For every Rs 100 Bihar produces, Rs 40 is lost to debt before progress even begins

As the results of the Bihar Assembly elections come in today, the ruling may not only determine which alliance rules the state, but may also determine how the financially stressed economy can sustain the lofty promises that have filled campaign speeches.

Beneath the electoral hype lies Mali’s warning: Bihar is living on borrowed time, quite literally.

The Comptroller and Auditor General (CAG) Report 2022-23 exposes the economic contradictions in Bihar. The country, often cited in political discourse as a model for development, ended the fiscal year with a deficit of 6.01% – nearly double the ceiling proposed by the 15th Finance Commission (3.5%). Its total liabilities reached Rs 2.93 lakh crore, or 39.35% of GDP, with public debt alone accounting for Rs 2.43 lakh crore.

In plain terms, for every Rs 100 that Bihar produces, it owes nearly Rs 40. This level of indebtedness makes Bihar the fifth most indebted state in India, with 99.3% of its capital revenues coming from borrowing.

Importantly, these are not investments in infrastructure or industrial capacity, but rather are used to service previous loans, pensions and salaries.

Bihar’s economic dependence on the Center increases its vulnerability. In 2022-23, the state raised only 37% of its revenues internally through taxes and non-tax sources. The remaining 63% came from central transfers and grants. Despite having the second highest share of tax transmission after Uttar Pradesh, the ratio of private taxes to GDP in Bihar remains small (6%). The performance of property tax, goods and services tax and mining revenues remains weak, limiting the country’s fiscal sovereignty.

Where does the money go? Mostly to keep the engine running. Revenue spending represented 84.7% of total spending, dominated by salaries, pensions, and interest payments. Capital spending – on roads, hospitals and irrigation – amounted to only 15.3%. Social care, education and health combined make up just 23% of the budget, a sharp decline from 30% a decade ago.

Its repercussions are clear on the ground. Bihar’s per capita income is still one-third of the national average. Human development indicators lag behind most Indian states. Nominal growth – 10.4% in 2022-2023 – depends largely on debt, not productivity.

Even as women emerge as a strong electoral bloc, outperforming men in recent elections, the state’s ability to respond to their aspirations is limited by financial constraints. Social welfare plans may win votes, but without the structural reforms needed to expand the tax base, rationalize spending, and boost capital investment, they risk becoming unsustainable.