Bihar Economy 2025 – Growth, Challenges, and Development Priorities

Bihar in 2025 presents a complex economic picture. Despite impressive growth rates, its per capita income remains far below the national average. The state struggles with structural imbalances, weak industrialisation, and fiscal pressures even as it makes strides in poverty reduction and human development. This overview marks Bihar’s economic status, sectoral composition, employment scenario, fiscal health, and future policy directions.

Recent Economic Context

Bihar’s per capita income in 2024-25 is estimated at Rs69,321. This figure matches India’s average income from over a decade ago, showing Bihar’s slow catch-up. Though the state’s growth rate of 13% exceeds the national 10%, it starts from a very low base. Bihar’s population is 9.1% of India’s but contributes only 3.2% to the national gross value added (GVA). The economy remains predominantly rural and agrarian with a high dependency ratio of 70%, well above the national average.

Economic Structure and Sectoral Profile

The primary sector accounts for 23% of Bihar’s GVA, with crops forming half of this share. The secondary sector also contributes 23%, but manufacturing is only 7%, overshadowed by construction at 13%. Services dominate with 54%, showing little change since 2011-12. Employment reflects this imbalance – 50% work in agriculture, 29% in services, 18.4% in construction, and a mere 5.7% in manufacturing. Urban Bihar, with just 12% of the population, has only 29% regular salaried jobs, indicating limited formal employment opportunities.

Industrial and Productivity Challenges

Bihar’s industrial sector faces stagnation. Registered factories declined from 3,623 in 2015-16 to 3,307 in 2022-23. The unincorporated sector suffers from poor infrastructure, low capital investment, and restricted market access. Private investment is minimal, forcing reliance on construction and public spending. This limits quality job creation and economic diversification.

Fiscal Health and Public Spending

Fiscal deficits have widened sharply. The fiscal deficit rose from a budgeted 3% of GSDP to 9.2% in 2023-24. Revenue and primary deficits also increased . Wage and pension payments consume 42% of revenue expenditure, leaving little room for capital investment. The Comptroller and Auditor General has flagged these fiscal imbalances and called for reforms in budgeting and revenue generation.

Poverty Reduction and Human Development

Bihar has made progress in reducing multidimensional poverty, falling from 51.89% in 2015-16 to 33.76% in 2019-21. Over 2.25 crore people have exited poverty since 2015. However, poverty levels remain high compared to the national single-digit average. Literacy and education outcomes lag behind, with only 43% of rural children in Std V able to read Std II level texts. Innovative projects in districts like Gaya and Bhagalpur offer promise but face infrastructural challenges.

Policy Priorities for Bihar’s Growth

Bihar’s future growth depends on four key areas – – Agrarian Transformation – Shift from subsistence farming to agri-business with value addition, food processing, cold chains, and organised retail. – Human Capital Development – A decade-long mission focusing on education, health, nutrition, and reducing infant mortality to build a skilled workforce. – Governance and Business Environment – Simplify regulations, improve contract enforcement, and implement a genuine single-window system to attract investment. – Urban Development – Plan urbanisation with focus on transport, sanitation, housing, and environmental sustainability to improve living standards.

Questions for UPSC:

1. Critically discuss the challenges of fiscal deficits in state of Indias and examine their impact on developmental expenditure and economic growth.
2. Analyse the role of agriculture in India’s economy and point out the strategies to enhance value addition and market access for small farmers.
3. Estimate the effects of urbanisation on economic development and explain the importance of planned urban infrastructure in emerging economies.
4. What are the determinants of labour force participation in India? How does gender disparity in workforce participation affect economic growth and social development?

Answer Hints:

1. Critically discuss the challenges of fiscal deficits in state of Indias and examine their impact on developmental expenditure and economic growth.

1. High fiscal deficits lead to increased borrowing, raising debt servicing costs and limiting fiscal space.
2. States often allocate a large share of revenue to wages and pensions, crowding out capital expenditure.
3. Persistent deficits reduce funds available for infrastructure, education, and health, hampering long-term growth.
4. Dependence on public spending without private investment leads to unsustainable growth models.
5. Fiscal imbalances undermine credit ratings, increasing borrowing costs and limiting future expenditure.
6. Reforms in budgeting, revenue generation, and expenditure prioritisation are essential for sustainable development.

2. Analyse the role of agriculture in India’s economy and point out the strategies to enhance value addition and market access for small farmers.

1. Agriculture employs nearly half of India’s workforce and contributes around 15-20% to GDP, crucial for rural livelihoods.
2. Small farmers face challenges like fragmented landholdings, low productivity, and poor infrastructure.
3. Value addition through food processing, cold chains, and agri-business can increase farmer incomes.
4. Organised retail and direct market linkages reduce intermediaries, improving price realization.
5. Use of technology, extension services, and credit access enhances productivity and market participation.
6. Government policies need to support agri-infrastructure, crop diversification, and farmer producer organisations.

3. Estimate the effects of urbanisation on economic development and explain the importance of planned urban infrastructure in emerging economies.

1. Urbanisation drives economic growth by concentrating labor, capital, and innovation in cities.
2. It creates diverse employment opportunities beyond agriculture, boosting productivity.
3. Unplanned urbanisation leads to slums, congestion, pollution, and inadequate basic services.
4. Planned infrastructure (transport, sanitation, housing) improves quality of life and attracts investment.
5. Efficient urban planning supports sustainable growth and environmental resilience.
6. Emerging economies need urban strategies to manage rapid population shifts and harness urban dividends.

4. What are the determinants of labour force participation in India? How does gender disparity in workforce participation affect economic growth and social development?

1. Determinants include education, skill levels, cultural norms, economic opportunities, and social safety nets.
2. Higher female labour participation is constrained by social norms, safety concerns, and unpaid care work.
3. Gender disparity results in underutilisation of human capital, limiting economic growth potential.
4. Lower female participation affects household incomes, poverty reduction, and social equity.
5. Improving female workforce access requires education, skill development, safe workplaces, and supportive policies.
6. Gender-inclusive growth promotes broader social development and reduces inequality.