The battle has been won, but the war is yet to begin. Indeed, the newly-installed Bihar government faces a Herculean task of reviving an economy that symbolises poverty, backwardness and gross underdevelopment. What's more, new chief minister Nitish Kumar meets the biggest ever challenge to improve the law and order situation and build confidence among investors.

Yes, the man at the helms needs to start from the scratch -- whether it is literacy rate (47.5%) or households with access to safe drinking water (59%), Bihar's social and infrastructure indicators are so low than the national average that it's worth comparing them with that of Bangladesh -- one of the poorest and least developed nations in the world. For the record, Bangladesh's literacy rate (41%) is marginally lower than that of Bihar, but its 75% households get safe drinking water in comparison to Bihar's 59%.

The growth of Bihar's gross state domestic product (GSDP) is abysmally low in comparison to India's GDP growth rate at over 6% which along with China's growth have drawn attention from the global community. According to estimates, the state's growth rate averaged just over 3.5% from 1994-95 to 2001-02.

 Arguably, what has made Nitish Kumar's task even more difficult is the lack of basic infrastructure, which is indispensable for long term investments in the state. According to a recent World Bank study, power supply is not only poor and irregular, but its high unit costs are a major deterrent to any potential investor. Further, the state's road penetration with 77 km of road per 100 sq km is much less than 169 km in Orissa and 118 km in Tamil Nadu. Also, Bihar's telephone density with 0.93 phones per 100 persons is four times lower than the national average.

So, how should the new chief minister begin his innings then? Rajiv Kumar, CII's chief economist, feels that priority should be given to re-establish the rule of law and bring back the confidence of potential investors. "The new government should instil confidence among investors by establishing a good law and order situation. But what's equally important for a long-term growth in the state is to have a good rural infrastructure. Here, the Centre needs to invest a lot. Irrigation needs to be improved so as to enhance productivity and output in agriculture," he says.

Rajiv has a pulse on the problem. The new government has no other option but to seriously consider the potential in the agriculture sector. After losing most of its industry and mining to Jharkhand, agriculture contributes nearly 40% to the state domestic product. Significantly, the state's industrial sector contributes just 12% of the GSDP compared to the national average of 27%.

 However, initial indications from the government suggest that the new establishment is likely to woo investments in IT and other service sectors as the first step to shore up the economy. Shahnawaz Hussain, senior BJP leader from the state, explains a possible plan of action of the new government. "Once the law and order situation improves, we will establish a few information technology hubs in the state. We agree better roads and power scenario are a must. But that will need long-term investment and also more time. By then, we can have at least three IT hubs, one each near the Bagdogra, Patna and Gaya airports," Hussain says.

The government may try to woo Bihari software professionals back to the state and facilitate their IT work in Kishanganj belt (near Bagdogra airport), Patna and Gaya-Magadh belt. "It's ironical that in the last few years, rich people have fled away from the state and shifted their base to places like Jaipur, Bangalore, etc. The new government needs to get them back. Also, there are a lot of Bihari software engineers working in IT companies outside the state. If we create a good environment, many of them may come back to their home state," Hussain adds.

Patna-based social worker Gopi Gopalakrishnan feels a sound delivery mechanism coupled with total utilisation of Central fund, is the key to Bihar's possible economic turnaround. "Improving law and order situation is just one part of the challenge. Central resources need to be utilised fully. It's a historical opportunity for the new government, and everything will be clear in the next three months," Gopalakrishnan adds.

 In fact, a recent World Bank study shows that Central government's Plan assistance to Bihar has grown more slowly, which is now about half of that of Andhra Pradesh and two-thirds of Karnataka. In fact, Bihar, Andhra Pradesh and Karnataka received more or less the same amount of fund from the Centre during the sixth plan (1980-85), but Bihar's receipt grew much slower.

Who can be blamed for such a dichotomy? In fact, Bihar's low Plan expenditure is due to poor utilisation of central assistance. Under-utilisation of Central fund has taken place because of the state government's inability to manage the matching amount from state revenue. But in certain cases, the state's loss is huge. For instance, out of the Rs 250 cr allocated under Accelerated Irrigation Benefits Programme (AIBP) during 2001-2003, only Rs 18 cr was released. In fact, the state didn't spend Rs 1,570 cr out of a total of Rs 7,700 cr.

Should the then NDA government be blamed for lowering grants to Lalu Prasad's government? In fact, such fatalities are much beyond petty politics, and the new government has to look beyond adopting easy fiscal formula. Says a Congress leader, who extensively visited the state during polls: "The new government has to depend heavily on the Central government or other international agencies. People may talk about a turnaround of the state's economy. But at the end of the day, funds are to come regularly and be utilised fully."

 Over and above, the normal course of Central fund, Bihar gets a special package because of its backward stature. In fact, the state is entitled to Rs 7,976 cr of special purpose conditional grants for its health and education sectors and maintenance of roads and public buildings, among others during the period 2005-10.

Nitish Kumar's major challenges include improving financial health of the state. Estimates have shown that regarding GSDP, post-bifurcation expenditures surged from about 20% to 28%, while revenues rose marginally from 16% to 20% of GSDP. It remains to be seen whether JD(U)-BJP combo brings about any major financial miracles.

However, nothing seems easy for the new chief minister. Soon after JD(U) registered a victory, Assocham said in its Eco Pulse Study how Nitish faced a gigantic task of lifting the third most populous state from the 14th position in terms of GSDP amounting to Rs 35,667 crore and improving the literacy rate, which was at the lowest rung among states.

 The study further says that Bihar has not been able to attract any investment in the manufacturing sector which has a negligible share in the state's GDP, as it contributed only Rs 1,617 crore for year 2003-04. The total size of manufacturing industry in Bihar is far less than even the turnover of single medium-sized enterprise, the Assocham study says.

Industry sources suggest that improving the law and order situation is a must, but the new government needs to show that it means business. Bihar still suffers from several bottlenecks -- leasing out of property, for example, is still prohibited in the state.