Bihar witnessing high growth amid rising fiscal stress: CAG report

Experts find these anomalies worrying and indicate the need for a comprehensive review of the state’s budget preparation process.

The state finances audit report of Bihar for the financial year 2022-23, which was tabled in the assembly on Thursday, highlighted the challenges of the rising fiscal stress in the state despite its growing gross state domestic product (GSDP) at 15.55% over the last year.

Black clouds hover over the Bihar assembly in Patna. (Santosh Kumar/ HT Photo)

The fiscal deficit, the gap between the total expenditure and total non-debt receipt of the state government, is reported to have increased from 2.62% of GSDP in 2018-19 to 5.97% of GSDP in 2022-23.

Experts view it as a warning signal, as it means that that the fiscal deficit of 5.97% in 2022-23 was much higher than the limit of 4% as prescribed by the Bihar Fiscal Responsibility and Budget Management (FRBM) Act. The higher fiscal deficit violates the state’s regulatory commitments and poses a risk for debt stabilisation.

The report also highlights that the public debt-GSDP ratio of Bihar has increased from 23.89% in 2018-19 to 32.32% in 2022-23, indicating a risk in debt stabilisation.

The overall debt of the state government was 39.03% in 2022-23 against the limit of 40.80%. Public finance experts believe that such a high fiscal deficit, which does not comply with the legislative limit set by the state government FRBM Act, is an act of budgetary indiscipline with severe long-term fiscal consequences.

The audit report also reveals a significant rise in the subsidies provided by the state government. It has increased from 6.66% of revenue expenditure in 2018-19 to 8.06% in 2022-23. This increase has seen the subsidy rise from ₹8,323.97 crore to ₹14,827.79 crore during the same period. Notably, power subsidies make up 82.43% of the total subsidies, adding significantly to the financial burden.

Public finance experts say that the substantial increase in subsidies is a major concern that needs immediate attention as the state has limited sources of revenue generation. In 2022-23, the state government’s off-budget borrowings amounted to ₹686.77 crore, a figure not reflected in the consolidated fund but must be repaid and serviced through the budget.

Additionally, the state government has exceeded the outstanding guarantee limit of 0.5% of GSDP by the FRBM review committee report, reaching 3.45% of GSDP in 2022-23. The Bihar government provided guarantees to its entities without the beneficiaries paying fees, a clear violation of the Indian Government Accounting Standard-1 (IGAS-1).

Experts find these anomalies worrying and indicate the need for a comprehensive review of the state’s budget preparation process. The audit report points out that during 2022-23, there were unnecessary supplementary provisions of ₹18,491.79 crore, as the actual expenditure did not reach the level of the original provisions.

The report further says that for financial year 2022-23, the total budget of the State was ₹3,01,686.46 crore, but it could spend only ₹2,35,176.84 crore (77.95% of the total budget). The State surrendered ₹20,526.71 crore (30.86%) of the total savings of ₹66,509.62 crore, a trend also witnessed in the past.

The latest audit report also reiterates the findings of previous reports that the Utilisation Certificates has again not been submitted within the specified period. The Accountant General, Bihar did not receive the UCs worth ₹87,947 crore till March 31, 2023.