91815 the world bank Helping India’s Bihar State Boost Public Services Through Better IBRD Results Management Synopsis India’s Bihar state is home to some of India’s poorest people but a new reform effort by the Bihar gov- ernment, backed by World Bank funding and technical support, has helped it improve public finance management and direct the proceeds to getting more children into schools, to immunizing its people, and to fighting corruption. Challenge teacher absenteeism; and a literacy rate of 48 percent. The health sector was plagued by a lack of infrastructure, absen- Bihar is one of India’s largest and poorest states, with 8.5 per- teeism, and shortages of qualified personnel. Only five per- cent of India’s population and only 1.6 percent of its gross cent of the rural population actually used the public health domestic product (GDP). Until 2007, economic growth system, the rest paying out-of-pocket for care from the in Bihar was much slower than the rest of the country and private sector. Common challenges faced by all three sec- almost 80 percent of the state’s receipts came from the cen- tors included: (1) Low levels of capacity to deliver services, tral government. Nearly half of all households are landless (2) poor monitoring of performance, (3) lack of robust ac- or near landless, with agricultural laborers constituting 48 countability arrangements, and (4) the need to strengthen percent of the labor force, about double the national level decentralization. of 27 percent. Female employment is among the lowest in India with workforce participation rates at 14 percent in ru- Against this backdrop, there are visible signs of a turn- ral areas and 7 percent in urban areas, while female literacy around where the current government in Bihar has been rates are about only 34 percent. The infant mortality rate is implementing wide-ranging reforms. about 72 out of 1000 live births and 54 percent of children in Bihar are underweight. Bihar’s public services and infra- Since 2005, the government has initiated a comprehensive, structure are among the worst in India. Nearly 60 percent home-grown reform program. These reforms range from of homes in the state were not connected to roads, only 21 single sector initiatives, to those that span several sectors. percent of households had access to piped water, and elec- Cross-cutting measures embrace law and order, investment tricity is not available to the vast majority of households. climate, fiscal policy, financial management, administrative reforms, and greater accountability. Single-sector reforms Bihar’s road network was also in deplorable condition, re- have targeted areas such as health, education, roads, rural flecting poor maintenance, the effects of periodic flooding, development, agriculture, urban development, and power. and under-investment. In education, Bihar suffered from IBRD has worked to develop a project that would allow the the worst indicators of any state with two million children government to undertake important reforms to unleash its between 6–13 years of age out of school; high levels of growth potential. March 2010 2 Helping India’s bihar state Results State revenues and expenditure increased, public services improved. The state’s tax revenues have increased by an impressive 19 percent annually from 2005/06, and the size of the budget increased by 158 percent between 2004/05 and 2008/09. In addition, development spending under the state’s annual plan has more than trebled. Public financial management reform—combined with greater delegation of financial powers—has resulted in a big jump in develop- ment expenditures. The reforms have enabled the govern- ment to spend money on public services in a way that was inconceivable in the past, correcting in some measure the In education, enrollment at the primary and upper primary systematic under-funding of Bihar’s public services, par- levels rose by eight percent between 2006/07 and 2007/08, ticularly health, education, and roads. Total expenditure in- while the number of out-of-school children fell steeply creased from Rs. 215 billion in 2005/06 to Rs. 350 billion by 77 percent between 2006/07 and 2008/09. The pupil- in 2008/09. The share of non-wage expenditure (such as teacher ratio improved to 53:1 from 63:1 as a result of hir- capital outlays, Operations &Maintenance, transfers and ing the first round of 100,000, teachers and will fall further subsidy) in total expenditure increased from 50 percent in to the national norm of 40:1 when teachers hired in the sec- 2006/07 to 57 percent in 2008/09 (preliminary estimates). ond round are actually placed in schools. The government New development expenditure almost trebled from Rs. 49 in 2008 extended its midday meal scheme to cover children billion in 2005/06 to Rs. 141 billion in 2008/09. in grades six through eight, thereby increasing its reach to nearly 11 million children. The midday meal program has There has been a clear impact from this increase in public been shown to have positive outcomes on both enrollment expenditure and the complementary focus on development and nutritional status. A recent survey showed that 80 per- priorities. In the roads sector, out of a total of 3000 kilo- cent of schools sampled across Bihar were serving a cooked meters of National Highways taken up for renovation from meal. 2006, 1900 kilometers of the national highway network has been renovated by December 2009. A big effort also has been A key objective of the government is to strengthen its anti- made to upgrade major district roads. Some 3,432 kilometers corruption enforcement. The government has sought to have been refurbished between 2006/07 and 2008/09. As promote greater transparency through the Right to Infor- noted earlier, outsourcing of rural roads design preparation mation law; stepped up targeted vigilance activities against has greatly increased the ability of the Rural Works Depart- corrupt officers without reinforcing risk-averse behavior; ment to tap funds under the national rural roads building and bolstered service delivery innovatively through out- program ‘Pradhan Mantri Gram Sadak Yojana.’ sourcing and use of Information Technology. A Special Vigilance Unit has been created to pursue cases against In health, the number of out-patients visiting a government high-level civil servants. Two of the state’s major gover- hospital rose, on average, to 4,380 in October, 2008, from nance initiatives in Right To Information and service deliv- 39 per month in January, 2006. There has been a striking ery have won national awards. improvement in the percentage of the population now fully immunized to 53 percent in 2008 from approximately 18.6 The persistence of reform over almost five years appears to percent in 2005. The number of babies delivered in health- be yielding results in terms of aggregate and multi-sector care facilities has also shot up from 112,371 for FY 2006/07 economic outcomes. In aggregate terms, Gross State Do- to 780,000 in 2008/09 (through December, 2008). Medi- mestic Product (GSDP) accelerated significantly to 10.7 cines are also being provided free to patients. percent between 2004/05 and 2008/09 from an annual IBRD RESULTS 3 average rate of 4.5 percent between 1999/00 and 2003/04, Development Policy Loan operations between 2007 and the pre-reform period. Indeed, taking the number of tourist 2011 amounting to US$900 million. A request for the next arrivals as an indication of improved conditions in Bihar, operation is in the pipeline, and is likely to be delivered in these increased dramatically to 10.5 million in 2009 from the 2011 fiscal year. 6.9 million in 2005. The number of motor vehicles in Bi- har also rose by 239 percent in 2007 alone, reflecting more consumer spending, better infrastructure, and heightened Ibrd Contribution economic activity, while the number of mobile phones rocketed to 12 million in 2008 from only one million in IBRD provided US$150 million to the Development Poli- 2004. While the roots of economic growth are complex, it cy Loan, while the International Development Association is not unreasonable to suppose that the faster growth ex- provided a US$75 million credit. perienced by Bihar after 2004 is linked to improvements in the rule of law, more efficient and larger public expendi- tures, and better infrastructure. Engagement of World Bank Group Approach Elements from within the World Bank Group have been The IBRD Development Policy Loan supports Bihar’s ef- associated with the Bihar program through complemen- forts to improve fiscal policy, public financial management, tary non-lending technical assistance. For example, the and governance. It aims to boost economic growth through International Finance Corp. (IFC) has carried out a busi- reforms in agriculture, investment climate, and basic in- ness process mapping and simplification study of three key frastructure, with an emphasis on roads. It also supports license areas: land allotment; factory licensing; and ‘single improving public service delivery in education and social window approval’ of industrial licenses. IFC is also lending protection. The funding from the operation helped create capacity and technical support for tracking and monitor- fiscal space for development by financing the government’s ing of investment proposals. The government of Bihar has budgeted expenditures including retiring expensive public identified agriculture-based industries as a priority area and debt. The rationale for a long term partnership between IFC has assisted by carrying out sector competitiveness and the Bank and Bihar has several important dimensions: value chain studies for sugarcane and maize, and drawing (i) There is strong consensus among informed observers that up a plan to help attract investments in the food and agro- a window of opportunity is now open for change in Bihar; processing sector. IFC is also engaged in studies to improve (ii) Evidence on the ground suggests important changes the administration of value-added tax. The World Bank In- have already occurred and Bank support will assist the gov- stitute is engaged in a program to strengthen official capacity ernment of Bihar in taking its planned reforms to the next for improved implementation of industrial policy, with a fo- level of improving outcomes and expenditure efficiency; cus on building competitiveness and accountability in Bihar. and (iii) Given the large number of poor in the state, re- ducing poverty and accelerating growth in Bihar are likely to have national implications, in particular in helping India Partners reach the Millennium Development Goals. The Bihar and more specifically the Development Policy Loan engagement is supported by a US$ 5 million multi- Summary Timeline year Non Lending Technical Assistance funded by the DFID Trust Fund. The Public Private Infrastructure Advi- The first Bihar Development Policy Loan/Credit closed sory Facility also supported the Government in preparing on December 31, 2009, but is potentially the first of four an overarching framework for Public Private Partnerships. 4 Helping India’s bihar state ment. In the process, a previously sheltered government was drawn into a development dialogue not only with official agencies but also unofficially with Bank staff, and other partners such as research organizations and think tanks that provided reform ideas and confidence to the government to engage in bold reform. Technical assistance that addressed the capacity weaknesses in the Bihar government as well as monitoring and evalua- tions systems and public financial management provided a basis for expanding financial support for the state. Good Practices Developed/ Next Steps Replicated Next steps include stepping up the development partnership The activation of the Development Policy Loan was pre- through the DPLs and expanding the lending engagement ceded by various analytical and advisory work, (‘Bihar: in line with the lagging regional focus of the India CAS. A Towards a Development Strategy and ‘Public Expenditure US$5 million Capacity Building Assistance project funded Management in Bihar: Selected Issues’) and an NLTA fund- out of a DFID Trust Fund is under implementation. A Pan- ed by DFID-TF that supported the modernization of the chayati Raj Institutions Decentralization project is under Public Financial Management architecture of the state. This preparation for delivery next Fiscal Year and a request for provided the framework for a dialogue on development assistance for rebuilding the Kosi flood affected areas has strategy and fiduciary assurance for active donor engage- been received.