the next 20 years to meet this target.

Stern opened his section by focusing on both the investment climate and investing in people. The investment climate is shaped by government behaviour and infrastructure. Investors need to have confidence in gaining financial returns, in physical security, police and judiciary. There needs to be an existing civil society, and the ability to get goods to market. In terms of security Bihar has employed former members of the Indian armed forces as police officers. These personnel understand discipline and structure and that they are not a tool of the government but their role is ensure the security of the masses. There has also been a focus on ensuring that teachers and health service personnel actually turn up to work. This is one example of how to improve governance; enforcing rules that already exist. The Bihar government has also taken steps to improve health services, education, and increase levels of participation by women.

In the next part of the panel session Alexander openly admitted his general ignorance of Bihar but was happy to relate his recent visit. He was interested in how Bihar had developed its economy, how improving governance removes the potential for corruption, and how improvements in governance can be maintained. Alexander was also interested in how infrastructure was developing in Bihar and what lessons there might be for the UK but I didn’t think any comparisons were apposite. He had visited the Cobra brewery and a charity for widows which I believe was funded by DFID.

Bilimoria believes the brewery he helped to set up in Bihar is among the most modern in India, and Cobra is the only multinational corporation in Bihar. There has been a focus on water purification and energy, both of which are problematic in Bihar, with villages having limited access to water. Bilimoria recounted how villagers had thanked Cobra when they installed water pumps. Overall he was quite bullish about the prospects for Bihar and noted that Carlsberg were soon to set up their own brewery in Bihar. In addition, he was complimentary in assessing DFID’s role in training 100,000 new teachers.

Suhel Seth commented that the perception of Bihar had changed. Biharis comprise 50% of the students at the Indian Institute of Medical Sciences although it was unclear whether this was at one location or at all of them. It is also a major contributor to the higher levels of the Indian civil services. Seth in common with the other participants focussed on the role of government in inspiring confidence and fostering an investment climate. Bihar needs to attract investment from within India. His one caveat was that if Bihar has another “loutish” leader it would undo all the hard work in recent years.

At the end of the panel discussion there were a number of interesting questions from the audience. There was concern about transfers from the federal government on which there is a high dependency, but private investment needs to increase. Bihar is now the least invested state in India. Even with growth at current levels it might take up to 20 years for Bihar to catch up with Indian levels of average incomes. NK Singh’s recent riposte to Manmohan Singh was just about growth rates not income levels. There was acknowledgement of India’s broader issues: “India is like the bumble bee which is not supposed to fly but doesn’t know that”, and within India Bihar is only just emerging from an extended period of stagnation.

The panel discussion was a very compelling examination of Bihar’s issues and perhaps offer some pointers for India generally. The panelists, in particular, NK Singh and Seth, were high level and articulate advocates for Bihar, which all Indian states and India itself needs. But there were still some aspects that warrant further exploration. So, for example, why had Bihar suffered more than most in terms of poor governance and corruption? Could another loutish leader emerge? What form has the recent growth taken, and is it just one-off benefits? How have levels of inequality changed during this period of high growth? The success factors are clear: good governance, basic education and healthcare, basic welfare, clean water and sewerage, and power. But these are common issues across most of India.

There must be concern that Indian companies themselves do not always to invest in India, and potential projects are often stymied by red tape and obstructive politicians. One is reminded that Tata were quite advanced in their plans to build a car factory in West Bengal but after obstacles were forced to build the plant in Gujarat. The Indian Twitterati commented that at the recent Davos World Economic Forum there was very little interest in India which shows that it has not met most of the forecasts for its growth. Jim O’Neil of Goldman Sachs, who coined the term BRICs to describe the then up and coming economic powerhouses (Brazil, Russia, India and China), suggests that attention has switched to other nations he terms MINTs (Mexico, Indonesia, Nigeria and Turkey), which may be more attractive as the focus of inward investment than India. The takeaway must be that all of India must reform itself as Bihar has.