Bihar fiscal deficit within limits, but liabilities grow

Even though Bihar has maintained its fiscal deficit below 3.50%, as prescribed under the Fiscal responsibility and Budget Management Act, the budget 2022-23 estimates the outstanding liability of the state government to be whopping ₹2,37,126.69 crore.

Even though Bihar has maintained its fiscal deficit below 3.50%, as prescribed under the Fiscal responsibility and Budget Management Act, the budget 2022-23 estimates the outstanding liability of the state government to be whopping ₹2,37,126.69 crore.

Bihar deputy chief minister Tarkishore Prasad addresses a press conference after presenting the state Budget in Patna on Monday. (Santosh Kumar/HT Photo)

The audited figure of the total outstanding loan of the state government was ₹2,27,195.49 crore at the end of 2020-21, which was 36.73% of the GSDP (gross state domestic product). The borrowings further increased during 2021-22 and are expected to reach around 39% of GSDP. The actual figures will be available at the end of this financial year. These figures are closer to the level of the limit of 40.8% figure of the debt outstanding as a percentage of GSDP set by the fiscal responsibility legislation.

Additional chief secretary (finance) S Siddharth said Bihar’s fiscal deficit, at 3.47%, is below 3.50% and within manageable limits. “Bihar is among the best financially managed states despite severe odds in the last couple of years. Several states have performed worse than Bihar on fiscal management front, like Punjab, Rajasthan, West Bengal etc. As the budget size increases, so does the borrowing limit and we adhere to the prescribed norms,” he said.

According to the recent Reserve Bank of India (RBI) report on state finances, Punjab was at the top of the ladder with the highest debt to GSDP ratio at 49% in financial year 2021, followed by Rajasthan (42.6%), West Bengal (38.8%) and Kerala (38.3%), with the aggregate debt of all states reaching 31.3% of the GDP in 2020-2021.

Though expenditure in Bihar at a maximum revolves around 80-85% of the Budget estimates, Siddharth said the state was trying to maintain fiscal discipline and increase in the borrowings was also within the prescribed limits.

According to Sudhanshu Kumar, economist and associate professor at Patna-based Centre for Economic Policy and Public Finance (CEPPF), the recent trend in the country suggests that the state governments have been borrowing almost as much as the central government allows them to borrow. “However, the limit on the amount borrowed is a function of the GSDP. Therefore, developed states can borrow more than the less developed states. On the other hand, the interest payment liability increases due to increased outstanding debt. In budget accounting, the interest liability is part of the revenue expenditure. Since the interest rates are expected to go up in the coming year, the interest payment liabilities could further increase. The immediate impact will be that it reduces the availability of fiscal resources for public services. The level of deficit and then debt is unavoidable, and therefore the challenge is to expand the fiscal space to support the increased level of expenditure,” he said.