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Economy of Bihar

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Bodh Gaya
Andrew Moore from Johannesburg, South Africa · CC BY-SA 2.0

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As of 2021, the service sector accounted for 58.6% of the state's economy, with industry contributing 21.5% and agriculture 19.9%. During 2002–2007, the average growth rate of manufacturing in the state was 0.38%, significantly lower than the national average of 7.8%. In the financial year 2021–22, Bihar's manufacturing sector grew by 3.9%, and it has shown continued improvement in recent years. Bihar has the lowest GDP per capita in India, but there are pockets of higher per capita income, such as the southern half of the state and its capital city, Patna.

The GSDP for 2024–25 is estimated at ₹9,91,997 crore (approximately US$116 billion) at current prices, recording a growth of 13.1%; for 2025–26, the GSDP is projected to be ₹10.97 lakh crore. In actual terms, as of 2025–26, Bihar's state GDP is ranked 11th out of 28 states in India. Corruption is an important challenge for the government to overcome, according to Transparency International India, and the government has acknowledged this situation. Since November 2005, the state government, led by Nitish Kumar, has implemented some economic and social reforms. Such reforms have yielded improvements in the state's and Patna's economies. For example, in June 2009, the World Bank reported that Patna was the second-best city in India in which to start a business, following Delhi.

Between 1999 and 2008, Bihar's GDP grew by 5.1% a year on average, which was below the Indian average of 7.3%. However, in January 2010, the Indian government's Central Statistics Organisation (CSO) reported that in the five years between 2004–05 and 2008–09, Bihar's GDP grew by 11.03% – making Bihar the second-fastest-growing economy in India during those five years, just behind Gujarat's growth of 11.05%. Another survey conducted by the CSO and the National Sample Survey Organisation (under the Ministry of Statistics and Programme Implementation) reported that Bihar showed a 14.80% growth in factory output in 2007–08, which was slightly less than the overall Indian rate of 15.24%.

History

Mauryan

The economy of the ancient Kingdom of Magadha, under the Mauryan government, depended mainly on agriculture, and the state owned large tracts of farmland for cultivation. The state's other income came from taxes levied on agriculture, land, trade, and products such as handicrafts.

Mauryan agriculture featured two types of landholdings. One type was Rashtra, a direct descendant of the holdings of former tribal oligarchies who had been subjugated in pre-Mauryan times. The Rashtra landholdings were independent of the state machinery in their internal functioning and administration. Their only obligation was regular payment of Rashtra taxes to the state.

The second major type of landholdings was Sita. These holdings were formed by clearing forests with the help of tribespeople whose way of life had been systematically annihilated by Mauryan statecraft. Rice, wheat, coarse grains, sesame, pepper, saffron, pulses, linseed, mustard, vegetables, fruits of various kinds, and sugar cane – all were grown on the cleared land. The state owned large farms, which were cultivated by enslaved people and farm labourers. Water reservoirs and dams were built during this period, and water was measured and distributed.

The chief industries of the time were mining, metallurgy, jewellery, pot making, and textile work. The state often regulated trade. The state especially protected artisans and craftsmen, and any offences against them were severely punished. Guilds were powerful institutions during this period, conferring economic, political, and judicial power on artisans. The chief of a guild was called the Jesthaka. A few guilds issued their own coins. These guilds also made donations to learned Brahmans and to the destitute.

The Mauryan Empire supplied Western countries with indigo and other medicinal substances, as well as cotton and silk. Trade was conducted via both land and sea. Godowns (an Eastern word for warehouses) were built, and special provisions were made to protect trade routes. In addition, the state controlled weights and measures.

Sher Shah reforms

During the 1540s, Sher Shah Suri – the ruler of Bihar and northern India – introduced a number of measures, including laws to ensure that peasants were not cheated and that all people were treated equally, regardless of religion or class. His empire stretched from the Bengal region in the east to the Indus River in the west. Sher Shah divided his empire into 47 sarkars (provinces or districts), which were further subdivided into parganas for ease of administration. These reforms indicated the economic sophistication of the Bihar region during Sher Shah Suri's rule.

Colonial

During the colonial period, the rural and urban economies of Bihar underwent gradual changes and faced challenges to their sustainability. The state's villages were always more than just an agriculture-based model, being rather a holistic, integrated system that gave all people a respectable job and sufficient income. These small-scale industries were directly processing agricultural output, helping villages to become self-sufficient; these industries provided products, food, and services to cities as well. The well-known cities of Bihar – such as Magadh (Gaya), Patliputra, Sitamarhi, Purnea, Bhagalpur, Chhapra and Arrah – acted as prime locations for development of the state economy.

With the advent of external traders and successive invasions –along with internal weaknesses – the village economy began to deteriorate. Cheaply available British finished products, such as clothing, caused this deterioration.

Post-Independence

1947–1979

The sugar and vegetable oil industries were important sectors of undivided Bihar. Until the mid-1950s, a significant share of India's sugar output came from Bihar; in addition, a majority of horticulture products were produced there. Rice and wheat were around 29%, and Bihar was a leading agricultural producer during the period after independence. Dalmianagar was a large agri-industrial town. There were attempts to industrialise the northern half of the state between 1950 and 1980: an oil refinery in Barauni, the Barauni Fertiliser Plant, the Barauni Thermal Power Station, a motor scooter plant at Fatuha, a power plant at Muzaffarpur, and the manufacturer Bharat Wagon and Engineering at Muzaffarpur and Mokama. There were multiple factors behind Bihar's economic decline. Many people in Bihar blame the freight equalisation scheme, poor political vision, and under-investments in the key sectors of agriculture, infrastructure, and education. Others view cultural and political factors as the reasons behind economic decline, especially during the 1980s and 1990s.

Between 1947 and 2000, the government supported industrialisation in the southern half of the state, rather than in the northern half. That government is often blamed for a lack of industrialisation in northern Bihar. The undivided Bihar government developed important industrial cities such as Bokaro, Jamshedpur, Dhanbad and Ranchi in the south. The north remained the agricultural heart of the undivided state. Thus the two regions complemented each other.

1980–1989

Indian government data from 1980 to 1990 show that the GSDP of undivided Bihar grew by 72% during this period, despite the state's socio-economic problems. The data also show that the state's GSDP grew by 49% between 1980 and 1985, indicating that the state's economy was among the fastest-growing in the country during the early 1980s. In 1980, undivided Bihar had a population of 70 million. During the 1980s, the national five-year plan called for $4 billion in investment in Bihar. By 1987, this amount translated into a $12 investment per person. Economists claimed that a huge budget deficit was spurring inflation, thereby eroding the standard of living of the poorest sections of Bihar's population. In agriculture, the largest sector, the government failed to invest in production and instead opted to import food grains from other parts of India. This decision helped to facilitate problems faced by agricultural workers during the late 1980s and paved the way for the victory of the politician Lalu Prasad Yadav in 1989.

1990–2005

Caste and criminalisation

The Rashtriya Janata Dal (RJD) – Lalu Prasad Yadav's party – supported social justice, ensuring that politics was dominated by Mandal Commission politics and caste rather than development during this period. Moreover, the criminalisation of politics around this time created a business-unfriendly climate and contributed to economic collapse. The most important crisis that business faced was organised kidnapping, which was linked to the ruling RJD party. The resulting crisis led to a flight of capital, middle-class professionals, and business leaders to other parts of India. Unemployment was increased by the flight of business and capital, leading to the mass migration of Bihari farmers and unemployed youth to more developed states in India.

Structural and fiscal factors

Bihar's share of revenue from the central pool declined by ₹5,000 crore as the centre's revenue collection fell. This decline – coupled with the government's failure to have its plan allocation released, because it could not contribute the required matching non-plan grant – aggravated the state's financial crisis. The division of Bihar in 2000 – when the industrially advanced and mineral-rich southern half of the state was separated to form the state of Jharkhand – had a strong impact on development in the north, mainly through a loss of revenue. The divided Bihar produces 60% of the output of the undivided Bihar.

Economic indicators under the RJD

In non-agricultural sectors, Bihar's growth rate was 6.62%, compared with 6.61% for India as a whole during the 1980s. During the 1990s, the growth rate in Bihar was 3.19%, while for India it rose to 7.25%. This change was reflected in per capita income as well. Per capita income in Bihar grew by 2.45% during the 1980s, compared with 3.32% in India as a whole. In the 1990s, per capita income grew by 0.12% in Bihar, as against 4.08% in India. The growth rate in agriculture was 2.21% during the 1980s, against India's 3.38%. During the 1990s, it was 2.35% in Bihar, while at the national level it stood at 3.14%. The economic indicators show that a serious recession occurred between 1990 and 1995; this resulted in a crisis with employment, development and crime between 1995 and 2004.

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