Bihar Saw Remarkable Growth, Now Stagnating Somewhat: Ruchir Sharma To NDTV

The first phase of voting is done in Bihar and, with just days to go for the second phase and the results, NDTV spoke to Ruchir Sharma about what the state needs to do to be on the fast track for growth and what investors would like to see the next state government do to attract global investment.

In an edition of 'Walk The Talk' straight from the hinterland of the state, including a makhana farm and a factory where it is processed, the global investor and author told NDTV's CEO and Editor-in-Chief Rahul Kanwal that the state saw remarkable growth between 2005 and 2015, but now appears to be struggling to take the next step.

He also spoke about the dangers of a welfare trap and how putting too much money into such schemes doesn't leave enough to invest in infrastructure and long-term growth.

Asked about what he had seen on his current trip to Bihar during the election season and how the state has changed, Sharma said, "I have been in Bihar for four days on this trip. My first trip was in 2005 and there has been a dramatic shift since then. Between 2005 and 2015, we saw a remarkable change in the state. Since then, Bihar has begun to stagnate somewhat. The kind of poverty I have seen on this trip has been heartbreaking. Even in places close to Patna, we saw young children trying to get fish from a pond filled with filth."

"I have consistently said about India that it is a country that disappoints both the optimist and the pessimist. After the optimism that I felt for Bihar, this trip has been a bit dispiriting. The change (in the past 10 years) has not been as dramatic as it should have been for what is the poorest state in India," he emphasised.

The investor said Bihar was "terrible in every way" in 2005 and things changed a lot in the next two terms of Chief Minister Nitish Kumar and the BJP. There was a massive improvement in roads, infrastructure and law and order from 2005 to 2010, he said, and then in electrification in the next five years till 2015.

"After 2015, the next step should have been the creation of new industries and employment. I think that's where the state is stalling and struggling to find its next growth model," he said.

Delving into numbers, Sharma said Bihar's per capita income began to close the gap to the rest of India between 2005 and 2015, rising from roughly 30% to about 35%. But it has begun to widen again in the past 10 years.

"Bihar's per capita income today, at about Rs 70,000 a year, is less than 30% or approximately 30% of India's per capita income, which is about Rs 2 lakh," he pointed out.

Issues, Way Forward

To a question on what a new government would have to do to give global investors the confidence to invest in Bihar, the author said the state has a lot of talent, but the education system is still weak. He said finding talent that stays in the state is difficult, and real estate and construction have also not picked up.

"My big fear about Bihar is that the state seems to be getting stuck in a welfare trap. Even in this election, nearly 3% of GDP has been announced in pre-poll welfare schemes. When China was at a similar stage of development, it was investing everything in infrastructure and nothing in welfare, because it was practising ruthless capitalism. In India, we are still investing a lot in welfare," Sharma said.

"Prime Minister Narendra Modi tried to shift the balance towards infrastructure, but it seems to me the amount being spent on welfare by states has gone up significantly. It is a welfare trap. A big factor in this election is the Rs 10,000 given to women by Nitish Kumar's government, but now Tejashwi Yadav is promising Rs 30,000. That's the kind of vicious loop states get stuck in," he cautioned.

Women Factor

Sharma said digitisation has ensured leakages have gone down significantly in welfare schemes and noted that while the election in Bihar seemed close three to four months ago, the NDA now appears to be in the lead. He said the leading reason for this is the Rs 10,000 given to women.

"Nitish Kumar's superpower has been how popular he has been with women and even the BJP has figured out that one possible way to cut across caste lines is to consolidate the women's vote," he said.

Sharma also said there is no visible anti-incumbency in Bihar this time and that he noticed more of it in the 2020 Assembly elections. "Nitish Kumar still enjoys a lot of goodwill," he said.

Prohibition

Asked about the ban on the sale of liquor and the move's popularity, Sharma said good politics is not always good economics.

"When we travelled, we realised drug abuse has gone up and the illegal liquor business has also picked up. In Bihar, hardly any revenue is being generated by state activity and, by implementing prohibition, you have taken another source of revenue away. This is a balance that every state has to get correct. It's one thing for a state like Gujarat to do it and another for Bihar, which does not have that much of a local economy," he said, adding that women still seem happy about the move.