Bihar

Bihar’s APMC Story Does Not Inspire Much Confidence

This is the third piece in the agriculture reform series. You can read the first two pieces here and here. While this piece stands on its own, for a better context on the overall issue, it makes sense to read the two pieces published earlier, before reading this piece.

Chintan Patel and Vivek Kaul

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act 2020 became a law on September 27, 2020. It is one of the three farm laws passed by the Modi government that has been met by stiff opposition from farmers. The law supposedly creates a mechanism allowing the farmers to sell their farm produce outside the Agriculture Produce Market Committees (APMCs).

As we pointed out in an earlier article, the fate of the APMCs or mandis, under the new laws is a topic of much debate. Proponents of the bill claim that allowing farm trade outside the APMCs will encourage competition and help farmers get better prices for their produce. The idea being that there will be more competition for agriculture produce and in the process, farmers will make more money. QED.

Farmer organizations opposing the bill argue that unregulated transactions outside the APMCs will actually result in a price squeeze for the farmers, given the asymmetry or the huge difference of negotiating power between the individual farmer and corporate-backed buyers. As is often the case, both sides can lay claim to a logically coherent argument backed by economic theory. So, which argument has higher odds of manifestation?

When the future is uncertain, the past is often a reliable guide. Using that rationale, it is instructive to look deeper at the Bihar experience vis-a-vis APMC markets. Bihar had done away with APMC markets in 2006. But before we get into the specifics, let’s zoom out a little and take a look at the bigger picture first.

Bihar’s Backdrop

Bihar is India’s poorest state. Given below are tables that chart the per capita income of India’s richest and poorer states.

Source: https://statisticstimes.com/economy/india/indian-states-gdp-per-capita.php

Source: https://statisticstimes.com/economy/india/indian-states-gdp-per-capita.php

As the above tables show, Bihar has the lowest per capita income in the country. It is about 18 percent of the income of Haryana and less than 10 percent of the income of Goa. Ironically, Bihar is endowed with abundant natural resources, especially fertile soil and groundwater, and yet it continues to remain one of the poorest states in the country.

The state has a population of 11.52 crore (2016), with a very high population density of 1,218 per square km as compared to the national average of 396 per square km. It is largely an agrarian rural economy with approximately 88.5 percent rural population out of which 74 percent of the workforce is reliant on the agriculture sector for a livelihood as per the 2011 Census.

Even accounting for shifts in the economy away from agriculture and migration out of rural areas since the last Census, the poverty in Bihar is closely linked to state of its farmers.

The high population density is clearly reflected in the land holding pattern in Bihar. Compared to other states, Bihar has highly fragmented landholdings. As the same piece of land has got divided among more and more family members over the generations, the average holding has fallen dramatically. Even though quite a few migrate to the cities, they still keep their farmland. This also stems from the fact that selling agricultural land in India is not easy.

As the table below indicates, marginal holdings of less than one hectare (around 2.47 acres) constituted about 91.2 percent of all land parcels in 2015-16, compared to the national average of 68.5 percent. Additionally, 97 percent of all holdings are  less than 2 hectares in Bihar. This high skew towards small land holdings is an important statistic, as agricultural marketing policies affect small and marginal farmers differently from those with larger holdings.

Land holdings in Bihar.

APMC Abolishment in Bihar

In 2006, the Nitish Kumar state government made the decision to abolish its state-level APMC Act allowing private players to directly purchase agricultural produce from farmers. Under the erstwhile Bihar APMC Act, both farmers and buyers would pay 1 percent of the sale price to municipal bodies. After the APMCs were abolished, the government introduced Primary Agriculture Credit Societies (PACS). PACS are panchayat level cooperatives with farmer members that fulfil 3 roles in Bihar.

1) Help farmers borrow money for buying farm equipment, farming inputs such as seeds, fertilizers, etc., or to tide through losses. PACS in turn are given credit by cooperative banks which are funded by the state government.

2) A one-stop shop for high-quality seeds, fertilisers, and other inputs.

3) Most importantly, PACS are responsible for procurement of grains particularly rice-paddy and wheat from the farmers at the government-announced minimum support price (MSP). Thus, PACS act as an intermediary between the farmers and the eventual purchasers of wheat and rice – which can be any of the following; Food Corporation of India (FCI), state procurement agencies or private mills, for that matter. For other produce (other than rice and wheat), farmers interact directly with private traders.

Upon procurement of the crop, especially in the case of paddy, it goes to the Bihar State Food and Civil Supplies Corporation, and then on to the Food Corporation of India, who direct it to the Public Distribution System or ration shops as they are more popularly known. The payment is expected to reach the farmer within 48 hours of selling the crop at PACS.

It should be noted that PACS exist nationwide and have long been a part of the cooperative banking system in India, formed to provide credit to rural areas. Bihar however is unique in that it expanded the scope of PACS to b) and c) above. As we shall see later in the article, PACS have not been able to deliver effectively on these objectives.

The deregulation of agriculture market transactions in Bihar in 2006 shares significant similarities with the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act 2020 . Although the central law does not call for the closure of state APMCs or creation of PACS-like entities, the core idea of deregulating agriculture trade outside of APMCs is the same.

Thus, there is merit in examining the outcomes of what has happened in Bihar over the last decade and a half,  to form expectations from the new law.

Several leaders of the Bhartiya Janata Party including prime minister Narendra Modi  and other supporters  of the new laws have touted Bihar’s abolition of APMCs to make their case. At the same time, critics have invoked Bihar as a cautionary tale of deregulating agriculture market.   So, the same scenario is being presented to suit diametrically opposite arguments.

What gives? As is often the case, the truth lies somewhere in between two extremes.

Prices

The bane of Indian agriculture is the price difference between the first transaction – what the farmer gets for a commodity, and the last transaction – what you and I pay for the same commodity.  Any changes to agricultural markets like the abolition of APMCs in Bihar needs be assessed against its impact on prices.

The government recognizes the importance of collecting data on prices. Each year, the Ministry of Agriculture and Farmers Welfare publishes data on farm gate prices based on data received from the state governments “to facilitate fine-tuning of agriculture policies aimed at farmer welfare”  .

The average wholesale price of a commodity (e.g. wheat, rice, etc.) at which the farmer sells to a trader at the village site during the specified marketing period after the harvest of each commodity, is termed as the Farm Harvest Price (FHP) for each commodity.  The next few charts track both the FHP and MSP of four commodities (paddy, wheat, maize, and ragi) from 2000- 2017. The central government announces MSPs for 23 agricultural crops during the course of any year, but primarily buys only rice and wheat directly from farmers.

Source:  https://eands.dacnet.nic.in/

The above chart shows that for rice paddy, the MSP has always been higher than the FHP. From 2001-02 to 2006-07, the average difference between MSP and FHP was around 26 percent. This basically means that  the FHP was 26 percent lower than the MSP on an average. From 2006-07 to 2014-15, the average difference reduced to around 18 percent. 2015-16, onwards the difference has inched up to around 24 percent, for the last two years for which the data is available.

                                                                            Source:  https://eands.dacnet.nic.in/

For wheat, the difference between MSP and FHP has been less stark than that for rice paddy.  From 2001-02 to 2006-07, the average difference between MSP and FHP for wheat was around 7 percent. From 2006-07 to 2014-15, the average difference barely moved up to  around 8 percent . However, for the last two years 2015 to 2017, for which data is available, the difference has spiked to around 17 percent.

Source:  https://eands.dacnet.nic.in/

For maize too, the difference between MSP and FHP has been less stark than for paddy but higher than that of wheat.  From 2001-2 to 2006-07, the average difference between MSP and FHP for wheat was around 19 percent. From 2006-07 to 2014-15, the average difference reduced to around 12 percent . However, for the last two years 2015 to 2017, the difference has spiked to around 18 percent.

Source:  https://eands.dacnet.nic.in/

Finally, for ragi, the difference between MSP and FHP has been quite high and has kept increasing.  From 2001-02 to 2006-07, the average difference between MSP and FHP for ragi was around 26 percent. From 2006-07 to 2014-15, the average difference increased to around 31 percent. Finally, for the last two years, 2015 to 2017, the difference has increased to around 37 percent.

The following table summarises the data from the above four charts.

Price Trends Summary
Source:  https://eands.dacnet.nic.in/

What can we infer from the above charts. Let’s take a look pointwise.

1)  The span from 2001 to 2017 can be divided into three periods : 2001-06, 2007-13, and 2015-17. Farm prices improved for paddy in the second period (around 18 percent lower than the MSP)  compared to the first period (around 25 percent lower than the MSP). Of course, they were lower than the MSP during both the periods.

Similarly maize prices improved in the second period (around 12 percent lower than the MSP) from the first period (around 19 percent lower than the MSP). Of course, they were lower than the MSP during both the periods.

For wheat, difference between the farm prices relative to MSP stood at 7 percent during the first period and at 8 percent during the second period. Hence, the difference increased though marginally.

Rice, wheat and maize are the three major cereals produced in Bihar and make up for 80 percent of the cropping area. The difference in prices between the FHP and the MSP, largely came down in the seven year period after the removal of the state level APMC Act. This finding weakens the argument that market deregulation will necessarily lead to lower prices, even though the farmers did not get the MSP.

2) As can be seen from the above table, starting in 2015, difference between FHP and MSP has increased for all the four commodities. Let’s take the case of maize. Between 2007 and 2014, the difference had stood at around 12 percent. It has since jumped to around 18 percent, almost back to pre-2006 levels.

A similar trend can be seen for the other three crops as well.

The official government data is only available till 2017, but this divergence between FHP and MSP is also reported in recent articles discussing the farmer situation in Bihar.

An article from People’s Archive of Rural India on Feb 20, 2021  reports  that “In 2019, a farmer sold his stock of raw paddy at the rate of Rs. 1,100 per quintal – this was 39 percent less than the MSP (minimum support price) of Rs. 1,815 at that time”.
Another article from December 2020 reports that “Paddy has sold for Rs 900-1,000 a quintal in Bihar, almost half the Rs 1,868 fixed by the Centre as MSP”.

The farm prices at which farmers sell continue to be depressed compared to the MSPs and given that difference has only increased in recent years, weakens the argument forwarded by supporters of the new farm laws which extrapolates deregulation to improved price realization for farmers. Economic theory doesn’t always fall in line with things actually happening on the ground.

A key underlying rationale behind dismantling of the APMCs in Bihar was that it would lead to an increase in the number of buyers in the marketplace. A similar argument is also being made in the case of the new farm laws. However, that is not how things have worked out, in markets across Bihar.

In fact, anecdotal evidence from newsreports emanating from Bihar suggests that sales to private traders are often distress sales since farmers don’t have access to a sizeable pool of local buyers .

A 2019 paper by the National Council of Economic Research makes a similar observation: “Despite the abolition of the Agricultural Produce Market Committee (APMC) Act in 2006, private investment in the creation of new markets and strengthening of facilities in the existing ones did not take place in Bihar, leading to low market density. Further, the participation of government agencies in procurement and the scale of procurement of grains continue to be low. Thus, farmers are left to the mercy of traders who unscrupulously fix lower prices for agricultural produce that they buy from farmers..”

Of course, there are other reasons that push farmers to make these distress sales such as a deficient transport network, poor storage facilities, and lack of capital. All of these are exacerbated for small and marginal farmers who form the bulk of agriculturists in Bihar. Given these harsh conditions, it is unsurprising that farmers are unhappy with the present system.

The disillusionment of the Bihar farmer can also be understood looking at incomes of farmers, because ultimately the proof is in the pudding.

Income of Farmers in Bihar

 Source: Study on Agricultural Diagnostics for the State of Bihar in India, 2019 report by NCAER

                                   
The above chart shows that while the net income of farmers in Bihar rose from 2007 to 2010, nevertheless, it has been declining continuously since 2010, up to the point we have data for. The declining income is explained by a rise in costs of agriculture inputs (seeds, power, labour, fertilizers, cost of finance, etc.) without a commensurate increase in sales revenue. The net income per hectare farmed, has moved alarmingly towards zero.

Government procurement of foodgrains 

Farm prices and farmer incomes are significantly affected by the level of government procurement of foodgrains in Bihar. The Central Government extends price support to paddy and wheat through the Food Corporation of India (FCI) and state procurement agencies across the country.

As per this policy, state governments are supposed to purchase paddy and wheat (conforming to certain specifications) from farmers at the declared MSP. Farmers have the option to sell their produce to private traders if they can get better prices in the open market. The objective of foodgrains procurement by government agencies is to ensure that farmers get remunerative prices for their produce and do not have to resort to distress sale. The central government accepts the responsibility to fund the procurement operations.

The next two tables give a breakdown of foodgrain procurement in the recent few years for major rice and wheat producing states.

State wise FCI Procurement of rice-paddy 
Source: Food Corporation of India.

State wise FCI procurement of wheat

Source: Food Corporation of India.

Procurement of paddy in Bihar is around 20 percent of the state’s total production, and that of wheat is almost negligible (less than 1 percent). Compare this to Punjab and Haryana, where procurement levels for paddy are over 80 percent and that of wheat are over 60 percent. This is primarily because of historical reasons, in order to promote the green revolution in the states.

This is one of the reasons for the disparity of wealth between Bihar and the other states. Since government buys paddy and wheat at MSP rates, low levels of government procurement in Bihar negatively impact the FHP for wheat and paddy, and in the process farmer incomes.

If the government purchased 100 percent (hypothetically speaking) of the paddy grown in the state, the FHP for paddy would more than likely be the same as the MSP. At 2016-17 prices, that would mean the farmer would get Rs 1,510 per quintal instead of Rs 1,147 per quintal for paddy – an increase of around 32 percent or Rs 363 per quintal. This additional revenue would directly pass-through as added income for farmers. This explains why procurement at MSP rates is a pressing demand by farmers during any policy debates on improving farmer incomes.

Low procurement of foodgrains by the state of Bihar can be attributed to two main reasons: a) inadequate funding by the state and b) Poorly functioning PACS.

There are several deficiencies in how PACS operate including restrictive registration requirements which limit who can sell to PACS, limited windows of procurement, sub-optimal timing of procurement, rejection of crop by the PACS due to excessive moisture content, and excessive delays in payment.  In fact, the number of PACS  in Bihar has declined by over 82 percent, from 9,035 in 2015-16 to 1,619 in 2019-20.

While the specific problems of PACS are less relevant to the national debate on the farm bills, they point to an important fact. The success or failure of market deregulation is highly dependent on the alternate systems that emerge in that environment, which will be unique for each state. Hence, the “vocal for local” mantra should also be applied when implementing policy solutions that strengthen federalism over a one solution-fits-all approach.

Conclusions

1) The so-called opening up of the agriculture market in Bihar to private players has not fundamentally altered the state of the Bihari farmer. The data on farm prices and farmer incomes is mixed after dismantling the APMCs. The difference between FHP and MSP for commodities like paddy and maize did decrease after APMCs were abolished, but those gains have reversed since 2015. The lived experience of farmers as reported by ground reports and the data on farmer incomes and prices paint a grim picture.

2) The PACS created by the state government for procuring food-grains have proven to be inefficient and non-responsive to farmer needs.

3) The government procurement at MSP continues to be a key contributing factor in improving FHPs and farmer incomes. This underlines why MSPs continue to be a key issue for farmers protesting the new farm laws.

4) The Bihar experiment is pertinent to the 2020 Farm Laws, but extrapolating the outcomes in Bihar to the current farm law debate needs some nuance. The data can be presented selectively, both by opponents and proponents of the farm laws to further their argument. But based on the analysis presented here, it is clear that deregulating agriculture markets in Bihar, did not cause prices to crash, though the difference with the MSPs has risen in the recent years. Neither did it usher in a wave of private buyers vying for agriculture produce, buoying up farmer incomes and prosperity in its wake.

It must be noted that the total output of an agrarian economy is affected by a host of factors including crop yield (how much crop is produced per unit area), land usage (how much area is used for cropping), cropping patterns (choice of high-value vs low-value agricultural produce), and prices . Of these, only prices are affected by the new law.

The other factors are influenced by variables such as irrigation, power availability, fertilizer usage, seed quality, rainfall, weather events, mechanization, among others. In a 2017 paper on agriculture in Bihar, the authors identify the following factors as drivers of agricultural growth. These are, irrigation, flood protection, energy for agriculture, roads, procurement system and agriculture markets.

While government policy has a role to play in shaping some of these variables, Bihar’s APMC abolishment law in 2006 and the central laws in 2020, are limited to procurement and agriculture markets. Thus, commentary correlating the abolishment of APMCs in 2006 with changes in macroeconomic metrics in Bihar such as total agricultural output or agricultural growth is disingenuous.

PS: Such a detailed data dive takes a lot of time and effort and you won’t see it anywhere in the mainstream media. Given this, our work needs your constant financial support. 

Please support Vivek’s work. 

The Halo Effect of Amit Shah

 

amit shah
When the Bhartiya Janata Party (BJP) won the Lok Sabha elections in May 2014, a lot of credit for its success went to Amit Shah. He was deemed to be a master strategist and a hard worker. A lot was written on how Shah worked round the clock to ensure a BJP victory. Explanations were offered on how Shah picked up winning candidates, engineered local alliances and so on.

The rise of Amit Shah in public consciousness is an excellent example of the halo effect. Author and strategist Michael Mauboussin defines the halo effect as “our proclivity to attach attributes to what has succeeded, solely because of the success.” The media went around looking for reasons behind the success of Amit Shah and found them. As Phil Rosenzweig writes in The Halo Effect…and the Eight Other Business Delusions that Deceive Managers “We want explanations. We want the world around us to make sense…We prefer explanations that are definitive and offer clear implications.”

This tendency to build a halo around those who are successful is not just limited to politics. It’s a very important part of success in business as well. As Jason Zweig writes in The Devil’s Financial Dictionary: “If the price of a company’s stock has gone up strongly, the people who run the company will seem almost superhuman. In early 2000, for instance, with Cisco Systems’ stock up more than 100,000 percent over the previous decade, Fortune magazine called its chief executive, John Chambers, “the world’s greatest CEO.””

If you are the kind who reads business newspapers and magazines regularly, you are unlikely to miss out on profiles of business leaders. These profiles typically look into the background of what makes these leaders so successful, at the time they are successful. These days the profiles of those who run ecommerce firms are very popular in the media. They get the kind of readership that nothing else does (at least in the business media). What none of these profiles seem to talk about is that these businesses are loss-making and are likely to continue to be loss making.

The point being that the media writes good things only up until the going is good. Getting back to Amit Shah, after the success of May 2014, the BJP lost elections first in Delhi, and then more importantly in Bihar. Both these defeats were hugely embarrassing for the party.

And not surprisingly, knives are now out for Shah. Some analysis suggest that he is a Gujarati and doesn’t have a feel of the entire country. This has been offered as one of the explanations for why the BJP lost Bihar. Then there were also some news reports that suggested that Shah will be replaced as the BJP president soon.

The same media that built a halo around Shah is now busy pulling him down. In fact, what is happening to Shah now, also happened to Chambers at Cisco.

After a 100,000 percent increase in price, the stock price of Cisco fell by 80% in a year. As Zweig writes: “A year later with the  stock price down almost 80%, Fortune described Chambers as having dangerously blind to the signs of the coming collapse. The same company run by the same man seemed utterly transformed as soon as its stock price fell.”

Why does this happen?  As Mauboussin told me in an interview a few years back: “The idea is that when things are going well, we attribute that success to skill—there’s a halo effect. Conversely, when things are going poorly we attribute it to poor skill…So the answer is that great success, the kind that lands you on the covers of business magazines [or other magazines], almost always includes a very large dose of luck. And we’re not very good at parsing the sources of success.”

Nevertheless, the media couldn’t have just written that luck played a large role in Shah and BJP’s success in 2014. That would have been boring.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column was first published in the Bangalore Mirror on December 9, 2015

Why it is easier to acquire land in Gujarat & Punjab than Bihar, Kerala & Bengal

land
Land acquisition has been a tricky subject in the country of late. The issue has been discussed threadbare in the media over the last few years. But one point seems to have been missed out on. I came across this rather basic and very interesting point in Sanjoy Chakravorty’s book The Price of Land—Acquisition, Conflict, Consequence.

In this book published in 2013, Chakravorty uses data from the 2005-2006 agriculture census. I will use data from the 2010-2011 agricultural census in this column and make the same points that Chakravorty is making.

The basic point that Chakravorty makes is that it is easier to acquire land in states where the average landholding is larger in comparison to states where the average landholding is smaller. As Chakravorty points out: “In Kerala, where 96 per cent of all landholding are marginal, the average marginal holding size is 0.35 acres [the actual number is around 0.34 acres. The writer seems to have rounded it off to 0.35 acres]. In Bihar, where almost 90 per cent of all holdings are marginal, the average marginal holding size is 0.62 acres.”

How do things look if we were to use data from the 2010-2011 agricultural census? The above paragraph would read like this: “In Kerala, where 96 per cent of all landholding are marginal, the average marginal holding size is 0.33 acres. In Bihar, where almost 91 per cent of all holdings are marginal, the average marginal holding size is 0.61 acres.”

As we can see the numbers haven’t changed much between 2005-2006 and 2010-2011.
Chakravorty further points out: “In both these states [i.e. Bihar and Kerala] the marginal holdings make up little over half of all agricultural land area. In Tamil Nadu, Uttar Pradesh and West Bengal, over 75% of all landholdings are marginal. It may be very difficult to bring these lands to the market.”

In Bihar farmers with marginal landholders own 57% of all agricultural land. In Kerala, the number as of 2010-2011 stands at 58.6%. In Tamil Nadu, Uttar Pradesh and West Bengal, 90%, 79% and 82% of all landholdings are marginal.

What this means is that the moment a large amount of land needs to be acquired for an infrastructure project or setting up a factory or a mine, a large number of landholders need to be dealt with. In many cases, some arm of the government (state or central) wants to acquire land for private businesses. And this is not easy.

Further, many other states like Gujarat, Rajasthan and Punjab have larger average landholdings. As Chakravorty writes: “From the smallest landholders(marginal farmers in Kerala, averaging 0.35 acres per holding) to the largest (50 acres in several states, even larger in some), it is not difficult to see how a price such as Rs 10 lakh per acre can be perceived very differently by different landholders based on the size of their holdings. For example, an average large landowner in Gujarat would be paid more than Rs 4 crore for his land (because the average large landholding size in the state is over 41 acres), whereas the average marginal landowner in Kerala would be paid Rs 3.5 lakh.”

How do things look if we use 2010-2011 agriculture census data? The average large landowner in Gujarat owns around 52 acres. Hence, at Rs 10 lakh per acre he would be paid Rs 5.2 crore. In fact, even if we look at marginal landowner in Gujarat things are much better. The marginal landowner in Gujarat owns around 1.2 acres. At Rs 10 lakh per acre the payment is Rs 12 lakh. In Kerala, the average marginal landowner owns 0.33 acre as per the latest agriculture census, and this amounts to a payment of Rs 3.3 lakh. In Bihar with an average size of 0.61 acres, the payment would be Rs 6.1 lakh.

In fact, Punjab is another state where the average marginal landholding is significantly large. The average size in case of marginal landholding in Punjab is 1.5 acres. At Rs 10 lakh per acre, this would involve a payment of Rs 15 lakh. The average size of a landholding in Punjab is around 9.3 acres. And at Rs 10 lakh per acre, it would involve a payment of Rs 93 lakh.

Given this difference in average landholding size, it is easier to acquire land in parts of the country where average the landholding size is larger because that ultimately leads to higher payments. As Chakravorty writes: “Based on this information on land distribution alone, it is possible to conclude that land acquisition is likely to very difficult in some states; Kerala, Bihar, and West Bengal top this list. It is also likely to be significant challenge in Tamil Nadu and Uttar Pradesh, and to a lesser extent, in Andhra Pradesh and Assam.”

In fact, information is available even at a district and sub-district level. Given this, identifying parts of the country where land fragmentation is lower and hence, land acquisition should be easier. Nevertheless as Chakravorty puts it: “This is not hard to do because the information already exists. Having this information should make the task of identifying land for acquisition easier, but to the best of my knowledge, has never been done.”

This is not surprising given that there was very little resistance to forceful land acquisition carried out by the government up until very recently. But now that is no longer possible, hence, more out of the box solutions need to be looked at.

The column originally appeared on The Daily Reckoning on Dec 8, 2015

Why the Bihar poll matters for stock markets: A BJP win will allow stockbrokers to sell ‘ache din’ again

 


narendra_modi
The assembly elections in the state of Bihar are scheduled to happen across five phases between October 12, 2015, and November 7, 2015. The constituents of the stock market are closely following the run up to these elections like they had followed the run up to the Lok Sabha elections last year.

While the stock market following the Lok Sabha elections is but natural, why is it following the run up to the assembly elections in Bihar? Bihar is the poorest state in India as measured by the per capita income. Data released by the Ministry of Statistics and Programme Implementation shows that for 2014-2015, the per capita income of the state was Rs 36,143. This was the lowest among the states and union-territories, which had declared their per capita income when the data was published in July earlier this year.

During 2013-2014, the per capita income of the state was at Rs 31,199, the lowest among all states and union-territories. The state of Uttar Pradesh came in second from the bottom at Rs 36,250. This when the per capita income of Bihar has grown at greater than 15% in each of the last three financial year’s.

Data from the India Brand Equity Foundation points out that the per capita income of the state is around 43% of the Indian per capita income. The gross domestic product (GDP) of the state is around 3.25% of the Indian GDP, even though the state has more than 8% of India’s population.

The installed power capacity of the state is 2759.8 MW, which is around 1% of the total capacity in India. Over and above this, given the many years of lawlessness and the lack of electricity that the state has faced, it barely has an industry.

Data from the ministry of finance shows that the state has 26 public private partnership projects. This is less than 2% of the 1409 projects all across India. The India Brand Equity Foundation points out that the “total FDI for Bihar and Jharkhand combined during the period from April 2000 to May 2015 stood at US$ 59 million.” On this my guess is that even this miniscule amount would have gone more to Jharkhand than Bihar.

The state barely contributes to the Indian GDP, has virtually no industry and almost no FDI is going into the state. In this scenario why is the stock market worried about Bihar? As Shankar Sharma, Vice Chairman and Managing Director of First Global recently told Business Standard: “Bihar election is important from the context of whether the Modi government still enjoys popular mandate or not.”

And how will that help the stock market? A win in Bihar for the Bhartiya Janata Party(BJP) led coalition will allow the stock brokers to sell the Narendra Modi “ache din aane waale hain” story all over again to foreign investors as well as Indian investors.

As Philip Tetlock and Dan Gardner write in Superforecasting—The Art and Science of Forecasting: “The one undeniable talent that talking heads have is their skill at telling a compelling story with conviction, and that is enough.”

Stock market investors love a good story and Narendra Modi in control is a compelling story that can ‘still’ be sold with some conviction by stock brokers. What works for it is the fact that it has already been sold once between September 2013 and May 2014, in the run up to the last Lok Sabha elections. The BSE Sensex ran up 33% between September 2013 and May 26, 2014, when Narendra Modi was sworn in as the prime minister of the country.

This was purely a sentiment based rally based around a compelling story that was well sold. The stock brokers are hoping to repeat this in the time to come. The trouble is that unlike the last Lok Sabha election this election remains too close to call. Hence, up until now, various opinion polls have swung both ways. Some have suggested that the BJP led alliance will win, whereas others have suggested that Lalu Prasad Yadav + Nitish Kumar + Congress (or the Grand Alliance) will win. Let’s see which way things swing.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on Oct 6, 2015

Why Lalu Yadav had a change of heart towards Nitish Kumar

009_lalu_prasad_yadav

Lalu Prasad Yadav has gulped “poison” but is still alive. As he told reporters yesterday: “I want to assure the secular forces and the people of India that in this battle of Bihar, I am ready to gulp everything. I am ready to consume all types of poison. I am determined to crush the hood of this snake, this cobra of communalism.”

The p-word is essentially a metaphor for Lalu accepting that Nitish Kumar, the current chief minister of Bihar, be projected as the chief ministerial candidate in the assembly elections scheduled in the state later this year. The Rashtriya Janata Dal (RJD) leader had resisted Nitish being projected as the chief ministerial candidate until now.

But with Nitish declaring on June 7 that he no longer wanted an alliance with the RJD for the forthcoming polls, Lalu had no other option but to agree to Nitish being projected as the chief-ministerial candidate.

Mulayam Singh Yadav, the president-designate of the proposed new Janata Party, welcomed this decision of Lalu and said: “I am very happy about the unity of Lalu Prasad and Nitish Kumar. Kumar will be the chief ministerial candidate for Bihar. Laluji has proposed Nitish Kumar’s name for the chief ministership. Laluji said he will campaign.”

Lalu may want us to believe that he drank the poison to crush the cobra of communalism, but that is not really the truth. If Lalu had to continue to stay relevant in the years to come he needed to ally with Nitish. He had no other option.

The electoral numbers of the 2014 Lok Sabha polls give us the answer. Data from the election commission shows that the combine of Bhartiya Janata Party (BJP) and Ram Vilas Paswan’s Lok Janshakti Party (LJP) got 36.36 per cent (BJP = 29.86 per cent + LJP = 6.5 per cent) of the valid votes polled during the Lok Sabha elections last year.

The RJD and the Congress Party which fought the elections together got 20.46 per cent and 8.56 per cent of the valid votes respectively. Nitish’s Janata Dal(United)(JD(U)) which fought the elections separately got 16.04 per cent of the valid votes. Hence, the vote percentage of JD(U) + RJD at 36.5 per cent was slightly more than that of the BJP + LJP at 36.36 per cent. Further, RJD+JD(U)+Congress got more votes than BJP + LJP. Nevertheless, since RJD + Congress and JD(U) were not in alliance, these votes did not translate into Lok Sabha seats.

The RJD won only four seats in the state and its alliance partner the Congress party, won two seats. The JD(U) also won only two seats. The BJP on the other hand won 22 seats whereas its partner LJP won six seats.

As is obvious from the data, the LJP won six seats with 6.5 per cent of the votes polled, whereas the RJD won four seats with 20.46 per cent of the votes polled. This was simply because the LJP got its alliance right.

Obviously Lalu understands this electoral math well enough. And given this, he is ready to let Nitish be projected as the chief-ministerial candidate, his initial reluctance notwithstanding.

Interestingly, in the by-elections that happened for 10 assembly seats in August 2014, the JD(U) came together with the RJD+Congress and took on BJP+LJP. The data from the election commission shows that the RJD+Congress+JD(U) got 45.6 per cent of the total votes polled. The BJP+LJP got 37.9 per cent of the votes polled.

Given that, JD(U) was not fighting the elections separately, the votes polled translated into assembly seats as well, unlike the Lok Sabha polls. The RJD+Congress+JD(U) got six out of the ten Assembly seats. Hence, there is some evidence of the alliance working.

Lalu and Nitish have had an “edgy” relationship for the over four decades that they have known each other. Nitish became the chief minister of Bihar in 2005, after managing to dislodge Lalu, who had ruled directly as well as through proxy (through his wife Rabri) for a period of 15 years and brought the state to the point of an economic collapse.

Ironically, for the first half of his political career, Nitish propped up Lalu, even though he knew that Lalu wasn’t fit to govern. Journalist Sankarshan Thakur put this question to Nitish in his book Single Man: “Why did you promote Lalu Yadav so actively in your early years?” he asked.

And surprisingly, Nitish gave an honest answer. As Thakur writes “‘But where was there ever even the question of promoting Laloo Yadav?’ he mumbled…’We always knew what quality of man he was, utterly unfit to govern, totally lacking vision or focus.'” Given this, what Nitish thinks of Lalu is totally on record.

So why then did Nitish decide to support him? “‘There wasn’t any other choice at that time,’ Nitish countered…’We came from a certain kind of politics. Backward communities had to be given prime space and Laloo belonged to the most powerful section of backwards, politically and numerically.'”

It is now Lalu’s turn to return the favour to Nitish. Also, Lalu knows that with the alliance of three parties, his party will have as many seats in the Bihar assembly as Nitish’s JD(U) or probably even more. This will allow him to extract his pound of flesh on the pretext of allowing the alliance to survive. And that is what he is interested in. Hence, what Lalu has drank is an ‘elixir’ and not poison, as he would like us to believe.

The column originally appeared on DailyO on June 9,2015