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Bihar Strategy Note: 2010-2011

Bihar has traditionally been seen as the paradigm of a low growth, low development
state within India. That image is rapidly changing with recent improvements in
governance, increased resource mobilization and investments in infrastructure and
human capital being associated with some of the highest rates of economic growth in
the country. There is, however, recognition that sustaining growth and making it more
equitable still represent key challenges and that research directed at understanding the
key growth constraints that Bihar faces can make policy much more effective. The
analytical capacity for academic, policy-oriented research in the state is, however, very
limited. The establishment of the IGC Bihar operation will thus serve to enhance the
capacity to do frontier research in the state directed at relaxing key growth constraints.
Our approach is distinctive as it combines engagement with a wide range of policy
stakeholders with a strong emphasis on the generation of frontier research and on the
linking of that research to expressed policy concerns. Extensive engagement and
consultation has established a work programme which has prioritized two broad areas
of focus: (1) economic transformation and (2) resource mobilization. The programme
aims to feed the outputs of research and analytical work into the policy debate.

1. State Context

Large upswings in growth always attract attention. But they are particularly significant
when they are observed in one of the poorest states in India which contains almost one
hundred million people and which traditionally had been one of the slowest growing
states. Given the overall poverty of the population, whether or not growth can be
maintained and made more inclusive is a question of enormous importance.

The IGC Bihar programme takes this question head on. We study the process of
economic growth in Bihar, with a focus on design of policies that can accelerate the
growth process. Extensive consultation and engagement with policy stakeholders in the
state revealed that this focus on identifying public policies to promote economic growth
and make it more inclusive aligns well with core policy interests of the state. It is
widely recognized, in a variety of quarters, that only maintenance of high economic
growth over a sustained period will have the power to transform the lives of the citizens
of the state of Bihar.
Our focus on economic growth in Bihar reflects the belief that growth and expansion of
economic opportunities will raise the standards of living of the people, thereby reducing
poverty. It is well recognized that income is only one of the components of overall well
being, with health, education, access to markets (e.g., credit, insurance) and public
services, quality of infrastructure, law and order, environmental quality, each playing
an important role. However, the surplus generated by economic growth also facilitates
public and private investments in these other determinants of the quality of life.
Exploitation of these synergies between economic growth and resource mobilization are
critical to lifting Bihar out of underdevelopment.

The IGC Bihar work programme comes out of a framework that examines the
determinants of economic growth. In this framework economic growth involves an
increase in the productive potential of an economy as well as that of individuals, in the
sense of shifting the production possibilities frontier out. The productive potential
depends on the inputs that are deployed, both private and public. Private inputs include
capital (organizational, physical and human), labour (skilled and unskilled), land, and
other natural resources. Public inputs include infrastructure, governance (e.g., property
rights, law and order), and quality of institutions (the judicial process, access to
information, political rights). It also depends on technology and skills, investments in
which shifts the frontier out.

Earlier views on economic growth focused on capital accumulation with all the other
factors being lumped into the Solow-residuals. This caused an excessive focus on
saving and investment without sufficient thought on productivity and incentives of
individual economic agents. Modern research on economic growth has attempted to
unbundle these residuals, to try to separate out the respective roles of institutions,
governance, infrastructure, and technology. There has also been a renewed focus on
studying how inclusive is the process is as growth episodes whose benefits are not
widely shared tend to lack overall legitimacy and will run into political bottlenecks. The
sustainability of growth has also attracted increasing attention.

This provides is unifying framework within which different elements of the IGC work
programme can be slotted in. The IGC will draw on the large body of research which
has already been undertaken in the modern literature on economic growth both
theoretically and empirically to understand the specifics of the growth process that is
taking place in Bihar, and to help sustain and accelerate it. The IGC work programme
will also draw upon past and ongoing research and analysis on Bihar’s key growth
policy issues. It’s goal will be to promote original research that addresses key growth
policy concerns expressed by stakeholders in the state and to disseminate widely the
findings of that research. At its core the IGC Bihar programme represents collaboration
between academic researchers and policy stakeholders who share the objective of
finding innovative and effective policies to create and sustain growth in the state.

The challenges to increasing growth and making it more inclusive are considerable.
Bihar is one of India’s most populous states in India. With an estimated population of
about 96.0 million in 2009-10, Bihar is a very densely populated region - with a

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population density of 880 per square kilometres compared to the national figure of 324.
It is also one of the poorest states in the country. In 2005-06, its per capita income
was less than one-third of the national average. According to the new poverty
estimates, during 2004-5, 54.4 percent of the state population was below the poverty
line, compared to the all India figure of 37.2 percent. The state was split into two –
Bihar and Jharkhand - in 2000, and almost all mineral resources and industries of this
previously mineral-rich state went to the latter thus imposing a significant public
finance constraint on the state.

Historically Bihar has been a slow growing state with growth rates amongst the lowest
in the country. However, there has been a remarkable turnaround in Bihar’s economic
performance in recent years leading to a lot of media attention, both nationally and
internationally. Since the mid-point of the last decade, i.e., from 2004-05, according to
the latest figures, the growth rate has been more than 12 percent, making it the
second fastest growing state in India. The timing of this growth increase has led to a
focus on the policy actions of the Nitish Kumar government. Moreover, Bihar’s
economy has been growing at on an average of 7.52 percent for the entire decade
since 2000-01 and it notable that this growth rate over the decade was realized despite
the adverse impact on resources due to splitting up of the state.

The upswing in growth in Bihar has generated a multitude of hypothesis as to its origins
but there is very little rigorous research aimed at identifying causal effects. One oft
cited factor has been the increased investment in infrastructure. Due in part to
increased funds from the central government, Bihar’s spending on planned
development priorities has been 160 billion rupees in the most recent fiscal year,
compared with just 12 billion rupees in 2002. In particular, the reconstruction of roads
and bridges has been stepped up sharply. Observers of Bihar have also pointed to less
tangible factors, namely, how the improvement in governance that reduced crime rates
has helped to increase private investment from both within and outside the state. There
have also been significant investments in human capital in the state, most notably,
through the hiring of some two hundred thousand contract teachers. However, without
a disaggregated growth accounting exercise it is hard to conclude anything definitive.
By employing frontier research methods in economics the IGC Bihar programme aims
to rigorously analyse the growth experience of Bihar with a view to identifying
successful policies and identify innovative means of encouraging economic growth in
the future.

The fact that Gross State Domestic Product (GSDP) has grown rapidly, albeit from a low
base, should not, however, make us complacent about the growth challenges that the
state still faces. On most measures of development – whether related to income,
education, nutrition or health – Bihar is still amongst the most underdeveloped states
in the country. Indeed for a range of development measures it remains the most
underdeveloped state in India.

To delve into the roots of underdevelopment we need to look carefully at the structure
of the economy. Bihar is characterized by having a population that is mainly rural and

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mainly dependent on agriculture. Diversification of the economy overall and particularly
within the rural sector has been extremely limited. 85-90 percent of population is still
engaged in the rural sector, primarily in activities related to agriculture and particularly
subsistence agriculture. As a result, no strategy of economic growth of Bihar can ignore
the rural sector or agriculture. This raises a host of policy concerns. Raising agricultural
productivity, increasing rural diversification, expanding irrigation, improving service
delivery, strengthening local government capacity, avoiding the adverse growth effects
of floods and droughts, improving rural infrastructure (particularly power and roads),
improving access to credit, promoting the use of new agricultural technologies and
making land records more transparent were amongst those mentioned to us.

The flip-side a large primary sector are the very low rates of industrialization and
urbanization observed in Bihar. A factor that has made the situation even worse is the
bifurcation of the state in 2000. In Bihar today manufacturing only takes up 5 percent
of GSDP which is well below the national average with most of this being in the
unregistered sector and growth of the sector overall has been moderate over the past
decade. Significant investments in infrastructure, however, have meant that
construction has been growing a rapid pace over the last decade (26.5 percent) and
has been a key driver of rapid growth of the secondary sector (13.9 percent).

In order to engender industrialization and transition to a higher productivity economy


the private sector needs to be unleashed in Bihar. This is turn raises a range of policy
concerns. Making the supply of power more available and secure, improving
governance and enhancing the reputation of the state, facilitating private investment
into the state including revisiting the industrial incentives and single window policies,
reforming industrial regulations, revitalizing the banking sector, commercializing
agriculture and developing food processing industries, enhancing road infrastructure
and improving amenities in the cities were amongst the policy concerns discussed with
us.

The tertiary sector, which encompasses services, was also a sector focused upon as it is
becoming increasingly important in the Bihar economy. This sector grew reasonably
fast (8.2 percent) over the past decade due largely to the growth in two sub-sectors:
communications (23.1 percent) and trade, hotel and restaurants (13.7 percent).
Services, which are the key driver of growth in the nation overall, are seen as a key
force for driving up productivity and modernizing the Bihar economy. This is particularly
the case as Biharis are well represented in the service sectors outside the state. It was
recognized that expanding sectors such as information technology, higher education,
banking, insurance, communications and trade could make a vast difference to
productivity and growth in the state. This pointed to a range of policy concerns
including raising skill levels in the state, raising education levels in the countryside,
revitalizing the higher education sector, creating the necessary infrastructure to attract
service industries, improving the investment climate, making credit more available
within the state, improving urban amenities and attracting high skilled Biharis back to
the state which were all discussed with us.

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The development and growth objectives of the state are highly ambitious and the
political will to enact policies that will help to economically transform the state is clearly
there. A key constraint is that the structure of economy, with large difficult to tax
sectors, significantly constrains the ability of the government to raise resources from
within the state. This has led to a significant focus on resource mobilization. This
includes a focus on increasing the tax take from within the state via a variety of tax
reforms, improving the utilization of funds in federal and state programs, arguing for
larger fiscal transfers from the centre, repopulating government positions at different
levels in order to enhance the government’s capacity to utilize funds and deliver
programs and attracting international donors to the state to fund various development
initiatives.

2. The Consultation Process

The initial contact with the state, and in particular with the Chief Minister Nitish Kumar,
was made via N.K. Singh who is a long-time friend of Nicholas Stern (IGC Senior
Advisor) at the LSE and via Arunish Chawla, an Bihar IAS officer, who had been a PhD
student at the LSE under Robin Burgess’s supervision. A scoping visit by Gobind
Nankani (IGC Executive Director), Robin Burgess (IGC Academic Director) and Soumya
Gupta (IGC Executive Group Co-ordinator) took place in June 2009. The IGC team met
high-level policy-makers from government including Chief Minister Nitish Kumar and
the Deputy Chief Minister Sushil Kr Modi along with the top-level civil-servants like the
then Finance Secretary, Development Commissioner and Chief Secretary. The Chief
Minister, Nitish Kumar expressed his support for IGC and along with the Deputy Chief
Minister and key civil servants identified the broad areas in which academic work would
be of use in framing growth-oriented policy. The IGC team also met important
stakeholders from the private sector including the President of the Bihar Industries
Association and the President of the Confederation of Indian Industries (Bihar Chapter),
along with civil society organisations and members of faculty of the Asian Development
Research Institute (ADRI).

Discussions continued and took on a sharper focus when Mr Navin Kumar


(Development Commissioner), Dr N K Singh (Member, Upper House of Parliament,
India) and Dr Shaibal Gupta (Member-Secretary, ADRI) participated in the session on
Bihar in IGC Growth Week Conference during September 2009 at the LSE. Mr Navin
Kumar also gave a public lecture on Bihar’s growth challenges to a large audience
during this event. These meetings significantly helped to attract researchers to working
on Bihar. The discussions in these meetings covered the institutional aspects of
structural transformation for sustainable growth in Bihar and led to identification of
broad areas on which IGC could focus in Bihar. It was also agreed that ADRI should
become the institutional partner of the IGC in Bihar.

The broad areas of possible engagement which included service delivery, private sector
development, rural development and growth opportunities were the subject of
deliberations at the first major IGC public consultative event held in the state – the
Bihar Growth Day Workshop on December 17, 2009 (see Annexe 1 for the program).

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This was jointly organized with ADRI and was attended by the Chief Minister, Deputy
Chief Minister, all the high-level policy makers in the Government of Bihar, a delegation
of IGC international researchers, representatives of civil-society organisations, local
and national academics and representatives of private sector in Bihar. In this
workshop, Chief Minister Nitish Kumar and Deputy Chief Minister Sushil Kr Modi
publicly announced, to the audience and to a large media contingent, their support for
IGC’s operation in Bihar.

Along with the high-level support, IGC Bihar also has created an interest in Bihar’s civil
society reflected in the media coverage of its events. This conference along with
smaller group meetings spread over December 16, 2009 to December 18, 2009,
between IGC researchers and the Chief Minister, Deputy Chief Minister, principal
secretaries of various departments, the Development Commissioner, civil society
organisations, bankers and private sector entrepreneurs created a wide consensus on
the broad areas in which IGC could help feed frontier research into policy and provided
inputs for the development of the IGC Bihar programme. These inputs were further
consolidated in a Conference organised by JPAL in January 2010 in Patna in which
IGC/JPAL academics presented a corpus of research relevant to growth policy concerns
in Bihar.

A day-long meeting between Robin Burgess and Diane Mak (IGC Hub Fellow) on behalf
of IGC with the faculty at ADRI on 14th January 2010, also led to the outlining of the
broad contours of collaboration between the two organisations along with identification
of candidates for the IGC Bihar leadership team. Between January 2010 and August
2010, the IGC Bihar programme grew substantially with the appointment of the IGC
Bihar Leadership Team which consists of a Director (Anjan Mukherji), Lead Academic
(Maitreesh Ghatak), Deputy Director (Chirashree Das Gupta) and Senior Advisor
(Shaibal Gupta). Appointment of this leadership team allowed areas of engagement for
IGC Bihar to be refined, for the work programme to be developed and for the
commissioning of research in key areas of growth policy to begin. The fact that the IGC
Director and Lead Academic only came fully on board in August 2010, however, means
that the commissioning of research projects to match the demands of policy
stakeholders is only in its initial stages.

The March 2010 IGC retreat at Oxford provided an opportunity for two IGC Research
Directors Oriana Bandiera and Henrik Kleven, to closely interact with Chirashree Das
Gupta which led to identification of concrete areas in public finance policy in Bihar for
the IGC research network to contribute. This matching of demand and supply for
research led to a session on Bihar at the CEPR/IGC conference on Public Finance and
Development on 18 June 2010 in London which was attended by Chirashree Das Gupta
where she shared the views of stake-holders in Bihar on the question of resource
mobilization in the state. This meeting has attracted many international researchers
from the IGC’s research network to work on issues around resource mobilisation in
Bihar. This was followed by Robin Burgess’s visit to Bihar in July 2010. During this visit,
the research plan of IGC Bihar was expanded to cover various items based on
consultations with the Development Commissioner, the Finance Secretary and the
Special Advisor to the Chief Minister on Industry.

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Consultation and interaction between policy stakeholders and researchers will continue
at the 2010 IGC Growth Week event at the LSE which the Development Commissioner
and Finance Secretary have committed to attending. Arunish Chawla from the
Government of India Planning Commission will also attend this event. A major Growth
in Bihar conference is also planned to take place in Patna in mid-December of 2010.

To sum up therefore the consultation process has been an on-going one, involving a
wide range policy stakeholders from both within and outside the state (see Annexe 2
for a list of individuals and institutions that were consulted). The discussions with
stakeholders at all levels indicated that the primary concerns around growth centred on
two key areas: policies to encourage economic transformation of the state and policies
to mobilize financial and human resources within the state.

3. The IGC Bihar Engagement Strategy

3.1 The Need for Independent, Policy-Oriented Academic Research in Bihar

Interest in the growth turnaround is what initially attracted the IGC to the state. But it
was the openness of policy stakeholders, including those in the highest echelons of
government, to evaluation and experimentation that sustained and enhanced that
interest. Here was a reformist minded government that really wanted to bring frontier
research bear on its growth problems. And this openness is critical to enabling research
to take place in the state. In particular, as much of it requires close collaboration with
government, private sector representatives and other stakeholders.

The common view amongst the policy stakeholders that we consulted with in the state
was that the enormous growth challenges were not being met by high quality, policy
oriented research. It was felt that this type of research was needed to shape the policy
debate on key issues. Whilst scholars and economists are in, in general, held in high
esteem there is currently only very small base of economists from within the state that
can be drawn upon.

Despite historically being a key seat of learning in India, there is a consensus that the
quality of economic research and faculty in universities, think-tanks and institutes has
diminished over the time in Bihar. There is also the additional problem that much of the
research is focussed on the issues that concern policy makers in the state. There is
thus a disconnect between the academic and policy making communities in the state.
And indeed building up local analytical capacity in institutes, think-tanks, and
universities so that young researchers can play a more active role in the policy-oriented
research in the state of Bihar is a key secondary objective of the IGC Bihar programme.

This disconnect is not limited to the state. A survey of published academic economics
work on the state reveals much of the work focuses on subject matter which are in
keeping with Bihar’s former reputation as an anti-development state. There is thus a lot
of work on caste relations, on the role of caste in politics, on forced migration and on
documentation of the abysmal status of income, health, education and nutrition

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indicators in the state. The more forward looking and growth-oriented topics which
currently occupy policy maker minds such as question of how to attract private
investment in order to transform the economy and how to mobilise resources to finance
a set of ambitious developmental goals are very poorly represented in this literature.

Due in part to growth of the private sector and boom in aid there is a growing
consultancy market for work on Bihar. This is in common with the situation in
Bangladesh and Pakistan and in a range of low income developing countries. This
covers both consultants that service the private sector as well as a range of economic
and policy consultants that service the needs of various types of donors and civil
society organizations. These consultants tend to deal with the short term and often
programmatic needs of their clients. These studies are extremely useful in terms of
understanding key programs and policy interventions as well as broad sectoral issues in
the state. But they tend not to get into the kind of analytical depth that is the hallmark
of academic research.

There is also the issue that consultant-led research and analytical work tends to be
produced under tight deadlines and is not subject to the type of rigorous peer review
that academic research is subjected to. There is thus little quality control. Policy
stakeholders also often do not feel that they do not own the findings from this type of
analytical work and research as they typically do not originate the work. These factors
can, in turn, affect the willingness of policy makers to take the findings from
consultant-led research and analytical work into policy.

The growth challenges in Bihar are clearly immense and it clearly makes sense for a
range of actors from governments, international development organizations, NGOs and
the private sector to work on them. We view the work of the IGC in Bihar as
complimentary with the work of these organisations.

The lack of analytical capacity provides the IGC with a natural entry point in the state.
Our consultations during the 2009-2010 period has clearly indicated that there is strong
demand from a range of policy stakeholders for research on growth policy issues
related to economic transformation and resource mobilization.

The demand-led nature of our operations where we devote considerable time to


listening to the views of policy stakeholders is strongly appreciated as it inculcates a
sense of ownership over the findings from research. The close relationship between
researchers and policy makers in the origination and carrying out of research has also
led to close working relationships which will be important in terms of facilitating
research in feeding research findings into policy.

The fact that the IGC is able to mobilise some of the best researchers from around the
world to work on growth policy issues in Bihar is also genuinely appreciated. The IGC,
in effect, forms a link between the international academic economics community and
the policy makers in Bihar which was not present before and this is valued by policy
stakeholders. And the fact that we installing local research capacity in form of the IGC
floor in ADRI which is just being completed and will soon be buzzing with young
researchers working on Bihar’s growth problems is something policy stakeholders feel is

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of immense value. The Chief Secretary on a recent visit to the IGC floor at ADRI after
attending the IGC Floods and Growth Workshop made precisely this point.

That these views come from researchers working in universities and research institutes
is also viewed as being of paramount importance. The policy makers clearly like having
access to independent, academic viewpoints of this type which are not linked to any
grant or loan. Indeed, like policy makers around the world, the often like to have
several viewpoints on the same policy matter. And the IGC provides them with access
to the viewpoint of academic economists, on a subset of the manifold policy issues that
they confront, which is something they value.

The range of growth problems, the paucity of analytical capacity and the clear demand
for independent, frontier economic research means that the IGC Bihar programme
should have a bright future in the state. Its work is distinctive from that being done by
other development actors in the state but is also highly complementary. We now turn
to some key local partnerships which are key to the success of the IGC Bihar
programme.

3.2 Partnerships

The IGC Bihar Growth programme is built upon the the close relationship that IGC has
developed with the Asian Development Research Institute (ADRI) whose campus hosts
the IGC Bihar facility. In fact the relationship grew out of links established with Dr
Sahibal Gupta’s (Member Secretary of ADRI and IGC Senior Advisor) who has been a
key economic adviser to successive Governments in Bihar. One of the most important
contributions that the Government of Bihar has made in recognition of this relationship
is the creation of Centre for Economic Policy and Public Finance (CEPPF) within ADRI as
a separate entity and with Dr. Shaibal Gupta as Director. The CEPPF is as yet small but
performs for the Government of Bihar the tremendous task of producing each year the
Economic Survey for the State of Bihar. It has played a very important role in creating
a research-based consensus on the issue of central devolutions to Bihar both within the
Government of Bihar, which entrusted it with the task of preparing its Memorandum to
the Thirteenth Finance Commission, which brought together all the main political
parties and professional organizations in Bihar.

ADRI had been doing this consensus building on resource requirements for Bihar's
development for earlier Finance Commissions deliberations as well. On the Board of
Directors of CEPPF, are Anjan Mukherji (the IGC Bihar Director) and formerly the RBI
Professor of Economic Theory at Jawaharlal Nehru University, Arunish Chawla who was
then Deputy Finance Secretary, a former doctoral student of Robin Burgess at the LSE
and currently Secretary to Montek Singh Ahluwalia, the Deputy Chairman of the
Planning Commission. The Chairman of the Board is ex-officio, the Finance Secretary
Government of Bihar. There is another link too: Chirashree Das Gupta the IGC Bihar
Deputy Director is Associate Professor at CEPPF and plays a major role in many of its
activities. Thus this relationship is close and provides the IGC Bihar with access to
senior policy makers in the Government of Bihar. In fact without the presence of ADRI
and the interest in IGC expressed by Shaibal Gupta, the project would have been

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difficult to sustain.

Given the long-standing influence that ADRI has exerted in the Bihar policy scene
across successive political administrations, IGC has had the good fortune of leveraging
this influence in many ways as has been documented in the prior section. Not only the
incumbent government, but any other organization, political or otherwise, would come
to ADRI for advice and guidance when working on Bihar or any aspect of the Bihar
economy. Whenever all party position papers on any economic activity has been
prepared, it has been with the active participation of ADRI, as documented earlier. In
fact there is no other organization with this unique presence and authority.
Consequently work done by IGC Bihar will be able to effect policy formulation with the
help of support from ADRI.

Given ADRI’s pivotal importance, JPAL (which is a partner organization of the IGC) has
also found it convenient to locate its staff on the premises of ADRI as well. The
presence a group of young researchers, pursuing different problems using different
methodologies is thus opening up a rich area of discourse in Bihar. Regular seminars by
IGC in-country economists, visiting IGC and JPAL researchers with the active
participation of policy stakeholders and of researchers from local universities and
institutes should provide a very active research atmosphere and will help ensure that
findings from research find their way into policy.

These partnerships with ADRI and CEPPF provide the IGC with three things:
 Close access to the top policymakers
 Close access to some of most distinguished researchers on Bihar from other
organizations and institutions and finally
 A greater chance of influencing policy makers through the IGC research
program.

3.3 Communication and Dissemination

Not only through ADRI but also through the functioning of the CEPPF, all policy
stakeholders will be easily accessible to the IGC Bihar operation. It should be kept in
mind that the stakeholders extend to Confederation of Indian Industry, Bihar Industries
Association, NGO’s, and the State Planning Board and the state and national media
which will be kept abreast of the work done by IGC Bihar. The accessibility of the
Central Government through the Planning Commission and the Finance Commissions is
also to be noted. In fact to emphasize this communication and dissemination aspect,
all commissioned work from the IGC-Bihar Programme is completed in a two step
procedure. The first step involves the presentation of the first draft of any piece of
research or analysis before the stakeholders whose demands are being met. This will
be done in a form which is appropriate to reaching the concerned stakeholder or
stakeholders. The comments from the audience and the concerned stakeholders and
clarifications sought then need to be addressed in the final version to be submitted.
Thus the concerned stakeholders are aware from the beginning what work has been
done and know further that their concerns will have to be met in the final versions.

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While this makes the entire process somewhat more complex to implement, it is felt
that the gains from this procedure in terms of the both policy relevance and ownership
by policy stake holders of the commissioned research are worth the effort.

Seminars, workshops and conferences organized whenever scholars visit Patna provide
another key means for promoting communication and dissemination of research
findings. From December 2009 to date, there have been four public conferences and
seminars. The most recent being the IGC Floods and Growth Conference held at ADRI
on 29 August 2010. Through such meetings and the media coverage that such
meetings receive, work done as part of the IGC-Bihar Growth programme will receive
wide coverage in the state and national media.

4. The IGC Bihar Programme

The 2009-2010 IGC Bihar Programme focuses on two key areas: economic
transformation and resource mobilization. The two areas are hugely interdependent
and there are important economic reasons for their choice. Primary among them is, of
course, that the demands from the policy makers fell into these areas; and on logical
grounds, this is perhaps not surprising. The current state of the Bihar economy, as
described above, requires substantial structural changes to help growth to take place in
a sustainable and inclusive manner. And of course, for this purpose, considerable
financial and human resources need to be mobilised.

4.1 Economic Transformation

Economic transformation consists of: (a) changed importance of various sectors, in


particular the growth of the secondary and tertiary sectors relative to the primary
sector; (b) economic diversification: branching into new activities and industries within
a sector, reflecting dynamic comparative advantage and technological innovations, and
(c) modernisation of the economy in terms of greater investment in skills and
infrastructure, and transforming traditional forms of economic relationships to more
modern forms.

The following projects have been commissioned or are in the process of being
developed. As is evident in Table 1, which is summarises the 2010-2011 work plan,
there are several ways in which responses to policy stakeholder demands will be
prepared: rapid response notes, policy briefs and research papers. The target for the
latter is that they should be publishable in peer reviewed journals. All projects also
involve significant face to face briefings with the concerned policy stakeholder as well
as dissemination via workshops, seminar and conferences.

 Timothy Besley and Robin Burgess of the LSE are developing a project on
Growth in Bihar. The study uses panel district and state level data for India to
examine different hypothesis as to what underpins the growth upswing in the
state. The use of district level GDP and other data from Bihar and neighbouring

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states will enable them to look at whether it is the improvements in governance
or other policy reforms introduced by the Nitish Kumar government that are
responsible for increased growth. The data set will also enable the authors to
study how economic growth has been distributed across the state and at which
factors seem to be associated with structural change within the districts of
Bihar. This study will allow policy stakeholders to both evaluate where growth
has come from in the past and to identify where future growth may come from.

 Areendam Chanda, Associate Professor of Economics, Louisiana State


University, USA is undertaking study to try to understand the phenomenon of
growth in Bihar in terms of modern growth theory. Most of the discussion of this
subject continues to remain couched in phrases that are reminiscent of “old”
growth theory - investment led growth, agricultural poverty traps, etc. While
this is not to deny the intellectual contributions of development theories from
the mid 20th century, it would be a disservice to the state and its economic
problems if one did not incorporate into the discussion, the lessons of research
in growth theory that has exploded over the past two decades. The main goal of
this project is to visit important elements of new growth theory and see how
Bihar fits in various contexts.

 Areendam Chandha is also developing an evaluation of the impact of the


introduction of the Kisan (farmer) Credit Card (KCC) scheme on agricultural
productivity and other economic indicators in Bihari districts. Schumpeter
recognized the importance of well-developed financial intermediaries in
enhancing technological innovation, capital accumulation, and economic growth
almost a century ago. In a nutshell, the argument goes that well- functioning
financial markets, by lowering costs of conducting transactions, ensure capital is
allocated to the projects which yield the highest returns projects that yield the
highest returns, and therefore enhances growth rates. More recently, the role of
dual economies in economic development has seen a revival of interest. Finally,
there is also a well developed literature on the role of microfinance in
agricultural productivity. This paper aims to build upon all these bodies of
literature in the context of Bihar.

 Errol D’Souza who is a Professor of Economics at IIM Ahmedabad is developing a


study to better understand constraints on private investment in industry which
is a key policy concern in the state of Bihar. Studies have shown that states in
India with a poor investment climate have lower investment and lower factor
productivity. Using the 2003 and 2006 Investment Climate Surveys this study
will identify whether managers in low income states emphasize certain obstacles
to business which are different from identified by managers in high income
states. On the basis of field visits and meetings with state officials the study will
then map out the steps required to be taken by an investor for setting up an
industrial unit in the state of Gujarat in terms of permissions required from
various authorities. Finally, the study will investigate the role of the single
window clearance system called the Industrial Extension Bureau in Gujarat as an
investment promotion agency and examine its structure and functioning.

12
 While there are issues around Bihar’s floods which need to be worked at the
national and international levels (e.g. the causal issues linked to Nepal), and
there are policymakers at the federal level engaged in the task in collaboration
with international agencies and organizations, there are many other areas which
fall under the ambit of Government of Bihar. On these issues, while there are
certain initiatives and interventions by international organizations in some key
areas, the most notable being the World Bank’s Bihar Flood Management
Information System being implemented by the Department of Water Resources,
Government of Bihar; there is a paucity of policy-oriented academic research
based interventions on the multiple dimensions of the link between floods and
economic growth in Bihar. To explore the possibility of building up an inter-
disciplinary research agenda, IGC Bihar held a national meeting of experts on
Floods and Growth in Bihar on 29 August 2010. The workshop involved a range
of experts from the IITs, universities, NGOs and activist organizations, the Bihar
Government and international organizations like the World Bank. The Chief
Secretary and Finance Secretary both attended the event. The plan is to follow
up by identifying a small subset of scholars who will pursue this research agenda
and produce research agenda papers to be presented at an International
Conference, tentatively scheduled for March 2011, where experts from different
countries in South Asia and elsewhere will be required to present their
respective experiences and this will help produce a comprehensive
recommendation to the Government of Bihar.

4.2 Resource Mobilisation

One of the main concerns in Bihar has been medium-term possibilities of raising of tax
and non-tax revenue capabilities given the post-bifurcation resource-allocation. In this
connection the state is also interested in examining the fiscal implications of the
recommendations emanating from the Thirteenth Finance Commission. There is also
keen interest in the fiscal implication of introducing the Goods and Services Tax in the
state. Recent reform efforts in Bihar have led to visible improvements in the law and
order situation and in the perceived effectiveness of top-level bureaucrats and service
providers. However, the lack of state capacity continues to pose major challenges to
public finances, as well as to the delivery of social services, especially at the
municipality, district, bloc and panchayat level.

The following projects have been commissioned or are in the process of being
developed.

 Chirashree Das Gupta (ADRI and IGC Bihar) provided the Government of Bihar
with academic inputs for its first response to the Thirteenth Finance
Commission’s recommendations. A note was prepared in collaboration with
Centre for Economic Policy and Public Finance comparing Thirteenth Finance
Commission’s relative and absolute devolution to Bihar and an estimate of the
resource gap that will need to be filled up for Government of Bihar to attain its

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declared goal of equalising Per Capita Development Expenditure to the national
average by 2014-15. A Rapid Response Note was provided.

 Chirashree Das Gupta (ADRI and IGC Bihar) also provided the Government of
Bihar with a detailed assessment of the policy implications of compliance
requirements and eligibility conditions for the grants-in-aid recommended by the
Thirteenth Finance Commission. In collaboration with Centre for Economic Policy
and Public Finance, a policy brief was prepared enumerating the multiple
compliance requirements and the policy options as well as resource constraints
before Government of Bihar to be eligible for the Thirteenth Finance Commission
grants.

 The Recommendations of the Thirteenth Finance Commission on state finances


of Bihar provide constraints on fiscal policies available to the state.
Consequently, a proper understanding about what policies are feasible given the
Finance Commission Recommendations is crucial for maximum utilization of
funds available. With this aim an analytical paper needs to be prepared to
examine the following: (a) The implication of new horizontal distribution formula
on the share of devolution to Bihar and its resource needs. (b) Likely impact of
`revised road map for fiscal consolidation’ proposed by the Thirteenth Finance
Commission on the fiscal autonomy and fiscal space of the state of Bihar for
development spending. (c) The implications of various state specific grants
recommended by the Thirteenth Finance Commission and make observations on
the policy steps required for effective utilisation of these funds. Pinaki
Chakraborty of NIPFP Delhi is carrying out this work which will generate both a
research paper and a policy brief.

 It is sometimes argued that the key problem with local governments in India is
a lack of revenue, but a look at the statistics may reveal that revenue is not
unusually low (relative to GDP). The key problem may instead be the poor
incentives to make effective use of the available revenue. Given the
performance of the government in Bihar in particular may be the problem is not
providing them too little revenue but instead inadvertently providing them poor
incentives to use this revenue well. With teachers and doctors not showing up
for work, for example, it is clear that incentives are currently very badly
designed. According to some a more interesting question then would be a
project that examines how government behaviour changes in response to
changes in sources of revenue. To what degree is the tax base dependent on
the provision of quality services and a supportive environment for business
activity? It may be argued that changes in tax structure provide a type of
natural experiment to judge the effects of these incentives. Roger Gordon of the
University of California at San Diego is carrying out this work.
 Oriana Bandiera (LSE), Robin Burgess (LSE) and Ben Olken (MIT) or looking into
the feasibility monitoring the recruitment process of contract teachers with a
view to better understanding what factors drive selection. There is also interest
in using sample surveys to examine the effectiveness of contract teachers

14
relative to regular teachers in Bihar’s schools. Better understanding the
motivation and effectiveness of public servants such as teachers with a view to
improving service delivery is a topic that key policy makers in the state are
keenly interested in.
 GST Implementation: The Department of Finance, Government of Bihar, had
requested research support in implementation of GST in Bihar. As a first
response, the Centre for Economic Policy and Public Finance and IGC Bihar are
working estimating the Revenue Neutral Rate (RNR) of GST for Bihar under
ceteris paribus conditions. The study is an attempt to calculate the RNR for Bihar
extending and adapting the different methodologies that have been used to
arrive at the RNR for the entire country, which has been the basis of the roll-out
of the GST plan for all states by the Union government. An academic researcher
to carry out this work is being sought out.
 Training Programme: It has been widely accepted that the involvement of
college teachers in projects or research programs is not possible in general. C
consequently whenever additional personnel are required for any purpose,
mostly persons need to be brought in from outside. For very short time
requirements this is often not possible. To enhance the skills of college teachers
and to contribute to the creation of human resources and to take advantage of
the presence of academic visitors of very high calibre, a training programme of
college teachers in areas of growth and development has been planned during
March 2011.

These IGC Bihar projects will be complemented by an IGC Research Programme project
by Esther Duflo (MIT), Lori Beaman (Northwestern), Pinar Keskin (Harvard) and Rohini
Pande (Harvard) entitled "Strengthening Capacity of Women Leaders in Rural India:
Evaluating the Impact of Training on the Effectiveness of Elected Women
Representatives (EWRs) to Village Councils in Bihar" which evaluates the impacts of a
leadership training programme operated by the Government of Bihar and UNDP on
women leaders confidence, attitudes towards women leaders and perceived
effectiveness of women leaders.

Other research projects will develop in this broad area over the course of 2010-2011.

5. The IGC Bihar Team and Research/Policy Network

The IGC Bihar Leadership Team is made up of:

Director: Anjan Mukherji (ADRI, CEPPF and IGC)


Lead Academic: Maitreesh Ghatak (LSE and IGC)
Deputy Director: Chirashree Das Gupta (ADRI, CEPPF and IGC)
Senior Advisor: Shaibal Gupta (ADRI, CEPPF and IGC)

Anjan Mukherji has recently retired as the Reserve Bank of India Professor of Economic

15
Theory at Jawaharlal Nehru University where he has been teaching for thirty seven
years and has taught generations of students. He is one of India’s most respected
economists. A native of Bihar he has had a close association with ADRI and CEPPF and
with policy issues within the state for a number of years. Maitreesh Ghatak is one of
the most well known scholars in the area of development economics. He is a Professor
of Economics at the London School of Economics. He has been the Editor of influential
journals like the Review of Economic Studies and currently is the Managing Editor of
Journal of Development Economics. He has extensive experience working on public
policy issues in India. Chirashree Das Gupta has been with ADRI since being a lecturer
in Economics at the School of Oriental and Asian Studies in London. She is currently
Associate Professor at the CEPPF where she has been associated with, among other
things, the Annual Survey of the Bihar Economy since its inception. And of course a
very important and key member is Dr Shaibal Gupta who is perhaps the most
knowledgeable person about the economics and politics of Bihar and is credited with
having established Asian Development Research Institute (ADRI) which hosts the
International Growth Centre in Bihar. He is the Founder Member Secretary of ADRI as
well as the Director of the Centre for Economic Policy and Public Finance in ADRI.

Current researchers in the country team and broader research/policy network include
well known and established scholars such as Robin Burgess (Academic Director, IGC
and Professor of Economics, London School of Economics), Chang-Tai Hsieh (Professor
of Economics, University of Chicago and Member of the IGC Steering Group), Tim
Besley (Professor of Economics, London School of Economics and Member of the IGC
Steering Group, IGC), Roger Gordon (Professor of Economics, UC SD), Areendam
Chandra (Associate Professor of Economics at Louisiana State University, a young
growth economist), Errol D’Souza (Professor of Economics, Indian Institute of
Management, Ahmedabad), Pinaki Chakraborty (Professor at the National Institute of
Public Finance and Policy, India), Oriana Bandiera (Professor of Economics at LSE) and
Ben Olken (Professor of Economics at MIT). Clearly this is a growing list and it is hoped
that more scholars from some of the leading institutions in India and abroad, will join in
the exciting task of analyzing the growth experience of Bihar.

The IGC network extends among the policymakers as well. They are the ones who
identify policy requirements and questions and include among others, Mr. Nitish Kumar,
Chief Minister, Mr. Sushil Modi, Deputy Chief Minister and Finance Minister, the Adviser
to the Chief Minister Mr. Vijay Raghavan, the Chief Secretary Mr. Anup Mukerji, the
Development Commissioner Mr. K. C. Saha, the Principal Secretary Finance, Mr.
Rameshwar Singh, two former Principal Secretary Finance, Mr. Bhanu Pratap Sharma
and Mr. Navin Kumar (also a former Development Commissioner) and currently with
the Central Government, as Secretary Minority Affairs and Secretary Urban Affairs, Dr.
Arunish Chawla (a former student of professor Robin Burgess at the LSE) and Secretary
to Mr. Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission. Mr.
Montek Singh Alhuwalia has himself taken an active interest in the work of the IGC in
Bihar. Mr. N.K. Singh is also a key player in the IGC research/policy network in
particular as regards promotion of private sector development in the state. Secretaries
in key government departments also play an active role in the network. Apart from

16
these key government decision makers the research/policy network also contains key
private sector (such as Anshuman Anand who heads up the Bihar chapter of the
Confederation of Indian Industry), banking, NGO and civil society representatives. A
detailed list is provided in Annexe 2 below.

Apart from the above, two in-country Economists should be in place by


October/November of 2010. An office manager for the IGC Bihar operation should also
be in post by this time.

The Financial Agreement between LSE and ADRI has now been signed and are effective
and will cover the cost of running the Centre.

The task of overseeing daily operations is in the hands of the Deputy Director who
resides in Patna in frequent consultation with Director who shuttles between Patna and
Delhi. The Lead Academic, based at the LSE in London, oversees the development of
the portfolio of IGC projects in consultation with the Director. The Senior Advisor plays
a pivotal role both in funnelling requests from policy makers to the IGC, in linking
researchers to relevant policy stakeholders and in disseminating the findings of IGC
research to key policy makers. The work-plan has already been outlined. These projects
were arrived at because of demand made from the highest levels of policy makers in
the state and based on what analytical inputs IGC as a group of academic economists
based in universities and research institutes can provide.

6. Work Plan

Table 1 summarises the work plan for 2010-2010 described in section 4. Particular
attention has been paid to getting messages from IGC research across to key decision
makers in the state. These include via rapid response notes, policy briefs and face to
face briefings, website and media outlets, workshops and conferences. Research papers
which come out from the IGC Bihar programme will be targeted at the top peer
reviewed journals which will give authority to the programme and help to ensure that
the policy influence of IGC Bihar research extend beyond the state itself.

17
Table 1: Summary IGC Bihar Work Plan for 2010-2011

Area of Focus Initial Research Projects Expected Outputs Research Team Indicative Period

Growth in Bihar since Independence Research Paper R. Burgess and T. September 2010 –
and Policy Brief Besley (LSE) December 2011
Bihar Growth in the context of Modern Research Paper Areendam Chanda July 2010 –
growth Theory and Policy Brief (Louisiana State U.) November 2011
Economic Kisan Credit Card Scheme and Research Paper Areendam Chanda December 2010 –
Transformation Agricultural Performance and Policy Brief (Louisiana State U.) March 2011
Single Window Clearance: A Case Study of Survey paper and Errol D’Souza July 2010 –
Gujarat Policy Brief (IIM-Ahmedabad) September 2011

Floods and Growth Research Agenda Chirashree Das Gupta August 2010 –
Papers CEPPF/IGC India-Bihar March 2011
Organizer of National
Meeting and
International
Conference later
Growth in Bihar Conference Research Papers IGC India-Bihar December 2010

---------------------

13th Finance Commission Rapid Response Chirashree Das Gupta June 2010
Recommendations CEPPF/IGC India-
Bihar)
13th Finance Commission Policy Brief Chirashree Das Gupta July 2010
Recommendations: Compliance by the (CEPPF/IGC India-Bihar)
State Governments

13th Finance Commission Research Paper Pinaki Chakraborty July 2010 – August
Recommendations: Implications for Fiscal and Policy Brief (NIPFP) 2010
Policy for Bihar
Resource Changes in Government Behavior due to Research Paper Roger Gordon December 2010 –
Mobilisation changes in Revenue Sources and Policy Brief (UCSD) July 2011
Recruitment and Effectiveness of Research Papers Oriana Bandiera (LSE), January 2011 –
Contract Teachers Ben Olken (MIT) and December 2011
Robin Burgess (LSE)
GST Implementation in Bihar Policy Brief and Chirashree Das Gupta December 2010 –
Research Papers and CEPPF/ADRI May 2011
Training Programme for College Teachers Skill Formation IGC India-Bihar Team March 2011
in areas of Growth and Development

18
Annexe 1: Bihar Growth Day Workshop, December 17, 2009, Patna, Bihar

AGENDA

9:30 a.m. Decentralization / Accountability / Social Service Delivery


Discussion leaders
Rohini Pande, Professor of Public Policy, Harvard Kennedy School
Iqbal Dhaliwal, Director of Policy, J-PAL
Navin Kumar, Development Commissioner of Bihar, Government of Bihar
Bhanu Pratap Sharma, Principal Secretary, Department of Finance, Government of
Bihar
C.K. Mishra, Principal Secretary, Health and Family Welfare, Government of Bihar

11.00 a.m. Coffee Break

11:30 a.m. Private Sector Development


Discussion leaders
Robin Burgess, Co-Director, IGC and Professor of Economics, London School of
Economics
Vijay Raghavan, Advisor to Chief Minister, Government of Bihar
Ashok Kumar Sinha, Principal Secretary, Department of Industry, Government of Bihar

1:00 p.m. Lunch Break

2:00 p.m. Rural Development

Discussion leaders
Nachiket Mor, President, ICICI Foundation
Anup Mukherjee, Chief Secretary of Bihar, Government of Bihar
Vijay Prakash, Principal Secretary, Rural Development, Government of Bihar

3:30 p.m. Coffee Break

4:00 p.m. Growth Opportunities in Bihar


Discussion leaders
Nitish Kumar, Chief Minister of Bihar, Government of Bihar
Sushil Kumar Modi, Deputy Chief Minister and Finance Minister, Government of Bihar
Chang-Tai Hsieh, Executive Group Member, IGC and Professor of Economics, University of
Chicago
5.30 p.m. Concluding Remarks
Discussion leaders
Rohini Pande, Professor of Public Policy, Harvard Kennedy School
Shaibal Gupta, founder member-secretary, ADRI
Anjan Mukherji, Professor of Economics, JNU

19
Annexe 2: Summary of Individuals and Institutions Consulted in Preparation
of Bihar Strategy Note

Government of Bihar

 Nitish Kumar, Chief Minister

 Sushil Kumar Modi, Deputy Chief Minister

 N. K. Singh, Deputy Chairman State Planning Board; currently M.P. (Rajya


Sabha)

 Anup Mukerji, Chief Secretary

 R.J.M. Pillai, Former Chief Secretary

 Vijay Raghavan, Advisor to the Chief Minister

 Navin Kumar, former Development Commissioner, currently Secretary,


Goverrnment of India

 T. K. Saha, Development Commissioner

 Bhanu Pratap Sharma, former Principal Secretary, Finance, currently Secretary,


Government of India

 Rameshwar Singh, Principal Secretary, Finance

 C K Mishra, Principle Secretary, Health

 Vijay Prakash, former Principle Secretary, Rural Development

 Santosh Matthew, Principle Secretary, Rural Development

 Ravin Kant, Principle Secretary, Energy

 Arunish Chawla, former Joint Secretary Department of Finance, currently,


personal secretary to Montek Alhuwalia (Deputy Chairman, Planning
Commission)

State Level Bankers Committee, Patna

 Mr. Ashish Kumar Roy, General Manager-I, State Bank of India, Local Head
Office.

 Dr.J.N. Misra, General Manager – II, State Bank of India, Local Head Office.

 Mr.V.K. Sharma, Dy. General Manager, State Bank of India, Local Head Office.

 Mr.S.K.Rana, General Manager, Canara Bank, Circle Office.

 Mr.S.S. Chopra, General Manager, Punjab National Bank.

 Mr.C.K.Pandey, Zonal Manager, Central Bank of India, Zonal Office.

20
 Mr.Gopichand, Dy. General Manager, UCO Bank, Zonal Office.

 Mr.R.D.Groh, Dy. General Manager , Union Bank of India, Zonal Office.

 Mr.U.S.Dewedi, Dy. General Manager, Allahabad Bank, Zonal Office.

 Mr.R.C.Narayan, Chief Regional Manager,United Bank of India, Regional Office.

 Mr.Satish Kumar Singh, Assistant General Manager (SLBC, Bihar),State Bank of


India, Local Head Office

 Mr.M.P.Barnwal , Assistant General Manager (SME), State Bank of India, Local


Head Office,

 Dr.M.M.Mishra, General Manager NABARD , Patna.

 Mr.Shri Mohan Yadav, Dy. General Manager, Reserve Bank of India, Patna.

 D.B.Mukhopadhyay, Assistant General Manager, Bank of Baroda, Zonal Office.

Private Sector Representatives

 Anshuman Anand (Executive Officer), Confederation of Indian Industry, Bihar


Chapter

 A.K.P. Sinha, Natraj Iron and Castings Ltd.

 Sudhir K.R. Jha, LN Mishra Institute of Economic Development and Social


Change

 Arun Prakash (Chairman), Rural Employment Generation Programme Federation


of Bihar

 R.G. Krishna (Executive), Harinagar Sugar Mill Ltd., West Champaran

 Amitava Bhattacharyya, IL&FS CDI Ltd.

 Asha Sintra, Maduta Painting

 Pushka Chopra (President), Bihar Mahila Udyog Sangh

Civil Society Representatives

 Pyare Lal Kumar, NIDAN

 Behzad Larry, Clinton Fellow , NIDAN

 Prakah Chandra, Sr. Programme Manager, NIDAN

 Deepak Mishra, SEEDS

 Shakeel, Charm

21
 Misha Gho, Chairperson, Shikshansh Foundation

 Nisha Jha, President, Shikshansh Foundation

DFID India

 Michael Anderson, Former Head DFID India

 Meenakshi Nath, Senior Programme Manager, DFID India

 Padma Kumar, Senior Deputy Programme Manager, DFID India

 Paul J G Rennie, Programme Manager, DFID India

Think Tanks and Research Institutes

 Shubhashis Gangopadhyay, Managing Trustee Indian Development Foundation

 Bibhu Prasad Mohapatra, Director Indian Development Foundation

 Bappaditya Mukhopadhyay, Fellow Indian Development Foundation

 E. Somanathan, Head (Planning Unit), Indian Statistical Institute, New Delhi

 Abhiroop Mukhopadhyay, Lecturer (Planning Unit), Indian Statistical Institute,


New Delhi

 Prabhat P. Ghosh, Asian Development Research Institute, Patna

22