Debt, Deficit and Dependence: What Bihar’s Balance Sheet Says About Its Economy

The weeks leading up to the Bihar assembly election have seen intense political drama across party lines before people cast their vote between November 6-11. Leaders, as part of their campaigns, made audacious promises for a state that has continued to struggle in its economic and fiscal performance over decades.

In the air caught between campaign slogans and the clinking of chai cups, there remains an unseen balance of debt and deficit which may determine Bihar's future. This becomes even clearer as one closely reviews the Comptroller and Auditor General’s (CAG) State Finances Report of 2022-23. It reveals the story of a Bihar that is spending heavily, earning slowly and making less than what it borrows.

The election as a reflection of the balance sheet

On a closer look at the state’s fiscal scenario, Bihar began projecting a revenue surplus for 2022–2023. 

With a fiscal deficit of 6.01% and a revenue deficit of Rs 11,288 crore (1.51% of GSDP), it ended the year with one of the highest deficits in the nation and almost twice the 3.5% cap suggested by the 15th Finance Commission. 

The prudential level of 33.3% was significantly exceeded by the state's total liabilities, which rose to Rs 2.93 lakh crore (39.35% of GSDP). Just its public debt is Rs 2.43 lakh crore, or 32.6% of its gross state domestic product.

In other words, for every Rs 100 Bihar produces, it owes nearly Rs 40 in debt. Bihar was the fifth most indebted state in India, with just 11 states surpassing this debt-to-GDP threshold.

The nature of this borrowing is more concerning. According to the CAG, public debt receipts accounted for 99.33% of capital receipts; in fact, almost all capital receipts were obtained through borrowing rather than disinvestment or loan mopping up. This reaffirms that Bihar does not borrow to invest in new productive assets, but rather to pay its regular debts.

The anatomy of dependence

Bihar's structural weakness is highlighted by the CAG data. The state collects far less money than it spends: In 2022-2023, own taxes and non-tax sources accounted for 37% of total revenue, while grants and devolution brought 63% of the total revenue through the Centre. Bihar's own-fiscal capacity is stagnant even though it receives 10.07% of all tax devolution in India, second only to Uttar Pradesh. 

Property taxes, GST, and non-tax revenue from mining and user fees are all underdeveloped, resulting in an own-revenue-to-GDP ratio of 6% or less, much lower than that of the nation's more financially stable states. 

Most receipts are linked to the Union's performance or the terms of the grants, and an excessive and nearly exclusive reliance on central transfers provides fiscal discipline but deprives the state of autonomy. Bihar is therefore more vulnerable to policy and transfer shocks coming from Delhi because its revenue system functions more as a conduit than a generator.

Where does the money go?

Bihar's growth paradox is reflected in its spending pattern. In 2022-2023, revenue spending, primarily salaries, pensions and interest accounted for 84.7% of total spending, while capital expenditures for infrastructure like hospitals, roads, and irrigation accounted for only 15.3%. 

There wasn't much money left over for growth-oriented spending because nearly 43% of revenue spending was "committed" and 8.6% was spent on subsidies. Ongoing underspending of capital funds, welfare, health and education combined accounted for only 23% of total spending, a substantial decrease from nearly 30% ten years ago.

This disparity is reflected in the data: Bihar's human development indices are lagging and the state's per capita income still falls short by roughly one-third of the national average. The 6.01% fiscal deficit and 39.35% debt-to-GSDP level, despite the nominal growth of 10.4% in 2022-2023, are indicative of growth propelled by debt rather than increased productivity. 

Over the last ten years, revenue surpluses have occasionally surfaced, which indicates structural fiscal stress. The state's ability to make even routine welfare payments is weakened with each relaxation of central transfers or agricultural outputs, leaving little space for autonomous developmental policy.

The rising voice of women in assembly elections

Between 2015-2020, Bihar’s electoral data underscores a notable gender gap in participation that has worked in favour of women: female turnout rose to 60.48% in 2015 compared to 53.32% for men, and although it slightly declined in 2020, women (59.6%) still outvoted men (54.7%). 

This consistent engagement points to the emergence of women as a decisive electoral constituency, capable of overriding the patterns dictated by patriarchal voting norms and caste loyalties. There are several factors contributing to this transformation:

Targeted welfare schemes such as Bicycle Yojana, PDS reforms, and Ujjwala Yojana have tangibly improved women’s social and economic agency, encouraging them to vote independently rather than as an extension of the men in their families.

Political parties, particularly the Janata Dal (United) under Nitish Kumar, have framed women-centric governance narratives, linking gender empowerment to governance credibility. This has strengthened their appeal among women, even as younger urban voters oscillate between alliances.

At the same time, the underlying fiscal numbers will fundamentally determine state-capacity and strategic will in catering to the aspirational needs of women and youth, who hold the key to any party’s victory this election.

Populism on borrowed time

Contesting parties continue to trade positions, perks, and reprieves in anticipation of the 2025 assembly election, but the financial room for populism has suddenly shrunk. Increasingly, Bihar's borrowings are being used to fund consumption rather than production, creating a fiscal treadmill that keeps things moving but lacks momentum.

The CAG notes that nearly 70% of the nation's state borrowings are currently used for pensions and interest payments. This pattern is replicated in Bihar, where debt, not asset sales or recoveries, accounts for 99.3% of capital receipts (Rs 13,654 crore).

This investment continues to yield low development returns. The vertical imbalance that restricts fiscal autonomy serves as support for this stagnation. Bihar collects less than Rs 7,000 internally, despite receiving about Rs 15,900 per person through Union tax devolution; the fiscal base is still externally fixed, accounting for 37% of the state's total revenue. 

Even though they offer stability, central transfers become more dependent on the result of power struggles, urban finances and government reform.

The CAG data shows that even as election commitments increase, fiscal space narrows, fostering populism on borrowed time. Liabilities make the trap even deeper. The current levels of public debt and total liabilities are well above prudential thresholds, at 32.6% and 39.35% of GSDP, respectively.

Bihar is in a low-equilibrium cycle where it continues to borrow money to pay for services rather than to invest and spend fiscal revenue money to maintain rather than to change. Composition of invested growth, not capacity, is the state's challenge. 

The question for any political establishment when elected to power is more about what Bihar spends its money on, not how much it spends. The state will continue to finance consumption at the expense of creation unless there is a structural reorientation, which includes raising capital spending above 20%, rationalising subsidies and wage bills, and expanding own-tax revenue through compliance and base broadening. 

Bihar's fiscal ecosystem, therefore, as it stands today, exemplifies its developmental paradox: a budget which redistributes but does not renew, an economy that is growing but not transforming, and a polity putting off correction in the guise of continuity.

Deepanshu Mohan is associate professor of Economics and director, Centre for New Economics Studies (CNES), Jindal School of Liberal Arts and Humanities, O.P. Jindal Global University. Geetaali Malhotra is a Research Analyst with Centre for New Economics Studies, O.P. Jindal Global University.

The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.