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Cloud over use of domestic resources for development

Bihar earned a reputation of being the fastest growing state in terms of the gross state domestic product (GSDP) during the Eleventh Five-Year Plan. Policymakers or the public in general, however, are worried about sustainability of this growth syndrome in future.

This may surface if expenditure aspects of GSDP are examined.

GSDP is compiled in Bihar at factor cost only. However, inclusion of taxes and exclusion of subsidies on production yield GSDP at market price, which should meet the expenditure of household consumption, government consumption to serve the public and left-over surplus should add up as the gross capital formation for the state.

Ideally, the related variants, viz., GSDP (at market price), private final consumption expenditure (PFCE), government final consumption expenditure (GFCE) and gross fixed capital formation (GFCF), as being done for India, should be compiled regularly, so that policy makers as well as people are aware about the resulting identities, and imbalances, if any, that could constrain development of the state may be corrected.

Currently, these variants are not available for Bihar.

Related variants compiled precisely at the national level enable us to peep into the scenario for the period during 2004-05 to 2011-12, for which the Central Statistical Organisation generates data.

An analysis indicates that at the national level household consumption and government consumption varied in the range of 55-60 per cent and 9-12 per cent respectively — leaving thereby 30-35 per cent of the gross domestic product (GDP) at the market price to add-up as the gross capital formation. This yardstick may be utilized to evaluate the economic situation of Bihar.

Bihar, with the least tax-base on industrial product and wider subsidy component on production sector in the primary as well as secondary sectors, has marginal contribution to increase the GSDP at market price over the GSDP at factor price.

GSDP at market price exceeds GSDP at factor price by 2-3 per cent in Bihar as compared to 10-15 per cent in case of industrially developed states.

As the system for compilation of GSDP at market price, PFCE, GFCE, and GFCF has not kicked off in Bihar, policy makers or the public are unaware about the proportion of the GSDP at market price actually consumed in the household/government sectors and proportion left over for the Gross Capital Formation to shape future development of the state.

PFCE could be estimated on the basis of Consumption Expenditure Survey undertaken by the National Sample Survey Organisation (NSSO) every five years. Results of 61st NSSO Consumption Expedition Survey (2004-05) reveal that 99.7 per cent of GSDP at market price (projected) was spent on PFCE in Bihar.

High growth rates of GSDP during the past few years have undoubtedly improved the scenario with projected shareof PFCE to GSDP at market price declining to the level of 86.67 per cent in 2011-12. Reduced level of the estimates of PFCE in conjunction with the robust projection of GFCE and GFCF (public part) let the economy lie in a state of imbalance — which needs proper quantification. (According to the 66th round NSSO Consumption Expenditure Survey, 2009-10)

This is really an alarming situation — for it leaves no scope of domestic resources for development to sustain the growth engine of Bihar in future without outside assistance.

All these simply imply that Bihar’s current GSDP-expenditure scenario could not create a base for development from its domestic resources.

Suggestions

Since Bihar has to move swiftly on growth trajectories, compilation of all macro-economic parameters must be a regular feature to present transparent economic situation of the state

Bihar needs to strengthen its capacity to compile all these parameters of the National Accounts

As compilation of these parameters are highly technical and arduous work, an expert committee may be constituted to regularly supervise the work, besides optimal structure of the division entrusted with this work

Compilation of GSDP in Bihar needs to be more realistic by wider coverage and inclusion of the left-outs — besides, its other meaningful aspects

Taxes and subsidy on products needs better up-keeping to facilitate compilation of GSDP at market price

Imbalances in the state economy may be indicative of flow of fund to the state not properly captured and channelised

n Steps may be taken to work out net inflow of fund in the state and properly channelise it — which may improve state income.


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