Bihar's untapped resource

Bihar chief Minister Nitish Kumar has made the demand for granting his state a special category state into a significant cause. He has good reasons but if one were to analyse the absorptive capacity of the state of investments, he could be far more realistic in his appraisal.

For poor states like Bihar a larger cache of money does not help in pushing investment up to a higher stage. A good instance of this is the state-wise credit deposit ratio culled from the Reserve Bank of India records. The ratio broadly measures the percentage of loans given out by banks from the deposits it earns. In ratio for Bihar as per latest RBI data is 29.12. For India the ratio is 78.09 as on March 2012.

Money is available in Bihar, but the bankers obviously find little takers for the credit they can make available. Investment opportunities in the state are few and so the sum is being siphoned off to other states.

Which are the states that lead the national average? These are states like Tamil Nadu and Andhra Pradesh, where the ratios are above 100 per cent. But there are also states like Rajasthan and Punjab up north, which do well.

But let us compare Bihar with states which enjoy special category status. None of these states have credit deposit ratios that are different from Bihar. Uttarakhand is at 35.6, Assam at 37.32 and the others are worse off. After decades of Central support through zero interest plan fund they have still not been able to reach any where close to the national average. This means that while the states had the money to make public sector investments at low cost it has not helped them to create an enabling climate to attract private sector investments. The spur for greater investments it would seem comes from the hard work the states themselves put in like trained labour, land for investment and a reasonably secure power supply.

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