Fund mobilisation a challenge

State has higher dependence on Centre for expenditure commitments

The new government in Bihar would have to face the challenge of improving the state's revenue mobilisation and reordering expenditure priorities.

On the revenue front, Bihar's revenue receipts were projected at 25.3 per cent (Budget estimates) of gross state domestic product (GSDP) in 2014-15. Of this, Bihar's own tax revenue was a mere 6.4 per cent of GSDP, despite a 25 per cent increase in own-tax revenues,which grew from Rs 8,090 crore (2009-10) to Rs 19,961 crore (2013-14).

On this front, Bihar fares more poorly than even the low-income state of Uttar Pradesh, where own-tax revenue stood at 8.3 per cent of GSDP. With only 31 per cent of Bihar's total revenue expenditure being financed through own revenue, dependence on transfers from the Centre to fund expenditure commitments was much greater than most states.

Bihar's non-tax revenue accounted for 0.8 per cent of GSDP - Rs 1,670 crore in 2009-10 to Rs 1,545 crore in 2013-14. The rest of the revenue receipts was made up of current transfers.

With the Centre implementing the suggestions of the 14th Finance Commission, Bihar's share in central taxes would decline. According to a modified formula used by the commission, Bihar's share in central taxes fell from 10.92 per cent to 9.67 per cent. It rose in absolute terms.

This suggested that for the new elected government to significantly ramp up spending on priority areas, at rates higher than in the past, it would have to supplement these transfers by mobilising greater resources.

On the expenditure front, spending on social services as a percentage of total expenditure has declined. Total expenditure on social services rose from Rs 42,795 crore in 2009-10 to Rs 81,154 crore in 2013-14. But, as a percentage of total expenditure, it fell from 33.4 per cent to 32.5 per cent over the period.

All other states had seen a sharp rise in expenditure on social services as a percentage of total expenditure, from 33.9 per cent in 2009-10 to 45.2 per cent. In 2009-10, Bihar was spending roughly the same on social services. It has lagged since. Per-capita expenditure on social services in Bihar stood at Rs 2,423, as opposed to Rs 5,341 for all states.

Expenditure on education accounted for a significant share of expenditure on social services. But, there was a decline here, too. Between 2009-10 and 2013-14, expenditure on education as a percentage of social services declined from 52.7 per cent to 48.37 per cent, although it rose to 54.79 per cent in 2012-13.

As a percentage of total budget, too, expenditure on education declined from 17.63 per cent in 2009-10 to 17 per cent in 2013-14. Expenditure on capital outlay as a percentage of GSDP declined from 4.5 per cent in 2009-10 to 4.1 per cent in 2013-14. It dipped to a low of 3.2 per cent in 2012-13.

Bihar would have to mobilise significantly more resources to ramp up spending in each of these areas to a level that matches the all-India average.

To its credit, the government has been able to bring down its debt outstanding from 26.7 per cent in 2009-10 to 18.7 per cent in 2013-14. Its fiscal deficit, 2.4 per cent of GSDP, is well below the three per cent Fiscal Responsibility and Budget Management limit. This gives considerable fiscal space to ramp up public spending on key areas.