Bihar’s Quest For Transformation: From Shadows To Startup Spotlight
In a landscape of aspiration and adversity, can Bihar emerge as a powerhouse of innovation and investment despite its deep-rooted challenges?
Bihar is known for producing political minds and UPSC aspirants, with 25 rankers in the top 200 of the 2024 Union Public Service Commission results. It's also the 'Karm Bhoomi' of Buddha and home to ancient universities like Nalanda and Vikramshila.
Still, the state is under progress and lags in infrastructure and development, with basic amenities remaining a challenge.
This is the story of Bihar, a state led by the same Chief Minister for 18 years. A leader who once resigned as Railway Minister over a train accident now governs a state where a company’s CEO had to turn to social media to demand basic amenities like roads, drainage, and lights. But why are people suddenly paying attention to the state’s condition? BW Businessworld investigates to uncover the reason.
Just A Tweet Or Image Of Reality
Chandan Raj, founder of Suresh Semicon, took to social media to express his frustration over neglected infrastructure issues at the local level. He admitted that starting a startup in Bihar was his biggest mistake. The post went viral, gaining public attention and raising questions about accountability. In response, the administration acted, and the resolution process began.
However, the post sparked a debate about the accountability and responsibility of the Bihar government. Some find it surprising that, even in the third decade of the 21st century, a state is still grappling with basic issues like drainage and roads—problems that should have been resolved at the local level—especially when Bihar is working to change its perception.
This is a perception that Bihar’s Industry Minister, Nitish Mishra, has addressed in several media interactions. A key concern for investors is the state's ecosystem, with issues such as lack of trust, law and order, security, and policy paralysis looming large.
The Reality Of Perception?
When political strategist Lee Atwater said that 'perception is reality,' he meant that not all perceptions are false—many are based on some evidence, even if that evidence is sometimes distorted. In the case of Bihar, there are indeed facts that reinforce this perception.
Bihar, an eastern state in India, is the 12th largest by population, with over 10 crore people (2011 census). In FY 2022–23, the state contributed nearly 3 per cent to India's GDP, yet it continues to struggle with issues like lack of infrastructure, ease of doing business, lawlessness, corruption, and concerns about labor unrest.
Out of the 72,663 government schools in Bihar, over 15,000 lack benches and desks, forcing students to sit on the floor. Most of these schools are primary (classes 1 to 5) or middle (classes 6 to 8). Additionally, a troubling trend has emerged in Bihar: as of 17 August 2024, at least 12 bridges have collapsed. Notably, a bridge touted as the '8th wonder of the world' was built in an open field in a village with no roads on either side.
According to Human Development Index (HDI) data calculated by Global Data Lab using the United Nations Development Programme (UNDP) method, Bihar ranked at the bottom among Indian states in 2021. The Census of 2011 revealed that nearly 706,557 people left Bihar for work and employment opportunities.
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In the 2020 ease of doing business rankings, Bihar was positioned 26th. In the latest state startup ranking, Bihar, alongside Haryana, was categorised as an 'Aspiring Leader,' with a percentile ranking between 30-49 in category A states.
Furthermore, a report by the Association of Democratic Reforms (ADR) revealed that 21 out of 40 newly elected Members of Parliament (MPs) in 2024—53 per cent—have criminal records. Of these, 19 MPs—48 per cent—face serious criminal charges such as attempted murder, kidnapping, cheating, and theft. Alarmingly, 68 per cent of elected Members of the Legislative Assembly (MLAs) in Bihar also face criminal charges, underscoring the factors contributing to the state's negative perception.
Bihar’s Achievement: Others Beginning?
Bihar lifted around 7 per cent of its population out of multidimensional poverty between 2019-21 and 2022-23. While this 7per cent decrease is significant, extrapolated data indicates that approximately 26.59 per cent of the population will still be multidimensionally poor in 2022-23.
Additionally, an analysis of other data reveals a 47 per cent decrease in reported rapes and a 70 per cent decrease in dacoity between 2004 and 2019. Despite this progress, lawlessness/perception of lawlessness remains a major concern.
Bihar registered an unemployment rate of 3.9 per cent between July 2022 and June 2023, down from 5.9 per cent in 2021-22, according to the Periodic Labour Force Survey. However, this rate is still higher than the all-India average of 3.2 per cent.
In a recent media interaction, Nitish Mishra discussed the agrarian nature of Bihar’s society and emphasized the importance of the textiles and food processing industries, highlighting the need for investment in these sectors. From April 2023 to March 2024, Bihar exported the following goods: cotton yarn/fabrics/made-ups, handloom products: USD 7.09 million, meat, dairy, and poultry products: USD 199.44 million, ready-made garments: USD 13.80 million, rice: USD 89.77 million and fruits and vegetables: USD 47.15 million.
These exports collectively account for only 17.39 per cent of Bihar’s total exports, with ready-made garments representing a mere 0.67 per cent, underscoring significant challenges in productivity. Notably, while Gujarat leads with USD 134.40 billion in exports, Bihar ranks 20th with USD 2.05 billion (or USD 2053.1 million) in exports during the same period.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), Bihar has 2,786 recognized startups, ranking 13th in India for the number of startups. Patna is listed as the 16th best startup ecosystem in India according to Startup Blink. However, none of these startups have gained significant recognition or expanded their footprint nationally.
Is All Doom For Bihar?
Dilkhush Kumar, founder of RodBez, shared the challenges he faced while seeking funding from venture capitalists (VCs). He noted that many VCs would say, 'Your idea is good, but come out of Bihar, and we will fund you.' Despite this, he emphasised that not all is gloomy for Bihar, citing his company’s success on Shark Tank India, where it secured a deal with the Sharks.
The Bihar government is actively working to foster a supportive environment for startups. In 2016, it established the Bihar Startup Policy to create a transparent ecosystem for entrepreneurship, later amending it in 2017. A trust was set up with an initial fund of Rs 500 crore to implement this policy. To further support youth and entrepreneurs, the government revamped the Bihar Startup Policy in 2022, aiming for broader reach and faster implementation.
Startups will receive a seed fund of Rs 10 lakh, which will be interest-free for 10 years. Additionally, grants of up to Rs 3 lakh will be available for participation in acceleration programs. If investments are made by angel investors, the government will provide a success fee of 2per cent on that investment. There will also be provisions for matching loans from the Startup Fund Trust.
Arvind Jha, founder of Mithila Angels, requested an update on the matching grant policy, stating, “The current matching grant provision is a little stricter, as Bihar’s startups are not receiving funds from outside. Only 2 or 3 startups have secured money from AIFs and are benefiting from the scheme.”
However, under the startup policy, women entrepreneurs will receive an additional 5 per cent benefit, bringing their total to Rs 10.5 lakh instead of Rs 10 lakh. Additionally, Scheduled Castes and Scheduled Tribes will receive an extra 15 per cent benefit.
In December 2023, a significant business event took place in Patna, where the government signed MoUs worth Rs 50,530 crore. Ahead of the Lok Sabha elections, 600 companies participated in this mega event. As reported by the media, work has already commenced on projects worth Rs 36,000 crore.
According to government data, Bihar received investment proposals worth Rs 12,000 crore between 2022 and 2024, a significant increase from Rs 2,500 crore from 2016 to 2022. Major players such as Britannia, PepsiCo, Tata Group, and Medanta are investing in the state.
New industrial areas are being developed across the state, with special economic zones planned in West Champaran and Buxar. Notably, Bihar has created a land bank of 9,438 acres available for industrial use, with 4,766 acre already allocated for projects. The Bihar government still has 3,706 acres available for allocation.
Expressing optimism, Dilkhush emphasizes that Bihar is currently on the right path. Although it may take 10 years to fully realize its potential, he believes that the state's perception will remain unchanged until some startups from Bihar gain national recognition.
Way Ahead
The government plays a crucial role in the ecosystem, and healthy communication is essential. Chandan Raj of Suresh Semicon highlighted the lack of commitment within the bureaucracy but expressed appreciation for the prompt response from Bihar’s Industry Minister, Nitish Mishra. He suggested that the minister implement a single-window arrangement where innovators can raise their concerns, similar to the existing single-window clearance portal in Bihar.
Addressing issues requires acceptance. The Indian Startup Report 2022 outlines several points for states to act on that could drive change, which is also applicable to Bihar. To promote sustainability and equal access, new reform areas have been identified, including institutional support for entrepreneurship and innovation, equitable access to resources, funding, and market incubation, mentorship support, and enabling capacity building.
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