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Bihar Country Strategy Note

Bihar Country Strategy Note

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Published by Santosh Kumar
Bihar strategy note.
Bihar strategy note.

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Published by: Santosh Kumar on Dec 13, 2010
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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.

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.

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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 interdisciplinary 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

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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

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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

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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

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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.

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Table 1: Summary IGC Bihar Work Plan for 2010-2011
Area of Focus Initial Research Projects Growth in Bihar since Independence Bihar Growth in the context of Modern growth Theory Kisan Credit Card Scheme and Agricultural Performance Single Window Clearance: A Case Study of Gujarat Floods and Growth Expected Outputs Research Paper and Policy Brief Research Paper and Policy Brief Research Paper and Policy Brief Survey paper and Policy Brief Research Agenda Papers Research Team R. Burgess and Besley (LSE) Areendam Chanda (Louisiana State U.) Areendam Chanda (Louisiana State U.) Errol D’Souza (IIM-Ahmedabad) T. Indicative Period September 2010 December 2011 July 2010 November 2011 December 2010 March 2011 July 2010 September 2011 August 2010 March 2011 – – – –

Economic Transformation

Growth in Bihar Conference

Research Papers

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

December 2010

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

13th Finance Recommendations

Commission

Rapid Response

13th Finance Commission Recommendations: Compliance by the State Governments 13th Finance Commission Recommendations: Implications for Fiscal Policy for Bihar Changes in Government Behavior due to changes in Revenue Sources Recruitment and Effectiveness of Contract Teachers GST Implementation in Bihar Training Programme for College Teachers in areas of Growth and Development

Policy Brief

Chirashree Das Gupta CEPPF/IGC IndiaBihar) Chirashree Das Gupta (CEPPF/IGC India-Bihar) Pinaki Chakraborty (NIPFP) Roger Gordon (UCSD) Oriana Bandiera (LSE), Ben Olken (MIT) and Robin Burgess (LSE) Chirashree Das Gupta and CEPPF/ADRI IGC India-Bihar Team

June 2010

July 2010

Research Paper and Policy Brief Research Paper and Policy Brief Research Papers

July 2010 – August 2010 December 2010 – July 2011 January 2011 – December 2011 December 2010 – May 2011 March 2011

Resource Mobilisation

Policy Brief and Research Papers Skill Formation

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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

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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.

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        

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

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 

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

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