CHALLEGES FACED BY
ECONOMIC ENTREPRISES
IN BIHAR
HIGH POPULATION AND LOW SKILL
• While skilled human resources are a driving force for economic growth, a balance between
population and economic growth is essential for the manpower to be absorbed by the productive
sector.
• People are an asset when they are skilled enough to take the existing opportunities or create new
opportunities through innovation and entrepreneurship. However, a large section of the
population in Bihar has remained unskilled and poorly educated.
• Due to high poverty, inequality and a poor education system resulting from low investment and
poor governance, the education and health condition of Bihar is poor.
WEAK AGRARIAN STRUCTURE
• Bihar is primarily an agricultural states with about 80% of their population living in rural areas
and depending on agriculture directly or indirectly. Land, the primary basis of agriculture, and
social and political power have remained in the hands of the elite class.
• Large landlords still control vast expanses of land, agriculture generally remains in the hands of
small holders and tenants. Tenants who have low levels of savings and who must share the
harvest with landlords have little capital to invest in agriculture and less incentive to do so
because of their insecure property rights.
• The landholders, who have the capital, have little interest in investing because agriculture is not
their prime occupation and most of them live in towns and cities. As a result, pri-vate
investment to increase agricultural productivity has remained suboptimal
POOR PHYSICAL AND ECONOMIC
INFRASTRUCTURE
• Like private investment, public investment in agriculture in Bihar has remained inadequate. Per
hectare capital expenditure in agriculture in Bihar is less than one-fourth of that of Punjab and less
than half the national average.
• Bihar has not made enough investment in irrigation infrastructure. There was a huge surge in the
1980s in Bihar in groundwater irrigation. This, however, did not yield higher productivity because
the poor electricity supply and sharp increase in diesel prices increased the costs of irrigation,
landpreparation and threshing.
• Fertilizer and pesticide prices also increased substantially. Yet, while input prices had increased
significantly, the output price of agriculture remained almost stagnant. Thus, the output–input price
ratio changed and reduced profitability.
• In addition, most of the farmers in Bihar are not able to receive the price incentives given by central
government through food grain collection owing to small land holdings and little surplus. Bihar’s
food grain yield is lower than the national average and less than half of Punjab’s.
• Low public and private investment, poor physical and institutional infrastructure, unequal land
distribution, poor agrarian social structure including persistence of feudal elements not only
hindered the growth of productivity in agriculture but also reinforced social inequality that creates
structural barriers to the overall development of the society and economy
GOVERNACE AND INSTITUTIONAL FACTOR
• Sectarian politics and weak leadership have undermined political stability and weakened
government capacity seriously. Due to poor governance, physical and economic infrastructures
such as roads, transportation and electricity, essential for attracting investment and pursuing other
development efforts, have remained inadequate in Bihar and UP.
• The Index of Infrastructure developed by the Finance Commission of India shows that Biharis on
the lowest rung in terms of physical infrastructure.
• Poor governance not only hampered the implementation of public funded programmes and
projects, but also increased the costs and risks to private business– from small entrepreneurs to
large business houses–in the face of poor law and order and increased corruption.
• Weak administration also undermined government’s capacity to mobilize local resources
effectively to fund development expenditure. As a result, the lion’s share of revenue went to
paying salaries and other administrative costs, while expenditure for health, education and
infrastructure development depended heavily on central government
TRANSFER OF RESOURCES FROM CENTRE TO STATE
