Can High Social Spends Save Bihar: The 2012 Budget

Bihar’s citizens may be lagging their cousins in many other states but the state’s balance sheet is in good order.

IndiaSpend’s Dhritiman Gupta takes a close look at Bihar’s Budget figures for 2012-13 and finds that the state’s social sector spends are rising sharply even as its overall debt is in better shape than similarly sized states.The question thus is: will a strong balance sheet help Bihar better prepare for its future?

Bihar has grown at 11.5% for the past few years peaking at 14.8% in 2010-11. Given a population of 103 million, the state’s financial performance assumes considerable importance from the national perspective. Though on the other hand, 90% of Bihar’s population is dependent on agriculture, which may explain a lot of things, both good and bad.

Bihar’s Financials

Let’s take a closer look at Bihar’s financials: First, for 2011-12, the state went over budget by Rs 5,511 crore. Hence Revenue Surplus was only Rs 691 crore instead of the budgeted Rs 6,272 crore. This was account of unanticipated expenditure in departments like agriculture, energy, education, welfare of backward classes and nutrition. The good thing is that the state did not overspend on pensions and interest payments unlike states like Maharashtra where pensions are rocketing.

Now, a closer look shows that the lion’s share of expenditure is on Social Services-mostly on education. In 2011-12, the expenditure on education, sports, arts and culture was Rs 11,834 crore; an increase of 46%. It is budgeted to go up to Rs 15,087 crore in 2012-13 a rise of 27%. In fact, Bihar spends much more on education and culture than West Bengal, which spent Rs 4,367 crore in 2011-12.

Let’s look at Revenue Expenditure of the state from 2010-11 to 2012-13.

Bihar's Revenue Expenditure From 2010-11 To 2012-13

Source: Bihar Budget 2012-13

Even though there was no overspending on Pensions and Salaries, they have been growing at high rates. Payments on pensions grew 19% in 2011-12 and budgeted to grow by 32% in 2012-13. Similarly for Salaries, this grew by 25% in 2011-12 and is budgeted to grow by 13% in 2012-13.

Expenditure on Salaries & Pensions

Let’s compare expenditure on Salary and Pensions with Maharashtra and Bengal

Expenditure On Salaries & Pensions

(Figures in Rs Crore)

Source: Bihar Budget 2012-13, Maharashtra Budget 2012-13, West Bengal Budget 2012-13

Bihar pays much less on Salaries than both Maharashtra and West Bengal. However, surprisingly, as far as pensions are concerned the figures for West Bengal and Bihar are very close.

The table illustrates the fact that as against Bihar, Bengal has been overspent on Salaries in 2011-12 by Rs 2,016 crore. As far as Pensions is concerned both Maharashtra and West Bengal have overspent by Rs 943 crore and Rs 1,506 crore respectively.

Now let’s look at the Revenue Receipt side:

Revenue Receipts Of Bihar From 2010-11 To 2012-13

(Figures in Rs Crore)

Source: Bihar Budget 2012-13

The Total Receipts were marginally less at Rs 56,135 crore than the budgeted Rs 56,205 crore in 2011-12. This was on account poor Non-Tax revenue. However the Tax Revenue collections were better than expected, growing 22%.

Lack of Industrialisation

So the finances seem to be in order. However, Bihar continues to be one of the most under industrialised states in the country. 90% of the population is still in the agricultural sector.

Even though the state GDP has been growing at double digit rates, per-capita (person) income is still very low. In 2006-07, the per-capita income in Bihar (Rs 10,055) was 32.2 %of the all-India average (Rs 31,198); however, in 2009-10, this ratio increased to 34.7 % (Rs 16, 119 for Bihar and Rs 46,492 for India).

The literacy rate of 63.82 % is also below the national average of 74.04%.The sex-ratio of 916 is also poor compared to the national average of 940. The corresponding figures for Maharashtra and West Bengal are far better.

Social Indicators Of Bihar

Source: Census 2011 (Maharashtra), Census 2011 (West Bengal), Census 2011 (Bihar)

Hence besides industrialising and growing fast, Bihar has to make sustained investments in the social sectors (which it is doing), if it has to move up the ladder. This makes the task very challenging. But the prospects look bright.