Bihar Elections 2025: Sighting Fearsome Fiscal Dark Clouds
PM Narendra Modi with Bihar CM Nitish Kumar in Patna on Thursday (Image credit Bihar Info Dept)
While freebie politics gains traction in Bihar, reports warn of an escalating stress test reaching alarming proportions.
By P SESH KUMAR
NEW DELHI, September 28, 2025 — Bihar has long been among the more fragile state finances in India: high debt, narrow own revenues, and recurring deficits. The CAG’s State Finances 2025 decadal volume shows Bihar with a revenue surplus in FY 2022-23 (≈₹11,288 crore) amid severe stress on liabilities (debt ~33–39% of GSDP). But that surplus was illusory: the state moved into a catastrophic revenue deficit of ₹35,530 crore (~4.1% of GSDP) in the revised 2023-24 estimates, and now budgets for a marginal revenue surplus in 2024-25 (₹1,121 crore, ~0.1%).
The “surplus state” picture of 2022-23 is already stale; Bihar’s real test is whether it can exit the red, stabilize debt, and resist election-time hydra of giveaways that will further erode fiscal discipline.
The CAG’s Baseline: FY 2022-23 (Decadal Snapshot)
In its decadal publication, the CAG flagged Bihar as among the 16 states that recorded a revenue surplus in FY 2022-23 — a figure of ₹11,288 crore. That was itself a thin margin relative to the scale of its liabilities. The Macro & Fiscal Landscape of the State of Bihar (NITI) shows that Bihar’s debt-to-GSDP ratio in 2022-23 was ~39.6%, a level well above what fiscal prudence would allow.
NITI further notes that Bihar’s contingent liabilities are high relative to median states, and its primary/fiscal deficits in prior years were worse than typical states.
Bihar’s own-tax and non-tax revenues lagged median states; central transfers formed about 75% of its revenue receipts. In short: Bihar’s surplus in FY 2022-23 was in part a mirage—propped up by transfers, operating under a heavy liability load.
The Crash: 2023-24 Revised Estimates
Enter the revised estimates for FY 2023-24: they dump cold water on optimism. Revenue deficit at ₹35,530 crore, ~4.1% of GSDP, is a severe swing from the earlier budgeted surplus. The fiscal deficit ballooned in RE to 8.9% of GSDP, far beyond the permitted norms.
The driver? Expenditure overshooting unaccompanied by receipts matching the pace. In the RE stage, “expenditure estimated at revised stage (22%)” surged, while receipts grew just 1% above BE. The primary deficit (deficit net of interest) tripled, and the pressure on debt servicing mounted.
Another dimension: the GSDP growth print for 2023-24 is exceptional: ~14.47%. That growth cushioned denominator effects but also masked how much the numerator (revenues) fell short of keeping pace with spending. Liabilities also rose: internal debt accounted for ~59.26% of total liabilities, and total liabilities rose ~12.34%.
The contrast is dramatic: a “surplus state” in 2022-23, red ink in 2023-24 RE. One year is enough to overturn narratives.
2024-25 (BE) & Outlook: Recovery or Reversion?
Bihar tentatively aims at a comeback in FY 2024-25. The BE estimates a revenue surplus of ₹1,121 crore (≈0.1% of GSDP) and keeps the fiscal deficit target at 3.0% of GSDP (₹29,095 crore). These targets imply strong faith in correction via slower expenditure or jump in receipts. The receipts (excl. borrowing) are projected at ₹2,27,238 crore, a 5.7% increase over RE 2023-24.
But capital outlay looms large: the BE sees capital outlay ~₹29,416 crore, a cut of ~26% from RE. That suggests the state may prune investment to protect revenue balances.
Yet the 2024-25 BE is built on heroic assumptions: that the drop into red (4.1%) in RE 2023-24 was a one-off, not structural. The state is banking on tightening discretionary expenditure, boosting own revenues, and keeping debt service manageable. But any shock in GST, central transfers, or interest rates could blow the plan off course.
Strengths, Risks & Election Mode Overlays
Strengths & Levers: Bihar’s economy appeared to be showing strong expansion. Its GSDP increased sharply and the state has potential upside from agriculture, inward migration, and infrastructure push (per Economic Survey).
Its low baseline of capital outlay should give it room to re-accelerate without massive incremental borrowing.
Risks & Exposures: The swing from surplus to deep red in one revision suggests high volatility in revenues vs expenditures—a susceptibility to shocks.
Debt burden is heavy: 39.6% of GSDP in 2022-23 is among the highest in India. This gives little buffer for missteps.
Heavy reliance on central transfers means any disruption in GST devolution or cess sharing will squeeze performance.
Investment cuts in capital outlay risk undercutting future growth and revenue base expansion.
Election Mode Compounding
Because Bihar is in election mode, the pressure to announce freebies, sops, and populist transfers will intensify. Already, news reports show that subsidies or cash transfers are being deployed or promised just ahead of polls (e.g. large transfers to women under schemes) as political tools. These will further stress the revenue account unless balanced by corresponding cuts elsewhere or higher borrowing-turning what might be catch-up reforms into structural deficits.
Verdict & Way Forward
The CAG’s decadal snapshot (through 2022-23) presents Bihar as a marginal surplus state -that was factually correct. But that image is already obsolete. The 2023-24 revised estimates show a collapse into deficit, and 2024-25 BE carries only a fragile recovery plan. The surplus of 2022-23 is now a historical footnote, not a foundation.
According to the public financial performance index developed by Arun Jaitley National Institute of Financial Management, which ranks states on 23 parameters across resource mobilization, expenditure quality, deficit management, debt sustainability, and “profligacy” (overspending risk), Bihar is placed in the bottom tier among General Category States. The index highlights three red flags:
Debt Stress: Bihar’s total liabilities were above 39% of GSDP in FY 2022–23, breaching the 33.3% benchmark set by the XV Finance Commission. PFPI confirms this as a structural weakness: the state is heavily dependent on borrowings even to fund revenue expenditure.
Deficit Slippage: Bihar targeted a revenue surplus in FY 2022–23 but actually ended with a revenue deficit of 1.51% of GSDP and a fiscal deficit of 6.01% of GSDP, far above the 3.5% norm. In PFPI’s grading, this positions Bihar in the “high-risk” cluster for deficit management.
Expenditure Quality: The index flags Bihar for low capital outlay relative to GSDP, with development spending repeatedly squeezed to defend revenue outgo. This amplifies the long-term growth penalty already visible in Bihar’s reliance on central transfers (≈75% of revenue).
In sum, AJNIFM’s PFPI independently corroborates what the CAG numbers already revealed: Bihar’s “surplus” year of 2022–23 was a fragile mirage. The index quantifies the weaknesses—excessive debt, poor deficit control, and weak expenditure quality—placing Bihar among the most vulnerable states on fiscal performance.
Prudent prescription — realism over ambition:
- Discipline in expenditure: freeze or tightly rationalise new sops until structural balance is re-established. (highly improbable)
- Boost own revenues: stamp/duty reforms, better GST compliance, user charges. (unlikely to happen)
- Protect capital investment: don’t cannibalise all of it to defend the revenue line.
- Debt management: refinance shocks, reject high-cost debt, and build buffers.
- Transparency & mid-year checks: publish quarterly dashboards so the public sees slippages as they happen.
If Bihar succumbs to election compulsion (every likelihood) before regaining stability, it risks oscillating between surplus illusions and deficit crises. The moment calls for stewardship, not stunt politics.
Bihar may not literally “collapse” fiscally — it will continue to function because the Union government’s transfers keep it afloat. But the state risks sliding into a low-investment, high-deficit trap:
High subsidies and transfers → less room for investment.
Weak investment → slower revenue growth.
Slower revenues → more borrowing for consumption.
More borrowing → higher debt service costs.
(This is an opinion piece, and views expressed are those of the author only)
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