Bihar Budget: Projection Of Sharp Fall In Fiscal Deficit Unrealistic, Says India Ratings

The state of Bihar is projecting a sharply lower fiscal deficit and a revenue surplus in FY23, according to a budget analysis by India Ratings & Research. However, the state's projections seem ambitious and the revenue account is likely to stay in deficit while the fiscal gap will likely be higher than projected, the rating agency said.

In its recently presented state budget for FY23, Bihar has projected a fiscal deficit of 3.47% of gross state domestic product. It has projected a revenue surplus of 0.64% of GSDP. This compares to a fiscal deficit of 11.3% as per the revised estimates of FY22 and a revenue deficit of 5.5%.

"India Ratings and Research (Ind-Ra) expects Bihar's revenue account to be in a deficit of around Rs 90,000 crore in FY23, 1.2% of gross state domestic product," wrote Paras Jain and Sunil Kumar Sinha, in a note dated March 8. "The agency expects the fiscal deficit to come in at Rs 38,000 crore (5.18% of GSDP).

The state's budget projections, India Ratings said, was based on unrealistic forecasts for receipts.

The state has projected nominal GSDP growth of 9.69%, which the rating agency sees as reasonable. However, the state is budgeting for 18.08% growth in own tax revenue in FY23. "Assuming a nominal GSDP growth rate of 9.0% in FY23, India Ratings expects Bihar’s own tax revenue growth to come in at 14.28%."

The state has also estimated 21.9% growth in its share in central taxes over the revised estimates of FY22. This appears to be an overestimate, India Ratings said.

Commenting on the mix of expenditure, India Ratings pointed out that Bihar will see a fall in revenue expenditure on a high base and reasonable levels of capital spending.

"Revenue expenditure in FY23 is budgeted to fall 6.96% over revised estimates for FY22. The average revenue expenditure growth of Bihar during FY16-FY20 had been 11.5%," India Ratings said. Non-interest revenue expenditure, which generates demand in the economy, is budgeted to grow at negative 8.42% in FY23.

"The expenditure growth assumed in the FY23 budget looks plausible on a high base of FY22 revised estimates."

Capex was the focus area for many states in FY22, which is a positive factor from the perspective of long-term economic growth.

Bihar saw a capex increase of 24.6% to Rs 40,000 crore in FY22, according to the revised estimates. "However, the data made available by the Comptroller and Auditor General shows that Bihar has undertaken capex of Rs 15,686 crore during April-January 2022. This means, to achieve the FY22 revised estimate of capex, the state will have to spend Rs 24,374 crore during February-March 2022, which looks unlikely."

For FY23, Bihar is budgeting for capex of Rs 31,064 crore. "India Ratings believes that the capex target for FY23 is reasonable, given the expected shortfall in implementing the revised estimate of FY22."