Why Bihar is special
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The state has subsidised growth for the rest of India
Bihar has come of age. On November 4, the largest rally since Independence took place in Patna on an esoteric economic issue: granting Bihar "special category status". While public investment has recently increased in the state, private investment remains elusive. This draws attention to the disadvantages that land-locked states like Bihar suffer.
The possibility of private sector investment is very limited without tax incentives, which only special category status states are allowed. These states also get preferential treatment in federal assistance and tax breaks. There were only three such states in 1969, when the Gadgil formula for sharing Central plan assistance among states was devised. Presently, there are 11, of which seven are located in the Northeast. The four others are Sikkim, Uttarakhand, Jammu and Kashmir and Himachal Pradesh. They are allocated a higher share of the Centre's resources.
The granting of special category status is based on two sets of indicators. The first, laid out by the ministry of commerce and industries, identifies four parameters: geographical isolation, inaccessible terrain, poor resource base and remoteness to larger markets, and poor infrastructure. The second, formulated by the Planning Commission, includes hilly and difficult terrain, low population density, strategic location along the borders with neighbouring countries, economic and infrastructural backwardness, and non-viable nature of state finance. Under all of these criteria, except low population density, Bihar deserves special status.
Bihar subsidised post-Independence industrialisation by allowing its mineral resources to be taken outside the state through freight-equalisation. This not only retarded its industrialisation, but also subsidised the transportation of minerals to other states. According to one estimate, Bihar lost Rs 1,12,812 crore just through the freight-equalisation of steel. Before Independence, the Tata group decided to invest in Bihar because of its natural advantage of minerals. This was reversed after Independence.