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Monday, Sep 27, 2004

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A study in contrast — Punjab and Bihar

Mohan Guruswami

Being better off does not make a State better, especially when it just means getting more than others from the Centre. Probably, the best measure of how well a State is being administered is to look at its debt-service ratio. Punjab is no better than Bihar in this regard.

THE spectrum of regional inequalities in India is very wide with Punjab and Bihar having per capita income of Rs 25,048 and Rs 5,466 respectively at the opposite ends. In 1965, Punjab's per capita income at Rs 562 was just 1.7 times that of Bihar's Rs 332. Since then, Punjab's per capita income has grown 45 times and is now almost five times Bihar's. The latter State's per capita income, in contrast, grew by just 16 times. In the same period, the national per capita grew from Rs 490 to Rs 16,707 or by 34 times. Quite clearly, Bihar has been growing at a much slower pace than the rest of the country, while Punjab has been growing faster.

Compounding this extremely unhappy situation is the fact that the intra-state inequality too is much greater in Bihar than in Punjab. The Gini coefficient for Punjab is 0.29 while that of Bihar is 0.318. The movement of the Gini tells us a lot of the kind of society a country has evolved into. In socialist Cuba, the Gini moved down towards greater equality from 0.55 in 1953 to 0.22 in 1986, while in the US it rose from 0.35 in the 1970s to 0.40 now. For most European countries, the Gini is around 0.30, while for most of Africa it is in excess of 0.45. So we should not be surprised that Bihar's Gini is so much worse than Punjab's. Better economic growth obviously leads to greater equalisation.

Since 1950, India's economy has been vigorously planned and continues to be so even after the so-called liberalisation in 1992. The growth in the size of the Ten Plans indicates the pivotal role of the Plans in shaping the country's economic destiny. The First Plan (1951-56) had an outlay of Rs 1,960 crore while the GNP in 1951 was Rs 9,506 crore. The Tenth Plan (2002-07), by contrast, has grown to Rs 15,92,300 crore while the GNP in 2002 was Rs 22,30,372 crore. Thus, while the GNP has grown 235 times, Plan outlays have grown more than 835 times.

During the same period, the per capita income has risen from Rs 275 to Rs 16,707, or by about 61 times. One obvious inference from this is that the State has been the main engine of economic growth in India and the Planning Commission, as it decides priorities and apportions resources, is the driver of this engine.

Though the achievement of a greater equalisation of people and regions in India was not explicitly stated in the Constitution, the very notion of a socialistic society and democracy implies a determined thrust towards just that. Unfortunately, from all available data, it is obvious that did not happen.

In fact, the divisions between regions and people only deepened. Many studies detail this. The question is, why did this not become a political issue? Is it that the leaders do not care? Or, that they do not know? Or has it never become an issue because the people, in general, do not care? Whatever the reason, we have come to accept certain stereotypes. That the relative prosperity of Punjab is due to the hardworking and innovative peasant, while the poverty of Bihar is due to the deep divisions in its society, corruption and lawlessness. Like most generalisations, these too are seriously flawed.

Clearly, Punjab prospered as India made huge investments in it; these investments were often at the cost of other regions. In 1955, the total national outlay for irrigation was Rs 29,106.30 lakh. Of this, Punjab got Rs 10,952.10 lakh or 37.62 per cent. In contrast, Bihar got only Rs 1,323.30 lakh, a meagre 4.54 per cent. The Bhakra-Nangal Dam, one of Nehru's grandest Temples of Modern India, planned at an outlay of Rs 7,750 lakh, alone irrigates 14.41 lakh hectares (ha). Even after excluding this from Punjab's irrigation plan, its outlay is almost 2.5 times that of Bihar.

Punjab extends over 50.36 lakh ha, of which 42.88 lakh ha is arable. Of this, 89.72 per cent, or 38.47 lakh ha, is irrigated. In other words, 76.38 per cent of all land in Punjab is irrigated, thanks to the munificence of the government.

In contrast, only 40.86 per cent, or 71 lakh ha, of Bihar's total area of 173.80 lakh ha is under cultivation. Of this, only 36.42 lakh ha or 51.30 per cent is irrigated. Thus, Bihar, which is almost 3.5 times larger than Punjab, has less irrigated land than the latter. Even after accommodating for the difference in terrains in both States, the sheer difference in the irrigated acreage and the percentage of irrigated acreage, the direct result of public spending on irrigation in Punjab is telling.

That Punjab grew faster than Bihar because of higher public investment is easily discerned from the per capita Plan allocations from First Plan onwards. In the current Plan, Bihar has a per capita outlay of Rs 2,536.23 while Punjab's is more than three times that at Rs 7,681.10. Higher public investment in a State also has other long-term effects. Higher investment results in greater tax collections giving rise to an ever-increasing entitlement to Central funds. In this manner, the original injustice leads to perennial flow of rightful funds.

There is no need to stress that the bulk of the Plan funds are provided by the Centre. This is well-known. But what needs to be stressed is that there are many other less obvious benefits. For instance, almost 50 per cent of the foodgrains procurement by the FCI is from Punjab, which means about half the food subsidy of Rs 25,160 crore too flows to that State's farmers. Likewise, since Punjab consumes 8.01 per cent of the total fertilisers, it benefited by Rs 1,060.85 crore on this account. As subsidies will rise constantly, in the years to come Punjab will only get more.

In recent years, a new trend of magazines and other publications are ranking States ostensibly on the basis of performance. Since they command considerable resources and are politically influential, such awards are public occasions with constitutional functionaries present lending an aura of authenticity to the awards. If there was one for the most subsidised State, that too might go to Punjab?

As we have seen in the case of Punjab and Bihar, unequal public spending has created an unequal economic situation. But this does not automatically establish that Punjab is better administered, as these publications would like us to believe. Punjab's financial position is not very much better than that of Bihar. Probably, the best measure of how well a State is being administered is to look at its debt-service ratio. Punjab is no better than Bihar in this regard.

While both Punjab and Bihar live beyond their means, the latter is doing better on this account with much smaller revenue expenditure to revenue gap. In 2002-03, this gap for Bihar was Rs 1,517 crore, whereas it was Rs 3,018 crore for Punjab. Both States have almost the same revenue levels. Bihar has a superior improving record than Punjab when it comes to the proportion of disbursements out of capital budgets.

If one has to go by the charges made by the present Punjab Chief Minister against his immediate predecessor, corruption in Punjab is a more serious matter. The sums bandied about are astounding. There is no evidence to suggest that the incidence of subordinate corruption is any less in the State than Bihar. Clearly, being better off does not make a State better, especially when doing better just means getting more than others from the Centre.

This now leaves us with the question as to how much more did Punjab get on account of Central Planning and how much less did Bihar get? The record since the First Plan onwards shows that Punjab consistently got more than the national per capita average and that Bihar progressively got less in each Plan. When these are added, the amount is quite huge. Even without factoring in the benefits due to the Bhakra Nangal project and border roads and canals network, Punjab got Rs 9742.19 crore more and Bihar a huge Rs 77,161.50 crore less. Furthermore, on account of just salaries and pensions from the armed forces, food and fertiliser subsidies, Punjab has benefited by over Rs 100,000 crore in just the past five years alone.

Given more money, it is likely that Bihar would have fared better. It will be worthwhile to recall that in 1952, Dr Paul Henson Appelby, the well-known University of California Public Administration scholar, after a detailed study of public administration systems in the various States concluded that Bihar had the best government in India. We can now only speculate on the possibilities that might have been, had good government got good financial support? It is this Rs 77, 000 crore hurdle Bihar must vault over first, if it is to catch up with the rest of India.

(The author is with the Centre for Policy Alternatives, New Delhi. For a full version of the CPAS report on "Centrally planned inequality: A tale of two States — Punjab and Bihar", he can be reached at or visit

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