Politics of Economics: Deindustrialization of Bihar and Industrialization of Gujarat

The contrasting economic trajectories of Bihar and Gujarat provide one of the most striking case studies in India’s political economy. While Bihar was once a hub of industries such as sugar, jute, mining, and textiles during the colonial and immediate post-independence years, it gradually slipped into a phase of deindustrialization. Gujarat, on the other hand, leveraged its geography, political choices, and business networks to emerge as an industrial powerhouse. Understanding this divergence requires unpacking history, politics, governance, and the politics of economic narratives.

Bihar: From Industrial Base to Deindustrialization

Colonial and Post-Independence Legacy

Bihar had a strong industrial presence in mining, steel (Jamshedpur, Bokaro—later in Jharkhand), sugar mills, and small-scale agro-processing.

Post-independence, many public sector undertakings and cooperative sugar mills created employment, but lacked modernization.

Structural Decline

With the creation of Jharkhand in 2000, Bihar lost its mineral-rich belt—iron ore, coal, and other resources—that had fed its industries.

The remaining industrial base, particularly sugar and small-scale industries, suffered from neglect, lack of capital infusion, outdated technology, and poor infrastructure.

Political Economy Factors

The rise of caste-based politics in the 1990s shifted governance priorities toward distributive populism rather than industrial reforms.

Frequent changes in industrial policies, weak law-and-order environment, and perceptions of bureaucratic corruption deterred private investment.

Bihar increasingly became dependent on remittances from migrant workers, especially to Punjab, Delhi, and Mumbai, creating a cycle of out-migration rather than industrial growth.

Outcome

Bihar’s economy tilted heavily toward agriculture and services, with low manufacturing share. Its political discourse emphasized social justice, but economic justice through industrial growth was neglected, leading to long-term underdevelopment.

Gujarat: The March of Industrialization

Colonial Roots and Post-Independence Advantage

Gujarat’s history as a trading and entrepreneurial community created strong mercantile networks.

Ports like Kandla and later Mundra gave Gujarat a natural advantage in export-oriented industries.

The state invested early in textiles, petrochemicals, and pharmaceuticals, supported by both public sector (ONGC, IPCL) and private enterprises.

Liberalization and Political Stability

Post-1991 liberalization policies meshed well with Gujarat’s pro-business environment.

Stable political leadership from the mid-1990s, particularly under BJP governments, emphasized industrial policy reforms, SEZs, and infrastructure-led growth.

The “Vibrant Gujarat” summits institutionalized a business-friendly narrative, attracting both domestic and foreign investors.

Strategic Choices

Heavy investment in infrastructure—roads, power generation, and port connectivity—enabled an industrial corridor stretching from Ahmedabad to Surat to Vadodara.

Special economic policies promoted chemicals, textiles, automotive, and more recently, renewable energy.

Political leadership actively branded Gujarat as the “growth model,” integrating industrialization with political legitimacy.

Outcome

Gujarat became one of India’s most industrialized states, with high per-capita income, strong SME clusters, and global export orientation. The success also fed into its political narrative at the national level, influencing India’s broader development discourse.

 Politics of Divergence

1. Governance vs. Resource Endowment

Bihar had abundant natural resources but weak governance. Gujarat had fewer minerals but stronger governance and entrepreneurship.

This shows that political stability, institutions, and business climate matter more than mere resource availability.

2. Narratives of Development

In Bihar, politics focused on redistribution and caste empowerment, sidelining industrial modernization.

In Gujarat, politics intertwined with industrial expansion, where growth became part of political legitimacy.

3. Migration and Dependency

Bihar exported its labor, fueling growth in other states. Gujarat attracted industries, fueling in-migration of labor.

This labor dynamic deepened inequality between the two states.

4. Critical Question

While Gujarat’s industrialization created wealth, it also faced criticisms of uneven development, environmental stress, and regional disparities (Saurashtra, tribal areas).

Bihar’s deindustrialization highlighted the dangers of ignoring infrastructure and governance, but it also raised the question: did social justice politics have to come at the cost of industrial growth, or could both have coexisted?

The political economy of Bihar’s deindustrialization and Gujarat’s industrialization is not merely an economic story—it is a story of political choices. Gujarat’s rise shows how political leadership can harness industrialization as a legitimacy project, while Bihar demonstrates how political neglect of industries can lock a state into stagnation. The challenge for India is to ensure that both growth and justice coexist, so no state remains trapped in cycles of poverty while others surge ahead. 

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