Bihar, boasting of being the epicentre of many mighty empires and also of spiritual power, now presents a stark picture in contrast to its rich and resplendent history. Sitting at the lowest rungs of the ladder of economic prosperity, as exemplified by its unique developmental challenges, the state presents a sorry picture. Whichever indicator you pick, Bihar would be adorning the lowest class of the liat—having reserved the seat for itself—the statement can be qualified on many factors: the lowest per capita income of about Rs 60,000 compared to the national average of about Rs. 1,69,496 in 2022-23, lagging behind the national average in several human development indicators, horribly in comparison to other Indian states. Its performance was especially stark in indexes like Gender Equality, Zero Hunger, and Quality Health and Education Infrastructure, vulnerability to floods, and a low industrial and mineral base due to the bifurcation of the former united state in 2000, resulting in the state possessing less than 20% of the undivided state's GDP. And its present economy is mostly oriented around agro-based industries (providing little employment) and is beleaguered by the highest headcount ratio in poverty of 33.76% in India.
So, this shabby status of Bihar in the socio-economic milieu is the reason why Bihar is demanding the Special Category Status (SCS), an extra-constitutional mechanism, based on the recommendation of the 5th Finance Commission to assist the development of states that face geographical and socio-economic disadvantages. However, the natural question arises: Does Bihar qualify for such accreditation? SCS is based on the Gadgil formula (1969) for central fiscal transfer that is based on 5 parameters: whether the state (i) has a hilly terrain; (ii) has low population density; (iii) has a sizeable share of the tribal population; (iv) is in a strategic location along borders with neighboring countries; (v) is backwards in economic and infrastructure parameters; and (vi) has a non-viable nature of its finances. However, the whole Gadgil determinant is faulty, as it is based on the 1969 “Resource and Population” methodology. This indicator doesn’t consider the “multi-dimensional methodology” of various socioeconomic and human development indicators, which is necessary for the holistic development of any area. It, thus, does not take into account the literacy, nutrition and health, gender equity, sanitation, housing facilities, etc., to determine the backwardness of any region, not only limited to geographical remoteness. Moreover, the Raghuram Rajan Report, 2013, pointed out the need for evolving methodology for devolution in financial assistance to the backward and poor states like Bihar. Thus examining Bihar in regard to HDI, here as well, Bihar is “outperforming” other states. The recently released SDG report by Niti Aayog 2023-24 placed Bihar in the lowest position across states and union territories with 57 points against the national average of 71 points. Despite improvements on some parameters, it lacked in some critical areas such as poverty (SDG 1), hunger and nutrition (SDG 2), quality education (SDG 4), and gender equality (SDG 5), necessary for the comprehensive development of the region.
The category itself is very seductive to any financially starved state, which explains the political brouhaha revolving around it. Under this scheme, the central government pays 90% of the funds required in a centrally sponsored scheme, and unspent money in a financial year does not lapse and is carried forward. It will provide significant concessions to Bihar in excise and customs duties, income tax, and corporate tax as well, leaving a considerable corpus of money at its disposal. In addition, granting special status will provide the state with essential 2.5 lakh crore rupees over five years to spend on the welfare of 94 lakh crore poor families. It would also enjoy tax concessions on capital investments, making it more attractive to private investors. States with special status often benefit from exemptions on central excise duties and other taxes, which can attract manufacturing and service industries. For example, states like Himachal Pradesh and Uttarakhand, which were granted special status, saw industrial investments rise by over 10% annually in the decade following the grant. Thus, this special treatment will provide the targeted central funds to invest in health and education infrastructure, which are essential for improving Bihar’s SDG.
However, we must note one fallacy in the current central financial grants to the state and its potential rectification. Under the recently announced Purvodaya Initiative, Bihar received a special development package for the outlay of Rs 58,900 crore, but most of its focus is on infrastructure projects like the world-class spiritual tourism industry in Gaya and Nalanda, Bhagalpur power projects, and motorways and airports for the transport industry. While it helped boost economic growth and increase employment, it falls short of addressing the core structural socio-economic issues where Bihar is an “outperformer.” This is because these central developmental packages, focusing on infrastructure projects, sidelined comprehensive social or economic reforms to ameliorate the lives of common people. Instead of a central development package, Bihar needs a fiscal transfer or tax devolution under Special Category Status (SCS), a comprehensive approach focusing on health, education, skill development, industrial growth, and policy reform, covered under various centrally sponsored schemes such as Mid Day Meal, MGNERGA, or Ayushman Bharat Yojana, etc., which will bring the productive change to the lives of the common people and the overall development of Bihar.
But granting the special status itself is a fiscal and political atom bomb. It will wreck the budgetary and fiscal deficit strategy of the central government, which itself is huffing and puffing to meet its targets and will also start a domino effect in the sense that other backward states like Andhra Pradesh will start demanding the same treatment.
While the National SDG index and caste census instrumentally justify the long-standing demand for special status to be granted to Bihar, this seems more like a knee-jerk reaction and short-term solution. It is true that granting the special status would provide Bihar with the financial and policy support needed to address these structural disadvantages, foster economic development, improve living standards, and bring the state closer to the national average in key indicators. But it should also be heeded that this is not a financially prudent option, and the policymakers need to envision a more long-term schema, like inviting private investment (however being supervised by the state), recalibrating its fiscal allocations towards social sector, and clamping down on rabid corruption. There is an urgent need to transform the bureaucratic apparatus in the state to make the efficient delivery of the various service schemes in the state.
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ABOUT THE AUTHOR
Harshit Kumar is a third-year student pursuing honours in political science at Hindu College. He is an avid reader and writes on contemporary issues and politics and the changing discourse in society.
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