A stark sign of mismanagement of Bihar’s finances by the ruling Janata Dal (United)-Bharatiya Janata Party alliance is found in the exploding debt owed by the state government. According to Budget Estimates presented earlier this year (before the pandemic), the state government’s outstanding liabilities or debt was Rs.1.86 lakh crore. With 7.29 crore voters going to polls in a few days, this works out to Rs.25,461 debt owed by each voter. It is a staggering rise of 71% in the past five years. Data is collated from Reserve Bank of India’s report on State Finances, published last month. (See chart below)
On October 23, addressing a public rally in Bihar, Prime Minister Narendra Modi had proudly asserted that in the past three-four years, the synergy between the Central government led by him and the state government led by Nitish Kumar had resulted in a lot of excellent work being done. As this data on state finances shows, it’s more like the state has been bankrupted in this period.
Note that per voter debt has jumped up by a shocking 71% in the past five years, after steadily increasing over the whole period of JD(U)-BJP rule starting in 2005 (see chart below) and interrupted only for two years (2015-17) when Nitish Kumar switched sides and formed a government with arch rival, Rashtriya Janata Dal (RJD).
With the pandemic striking, state finances will take a nosedive and Bihar’s debt mountain will become even bigger.
Many states in the country have big debts, some even more than Bihar. For the richer states, with higher industrialisation and more significant contribution from the services sector to the state’s economy, this implies mobilisation of resources for the demands of the economy.
But, among the poorer states, such as Bihar and Uttar Pradesh, the exploding debt signifies that the economy is floundering and state governments are relying more and more on borrowings to keep afloat. This is confirmed by the fact that Bihar has not seen any notable increase in industrial capacity in these years, nor has its infrastructure showed any improvement.
One of the main reasons for the increasing debt of states is the increased control and regimentation imposed by the Modi government on financial support to them. The imposition of goods and services tax or GST in 2017 was a body blow to states’ capacity to raise their own resources through taxation. This was sought to be compensated by the GST cess but that too has become an instrument of squeezing state governments.
On the recommendation of the 12th Finance Commission (implemented in 2005), states were allowed to increase their borrowings by issuing State Development Loans (SDL) up to 3.5% of the state’s GSDP (gross domestic state product). Their borrowings from other sources, like the National Small Savings Fund or NSSF, were curtailed. Increasingly, state governments resort to raising funds by issuing SDLs. Bihar’s debt in 2020 includes about Rs.1 lakh crore raised through SDLs, that is, 54% of its debt is through this means.
How does this affect the people of Bihar? If the state government owes such huge amounts of money to financial institutions, like banks and insurance companies, it weighs on the state’s ability to undertake social welfare spending, and loads the future with repayment issues. Ultimately, it is the people of Bihar who will have to pay back this debt.
Despite the tall claims made by PM Modi and CM Nitish Kumar about Bihar’s future development, the fact that their “double-engine” has led the state into this abyss of debt, shows how hollow their claims are and how deceptive the promises they make.
In the absence of any concrete plan to boost investment, build infrastructure, increase employment and generate demand by increasing wages and paying farmers more, the claim of JD(U)-BJP to bring prosperity to this poverty- stricken state is unlikely to be fulfilled.