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Bihar's economic growth causing labour shortages, higher wage bills in other parts of India by Ravi Teja Sharma

Bihar's recent economic growth has created a peculiar problem for real estate and infrastructure firms in other parts of the country. 

Migrant labour from the state constitutes around 50% of the unskilled workers employed in these sectors nationally, but increased government expenditure and private investment has caused rural migration from Bihar to fall by a third in recent years, resulting in labour shortages and 35-50% higher wage bills for real estate firms. 

"There is a huge shortage of labour and that is leading to higher cost of construction as well as project delays," says Ajay Chandra, managing director of Unitech, one of the country's top three real estate companies. The company has a number of projects under development simultaneously and Chandra and his team have had to juggle labour between these projects. 

For many years, Bihar had trailed the rest of the country in terms of growth while some other states such as Maharashtra, Gujarat, Tamil Nadu and even neighbouring Uttar Pradesh became hotspots for investments. 

But since the Nitish Kumar government assumed power in 2005, the economy has rebounded and government expenditure has gone up substantially. Deputy Chief Minister Sushil Modi says Bihar's economy grew by 14% in 2010-11, the fastest among all the states in the country. 

Migration from Bihar down 30% 

The budget plan expenditure for Bihar this year is Rs 24,000 crore, up from Rs 18,000 crore last year. This is being spent on building roads, hospitals, and schools. Construction is seeing a 20% year-on-year growth in the state and minimum wages are also being implemented strictly," says Modi. 

But while this bodes well for people in the state who are finding employment avenues at home, it has slowed down the influx of labour to big cities such as Delhi and Mumbai. 

According to a study by the Bihar Institute of Economic Studies, migration of labour from Bihar in the past few years is down 25-30%. Instead of entire families migrating to cities to find jobs, only a few members are moving to cities while the rest are finding jobs in Bihar, either in state government projects or in NREGA schemes, says the study. 

"The government is making huge expenditure," says Pyare Lal, director of the institute. He adds that while there is still a long way to go for the state in terms of development, massive expenditure along with the Centre's National Rural Economic Guarantee Act (NREGA) programme, that guarantees 100 days' employment in a year to every adult member of a rural family, has certainly reduced the pace of migration. 

Modi says he has received calls from various states asking him for help as workers who went back to their villages in Bihar on holiday were not coming back. "With people finding jobs in their home state, migration of labour is down. 

Developers are facing the brunt as projects are getting delayed," says Geetambar Anand, vice-president of the Confederation of Real Estate Developers Association of India, and the managing director of ATS Infrastructure, the builder of high-end homes. 

In the National Capital Region, or NCR, delays in real estate projects have gone up from 8.9 months to about 12.8 months in the past two years, according to property research firm PropEquity. "While labour shortage is not the only reason for delays, it is a significant issue for developers today," says Samir Jasuja, chief executive officer of PropEquity. Some industry leaders welcome this development. 

"There is certainly a shortage of labour as employment levels in rural India have gone up. This is good news for the country. It means the country is developing," says Adi Godrej, chairman of Godrej Properties. 

Economist Bibek Debroy, who has studied states and their economies extensively, says that when a relatively backward economy starts to grow, the initial push is usually in construction and real estate and that is what is happening is Bihar as well. He also attributed reduced migration to the NREGA programme.