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In Election Year, Bihar Faces Financial Shock

Prachi Salve,
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Bihar, India’s third-most-populous state and one of its poorest, faces financial shock in an election year–with a 42% decline in aid from Delhi and a doubling of debt.


That has not stopped Bihar – a state of 104 million people and an average annual per capita (current) income of Rs 33,954 ($565), a little higher than that of Central African Republic ($547),  from presenting a populist budget with no new or increased taxes, ahead of assembly elections scheduled for the end of 2015.


With more than half of its revenues coming from Delhi, it follows that Bihar will borrow more money to make up its deficits: Public debt is expected to nearly double to Rs 17,708 crore, from Rs 9,046 crore in 2012-13.


Here’s how Bihar will lose money that it once got from the Centre.


Before financial decentralisation, Bihar last year received the second-highest share of union taxes at 10.9%.


After the recommendations of the 14th Finance Commission, Bihar’s share is still the second-highest, but the share is down to 9.7% because of a change in how the money is distributed.


The scrapping of a central programme, the Backward Regions Grant Fund (BRGF), to help backward areas, and other grants, is expected to see money from Delhi decline by 42% to Rs 18,170 crore in 2015-16.


The centre cut direct funding to states but increased their share of federal taxes from 32% to 42%, as we previously reported.


When you’re poor, aid from Delhi matters


Bihar’s top three sources of revenue indicate its dependence on Delhi. 56% of the state’s revenue comes from Delhi–its share of central taxes (41%) and central grants (15%). Only 25% comes from its own taxes.


In contrast, 48% of Odisha’s revenues come from Delhi, 43% for Rajasthan and 46% for Madhya Pradesh–all poor states.


Category 2012-13 Actuals 2013-14 Actuals 2014-15 Budget Estimate 2015-16 Budget Estimate
Revenue Receipts 59567 68919 101939 103189
Tax Revenue (a+b) 48153 54790 67438 81623
(a) State’s share of Central Taxes 31900 34829 41775 50748
(b) State’s Own Taxes 16253 19961 25663 30875
State’s own Non tax Revenue 1135 1545 3082 3396
Grants-in-aid from Central Govt. 10278 12584 31420 18171
Capital Receipts 9579 9922 14743 17725
Recoveries of Loan & Advances 25 15 16 17
Public Debt 9554 9907 14727 17709
Internal Debt of State 9046 9357 12878 14920
Loans and Advances from GOI 508 550 1849 2789
Total Receipts 69145 78841 116683 120914

Source: Bihar Finance Dept., Figs in Rs crore


Revenue receipts, which includes share of central taxes like excise and service tax and state taxes like sales tax and property tax, have increased 73% since 2012-13.


Bihar’s tax revenues are estimated to grow by 20%, from Rs 25,662.9 crore in 2014-15 to Rs 30,875 crore in 2015-16.


Why the backward regions grant was important


Through the BRGF, Delhi paid many bills in 36 of 38 Bihar districts. This is money that Patna will now have to replace.


Although Bihar presented a revenue surplus budget for 2015-16, the state reduced the money it spent on running itself.


Source: Bihar Finance Dept., Figs in Rs crore


The Bihar government has seen a 75% rise in total receipts, from Rs 69,145 crore in 2012-13 to Rs 120,914 crore in 2015-16.  Expenditure rose 74% from Rs 69,206 crore in 2012-13 to Rs 120,685 crore over the same time period.


Revenue expenditure is likely to come down to Rs 91,208.1 crore from Rs 91,765.4 crore (revised estimate of 2014-15).


Slashing funding where it’s needed most


Bihar has produced a surplus revenue budget largely by reducing spending on social services from Rs 43,620 crore budgeted for 2014-15 to Rs 38,080 crore in 2015-16.


The government is expecting to end the financial year 2015-16 with a revenue surplus of Rs 11,980.95 crore.


The government will be spending Rs 10,950 crore, or 19% of the annual plan outlay, on education in 2015-16.  The state has a literacy rate of 63.8%, against the national average of 74%.


Bihar also has poor health indicators. The infant mortality rate, an estimate of infant deaths for every 1,000 live births, is 42 against the national average of 40.


The maternal mortality ratio, women aged 15-49 who die for every 100,000 live births, is 208 in Bihar, against the national average of 167.


Here’s how Bihar will spend its money:


Source: Bihar Finance Dept., in rupees crore


A quick glance at some spending that Bihar plans:


* Rs 368 crore to fund the Chief Minister’s student’s cycle scheme. Each student will get Rs 2,500 to purchase a cycle.


* Rs 171 crore for a nutrition programme for school girls.


* Rs 220 crore for a scholarship scheme for students from class 1 to class 10.


* Rs 1,231 crore for the rural jobs programme, the Mahatma Gandhi National Rural Employment Guarantee Act.


* Rs 1,708 crore to build houses under Indira Awas Yojana.


* Rs 482 crore to self-help groups.


With the central government now proposing to fund only capital expenditure, for programmes such as the Sarva Shiksha Abhiyan, or scheme for universal education, Bihar will have to find money to run these programmes.


Image Credit: ILRI/TS Vamsidhar Reddy



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  1. Mohandaspai Reply

    April 13, 2015 at 10:03 pm

    Misleading article,check up your Data,compare RE14/15 with budget 15/16, the commentary too is misleading.compare borrowing RE 14/15 with BE 15/16 not with earlier year

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