Bihar Budget Analysis 2023-2024 | BPSC Preparation: All subjects - BPSC (Bihar) PDF Download

Bihar Budget Analysis 2023-24

The annual budget for Bihar for the fiscal year 2023-24 was unveiled by Mr. Vijay Kumar Choudhary, the Finance Minister of the state, on February 28, 2023. This financial plan outlines the allocation of funds and priorities for the upcoming year.

Budget Highlights

The key points from the Bihar Budget 2023-24 are as follows:

• Education Sector: Significant focus and increased allocation towards improving the quality of education, building new schools, and enhancing educational infrastructure. This includes initiatives to enhance digital education tools and teacher training programs.
• Healthcare: Enhanced funding for healthcare services to strengthen the healthcare system, improve facilities, and ensure better access to quality healthcare for all citizens. This involves upgrading hospitals, clinics, and healthcare centers.
• Infrastructure Development: Emphasis on infrastructure projects aimed at boosting connectivity, such as road construction, bridge development, and enhancing public transportation networks. This includes initiatives to improve rural connectivity and urban infrastructure.
• Agriculture Sector: Support measures for farmers including subsidies, agricultural modernization programs, and irrigation facilities. The budget focuses on increasing agricultural productivity and farmer welfare through various schemes and incentives.
• Employment Generation: Schemes and programs to promote job creation, skill development, and entrepreneurship opportunities, especially for the youth. This includes initiatives to boost employment in both rural and urban areas.
• Financial Sector: Measures to strengthen the state's financial health, manage fiscal deficits, and promote financial inclusion. This involves strategies to enhance revenue generation, manage expenditures efficiently, and ensure transparency in financial transactions.

Policy Highlights

• Agriculture: Several initiatives are planned to be introduced, including (i) the Bihar Millet Mission, (ii) the Bihar Pulses and Oilseeds Development Mission, and (iii) the Crop Diversification Mission. The Fourth Agriculture Roadmap will be executed with an emphasis on pulses and oilseeds. Additionally, the infrastructure of state agricultural market yards will be upgraded.
• Groundwater Conservation: A center of excellence will be established to focus on groundwater conservation.
• Government Recruitment: Requests have been submitted to the Bihar Public Service Commission, Staff Selection Commission, and Technical Service Commission to fill a total of 63,900 positions. Approval has also been granted for the creation of 75,543 positions within the police force.

Bihar’s Economy

• GSDP: Bihar's Gross State Domestic Product (GSDP) is projected to increase by 11% in 2021-22 at constant prices, recovering from a 3.2% contraction in 2020-21. In comparison, India's national GDP is expected to grow at a slower pace of 9.1% in 2021-22, following a 5.8% contraction in the previous year, based on the first revised estimate and the second revised estimate released on February 28, 2023.
• Sectors: For the year 2021-22, the agriculture, manufacturing, and services sectors are anticipated to contribute 26%, 15%, and 59% to Bihar's economy, respectively (at current prices).
• Unemployment: According to the Periodic Labour Force Survey (July 2021-June 2022), Bihar's unemployment rate stands at 6%, which is higher than the national unemployment rate of 4.1%. Among individuals aged 15-29, the unemployment rate in Bihar is 20.1%, significantly higher than the national rate of 12.4%.

Note: These numbers are as per constant prices (2011-12) which implies that the growth rate is adjusted for inflation.
Sources: Bihar Economic Survey 2022-23; PRS.

Budget Estimates for 2023-24

• Expenditure and Receipts for 2023-24: The targeted expenditure for 2023-24, excluding debt repayment, is Rs 2,38,327 crore, marking a 12% decrease from the revised estimate of 2022-23. This expenditure will be funded through receipts (excluding borrowings) of Rs 2,12,759 crore and net borrowing of Rs 25,768 crore. The total receipts (excluding borrowings) for 2023-24 are projected to increase by 6% over the revised estimate for 2022-23.
• Revenue and Fiscal Deficit: For 2023-24, Bihar is projected to have a revenue surplus of Rs 4,479 crore, which is 0.5% of GSDP. This is in contrast to the revenue deficit of Rs 28,349 crore (3.6% of GSDP) expected for 2022-23. The fiscal deficit for 2023-24 is estimated at 3% of GSDP, within the central government’s permitted limit of 3.5% of GSDP as per the Union Budget 2023-24, with an additional 0.5% contingent on power sector reforms.
• Revised Estimates for 2022-23: The revised estimates for 2022-23 anticipate a 21% increase in expenditure (excluding debt repayment) over the budget estimate, while receipts (excluding borrowings) are expected to be only 2% higher than the budget estimate. This discrepancy is likely to result in a significantly higher revenue and fiscal deficit than initially budgeted. The fiscal deficit for 2022-23 is expected to be 8.8% of GSDP according to revised estimates, exceeding the permitted limit of 4% of GSDP. As a result, the actual expenditure for 2022-23 may be substantially lower than the revised estimate.

Credibility of Revised Estimates: Revised estimates are intended to provide a realistic financial picture based on 9-10 months of actual data. However, in Bihar, these estimates often prove to be unrealistic, leading to fiscal deficit projections that exceed permitted limits. For 2020-21, 2021-22, and 2022-23, the revised estimates projected fiscal deficits of 6.8%, 11.3%, and 8.8% of GSDP, respectively. In reality, the fiscal deficits were 4.8% and 3.8% of GSDP for 2020-21 and 2021-22. The revised expenditure estimate for 2021-22 was 18% higher than the budget estimate, but the actual expenditure was 12% lower than budgeted.

Table  1: Budget 2023-24 - Key figures (in Rs. crore)

Expenditure in 2023-24

• Revenue Expenditure for 2023-24: The proposed revenue expenditure for 2023-24 is Rs 2,07,848 crore, which represents a 9% decrease from the revised estimate of 2022-23. This expenditure encompasses salaries, pensions, interest payments, grants, and subsidies. The revenue expenditure for 2022-23 is estimated to be 19% higher than the budget estimate.
• Capital Outlay for 2023-24: The proposed capital outlay for 2023-24 is Rs 29,257 crore, marking a 26% decrease from the revised estimate of 2022-23. Capital outlay reflects the expenditure on asset creation. The revised estimate for capital outlay in 2022-23 is expected to be 33% higher than the budget estimate.

Table  2:  Expenditure budget 2023-24 (in Rs. crore)

Committed Expenditure: Committed expenditure encompasses a state's spending on salaries, pensions, and interest payments. In 2023-24, Bihar is projected to allocate Rs. 78,910 crore to committed expenditure, which accounts for 37% of its revenue receipts. This includes spending on salaries (15% of revenue receipts), pensions (14%), and interest payments (9%). In 2022-23, states on average allocated 54% of their revenue receipts to committed expenditure items. Bihar's lower committed expenditure is primarily attributed to reduced spending on salaries. In 2023-24, pension and interest payments are expected to increase by 16% and 13%, respectively, over the previous year, while salary expenditure is anticipated to rise by 4%.

Table  3: Committed Expenditure in 2023-24 (in Rs. crore)

Table  4: Sector-wise expenditure under Bihar Budget 2023-24 (in Rs. crore)

Receipts in 2023-24

• Total Revenue Receipts: For 2023-24, Bihar's total revenue receipts are projected to be Rs 2,12,327 crore, marking a 6% increase from the revised estimate of 2022-23. Out of this, Rs 56,212 crore (26%) will be generated by the state through its own resources, while Rs 1,56,115 crore (74%) will be sourced from the centre. The central resources will be comprised of the state's share in central taxes (49% of revenue receipts) and grants (25% of revenue receipts).
• State’s Own Tax Revenue: Bihar’s own tax revenue for 2023-24 is estimated at Rs 49,700 crore, reflecting a 20% increase from the revised estimates of 2022-23. This own tax revenue is expected to be 5.8% of the GSDP in 2023-24. For 2022-23, the state had initially estimated this ratio at 5.6%, but the revised estimates indicate it will be lower at 5.2%.
• Transfers from Centre: In 2023-24, Bihar's share of central taxes is estimated at Rs 1,02,737 crore, representing an 8% increase over the revised estimate of 2022-23. Receipts in the form of grants from the centre are estimated at Rs 53,378 crore for 2023-24, which is an 8% decrease from the previous year. A significant reason for the reduced grants is the discontinuation of GST compensation grants since June 2022.

Table  5: Break-up of the state government’s receipts (in Rs. crore)

• State GST (SGST): In 2023-24, SGST is expected to be the largest source of Bihar's own tax revenue, contributing 63% of the total. The SGST revenue is projected to grow by 26% over the revised estimate for 2022-23.
• Tax Revenue Trends: For 2022-23, there is no anticipated change in revenue from any tax sources when compared to the budget estimates. A similar trend was noted in the 2022-23 Budget, where the revised estimates for revenue from own tax sources in 2021-22 matched the budget estimates. However, the actual revenue from these sources in 2021-22, as presented in the 2023-24 Budget, significantly differed from these estimates (refer to Table 8 in Annexure II).

Impact of Prohibition on Government Finances: Bihar implemented a prohibition on alcohol in 2016, which was a primary source of state excise duty revenue. Between 2012-13 and 2015-16, revenue from state excise duty ranged between 0.8%-1% of GSDP. In 2015-16, the state earned Rs 3,142 crore from state excise duty, which dropped to Rs 30 crore in 2016-17 and has since become negligible. In comparison, in 2022-23, states on average budgeted revenue of about 1% of GSDP from state excise duty.

Table  6:  Major sources of state’s own-tax revenue (in Rs. crore)

Deficits, Debt, and FRBM Targets for 2023-24

• Bihar Fiscal Responsibility and Budget Management Act, 2006: This act mandates annual targets to progressively reduce the state's outstanding liabilities, revenue deficit, and fiscal deficit.
• Revenue Surplus: Revenue surplus is the difference between revenue receipts and revenue expenditure. A revenue surplus indicates that the government’s revenue is sufficient to cover expenses without increasing assets or reducing liabilities. For 2023-24, the budget estimates a revenue surplus of Rs 4,479 crore (0.5% of GSDP). In 2022-23, the revised estimate indicates a revenue deficit of Rs 28,349 crore (3.6% of GSDP), contrary to the budgeted target of a revenue surplus of Rs 4,748 crore (0.6% of GSDP). The state had a revenue deficit of Rs 422 crore (0.1% of GSDP) in 2021-22.
• Losses and Liabilities of State Discoms: Bihar’s power distribution is managed by two state-owned companies, SBPDCL and NBPDCL, which have faced significant losses, affecting government finances. Between 2017-18 and 2020-21, these companies accumulated losses of Rs 9,100 crore. Their AT&C losses were 35.3% in 2020-21, compared to the national average of 22.3%. High AT&C losses could be due to theft, inefficient infrastructure, and billing issues. The installation of pre-paid meters is being undertaken to mitigate these problems.
• Fiscal Deficit: Fiscal deficit is the excess of total expenditure over total receipts, covered by government borrowings, which increases total liabilities. For 2023-24, the fiscal deficit is estimated to be 3% of GSDP, within the 3.5% limit set by the central government (with an additional 0.5% of GSDP available upon implementing power sector reforms). The revised estimate for 2022-23 indicates a fiscal deficit of 8.8% of GSDP, far exceeding the budget estimate of 3.5% and the 4% limit set by the central government (0.5% of GSDP available for power sector reforms). This suggests an overestimate. In 2021-22, the revised estimate was a fiscal deficit of 11.3% of GSDP, but the actual fiscal deficit was 3.8% of GSDP, within the 4.5% limit allowed.
• Outstanding Liabilities: Outstanding liabilities reflect the total borrowings at the end of a financial year, including public account liabilities. By the end of 2023-24, these liabilities are expected to be 37.8% of GSDP. They have increased in recent years due to higher borrowing to fund expenditures in 2020-21 and 2021-22. It is anticipated that outstanding liabilities will decrease to 37% of GSDP by the end of 2025-26.

• Outstanding Government Guarantees: Outstanding liabilities do not cover some contingent liabilities, such as government guarantees for borrowings by State Public Sector Enterprises (SPSEs) from financial institutions. As of the end of 2021-22, the outstanding guarantees are estimated to be 3.7% of GSDP, up from 2.7% of GSDP at the end of 2020-21. This increase reflects a growing contingent liability that the state may need to honor under certain circumstances.

Annexure 1:  Comparison of states’ expenditure on key sectors

 The graphs below compare Bihar’s expenditure in 2023-24 on six key sectors as a proportion of its total expenditure on all sectors.   The average for a sector indicates the average expenditure in that sector by 31 states (including Bihar) as per their budget estimates of 2022-23.

• Education: Bihar has allocated 17.9% of its total expenditure to education, surpassing the average allocation of 14.8% by states for 2022-23.
• Health: Bihar's allocation for health is 7% of its total expenditure, which is higher than the average of 6.3% by other states.
• Agriculture: Bihar has earmarked 3.3% of its expenditure for agriculture, notably lower than the average of 5.8% by states.
• Rural Development: Bihar is allocating 10.7% of its budget to rural development, significantly above the average allocation of 5.7% by states.
• Police: Bihar's expenditure on police is 4.9% of its total, which exceeds the average of 4.3% by states.
• Roads and Bridges: Bihar has allocated 4% of its expenditure to roads and bridges, slightly below the average of 4.5% by states.

Annexure 2:  Comparison of 2021-22 Budget Estimates and Actuals

The following tables compare the actuals of 2021-22 with budget estimates for that year.

Table  7: Overview of Receipts and Expenditure (in Rs. crore)

Table  8 : Key Components of State's Own Tax Revenue (in Rs. crore)

Sources: Bihar Budget Documents of various years; PRS.

Table  9: Allocation towards Key Sectors (in Rs. crore)