State Finances

Fiscal position of the Bihar Government during 2020-21

The year 2020-21 observed the first wave of the COVID-19 pandemic that severely affected the government’s finances, because of the economic slowdown. The State Government responded to the challenge with the best possible utilization of its fiscal resources and increased expenditure with the appropriate rationalization.

In 2020-21, the Total Receipt of the State Government increased by 7.5% over the previous year to ₹ 1,64,903 crore, out of which the Revenue and Capital account receipt were ₹ 1,28,168 crore and ₹ 36,735 crore, respectively.

The total borrowing of the State Government was ₹35,915 crore in 2020-21, which was 23.2% higher than the previous year.

In 2020-21, the Total Expenditure by the State Government increased by 13.4% over the previous year to ₹ 1,65,696 crore, out of which ₹ 26,203 crore was the capital expenditure and ₹ 1,39,493 crore was revenue expenditure.

On the expenditure side, all the significant components in the revenue account registered an increase as a ratio of GSDP. The Total Expenditure of the State Government as a percentage of GSDP increased from 23.7% in 2019-20 to 26.8% in 2020-21. The capital expenditure as a share of GSDP increased from 3.3% in 2019-20 to 4.2% in 2020-21.

The percentage increase in receipt and expenditure was more in the capital account than in the revenue account of the State Government. The capital expenditure increased by 30.5%, whereas the revenue expenditure increased by 10.7% over the previous year. At the same time, the increase in capital and revenue receipts was 25.9% and 3.2%, respectively.

In the revenue account, the expenditure on General Services increased by 11.1%, from ₹41,628 crore in 2019-20 to ₹46,239 crore in 2020-21. The expenditure on Social Services increased by 10.4% to ₹63,808 crore in 2020-21 from ₹ 57,816 crore in 2019-20. The increase in Economic Services was 10.8 % in 2020-21 over the previous year. It increased from ₹26,571 crore in 2019-20 to ₹29,445 crore in 2020-21. The total expenditure on salary and pension by the State Government was 29.7% of the revenue expenditure and 32.4% of the revenue receipt of the State Government in 2020-21.

In the capital account, the total receipt increased by 25.9% from ₹29,175 crore in 2019-20 to ₹36,735 crore in 2020-21. The total capital expenditure increased by 30.5% to reach ₹26,203 crore in 2020-21 from ₹20,080 crore in 2019-20. The capital outlay increased from ₹12,304 crore in 2019-20 to ₹18,209 crore.

The revenue of the State Government from its own tax and non-tax sources increased from ₹ 33,858 crore in 2019-20 to ₹ 36,543 crore in 2020-21. The gross transfer of resources to Bihar from the Central Government increased from ₹91,654 crore in 2019-20 to ₹ 98,128 crore in 2020-21.

The Gross Fiscal Deficit (GFD) has increased from ₹ 14,724 crore in 2019-20 to ₹ 29,828 crore in 2020-21, and the Primary Deficit (PD) has also increased from the previous year to ₹ 17,344 crore. In 2020-21, the GFD and PD were 4.8% and 2.8% of GSDP, respectively. The State Government has successfully kept the GFD as a percentage of the GSDP within the permissible limit.

In 2020-21, the revenue deficit was 1.8% of the GSDP. The total outstanding liability of the State Government was ₹ 2,27,196 crore in 2020-21. The outstanding debt as a percentage of GSDP was 36.7% of the GSDP in 2020-21. The public debt liability on account of borrowings in the Consolidated Fund accounts for 78.0% of the total liability in 2020-21.

 

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■ Few Definitions:

■ Gross State Domestic Product (GSDP): GSDP is defined as a measure, in monetary terms, of the volume of all final goods and services produced within the boundaries of the State during a given period of time.

■Receipts: The receipts of the government shows different sources from which the government raises revenue. These receipts are of two kinds:

1. Revenue receipts, and 
2. Capital receipts.

■ Revenue receipts (RR) : These are current income receipts from all sources such as taxes, profits of public enterprises, grants, etc. Revenue receipts neither create any liability nor cause any reduction in the assets of the government.  They are therefore termed non-redeemable. They are divided into:

1. Tax revenues, and 
2. Non-Tax revenues.

■ Capital receipts (CR): All those receipts of the government which create liability or reduce

financial assets are termed capital receipts. They also refer to incoming cash flows. Capital receipts can be both Non-Debt creating Capital Receipts (NDCR) and Debt creating Capital Receipts (DCR).

The major sources of capital receipts are:

1. Borrowings ( In case of Central Government  through sale of Treasury Bills, G-Sec etc.; for State Government through State Development Loans (SDLs) )
2. Recovery of Loans ( For Center-  recoveries of loans from State and Union Territory Governments and other parties; For States- Recovery of loans and advances given by states)
3. Loans received from foreign Governments and bodies
4. Money received from sale of assets such as land, and disinvestment

■Expenditure: The expenditure of the government shows funds allocated for the disbursement to the different Ministries and Departments. Government expenditure is classified into two broad categories:

1. Revenue expenditure, and
2. Capital expenditure  

■ Revenue Expenditure (RE): Revenue Expenditure or Expenditure on Revenue Account means the expenditure on current consumption of goods and services and establishment expenditure of a department for activities of non-capital character. Broadly, the expenditure which does not result in creation of physical or financial assets for the government is treated as revenue expenditure.

Revenue expenditure of a department also reflects all charges for maintenance and working expenses of a project, such as, renewals, replacements, improvements, and extensions. Grants-in-aid, subsidies and interest payments are also debitable to the revenue account.

■ Revenue Surplus: This means excess of revenue receipts over revenue expenditure.

i.e. Revenue Surplus = RR - RE

■ Revenue Deficit: This means excess of revenue expenditure over revenue receipts.

i.e. Revenue Deficit = RE - RR

■Capital Expenditure (CE): Capital Expenditure or Expenditure on Capital Account is expenditure incurred with the objective of creating new assets or increasing value of existing assets of a material and permanent character. Broadly, the expenditures of the government which result in creation of physical or financial assets or reduction in financial liabilities, is treated as capital expenditure.

Capital expenditure includes expenditure on the acquisition of land, building, machinery,

equipment, investment in shares, and loans and advances by the central government to state and union territory governments, PSUs and other parties. It also includes investments where the benefits from the investments are available beyond the year.

■ Capital and Revenue Accounts: Capital accounts include those transactions of the State Government which have long term implications. For example, borrowing is a capital receipt, and investment in roads is a capital expenditure. On the other hand, revenue accounts include those transactions that have implications only for the current year. For example, collections under GST (revenue receipt) and payment of salary (revenue expenditure).

■ Fiscal Deficit (FD): It is the difference between the total expenditure of Government by way of revenue, capital and loans net of repayments on the one hand and revenue receipts of Government and capital receipts which are not in the nature of borrowing but which accrue to Government on the other.

Fiscal Deficit = Total expenditure – (Revenue receipts + Non-debt creating Capital Receipts)

In simple terms, the fiscal deficit is the difference between the government’s Total Expenditure (TE) and its Total Receipts (TR) excluding Borrowing.

 

Mathematically this can be written as,  FD = TE - (TR - Borrowing) 

=>  FD = TE - TR + Borrowing

=>  FD = TE - ( RR + CR ) + Borrowing  

=>  FD = TE - ( RR + NDCR + DCR) + Borrowing

=>  FD = TE - ( RR + NDCR + DCR  ) + Borrowing

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=>   FD = TE - ( RR+ NDCR ) 

■ Primary Deficit: The deficit obtained by subtracting Interest Payments from the Fiscal Deficit of the State in a given financial year, is called the Primary deficit. 

The primary deficit corresponds to the net borrowing required to meet expenditure excluding the interest payments. A negative figure for primary deficit would represent primary surplus.

Primary deficit = Fiscal deficit - Interest Payment 

A low Primary deficit is not healthy for the economy as it shows a large amount of Fiscal deficit is for the Interest payment.

A high Primary deficit shows that the Fiscal deficit may be due to structural factors rather than interest payments,

■ Consolidated Fund of Bihar: It means a consolidated fund constituted of all revenues

received by the Government of Bihar, all loans raised by it by the issue of treasury bills,

loans or ways and means advances and all money received by it in the repayment of

loans.

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■ References:

• Bihar Economic Survey 

• Bihar Budget

• India Budget

• Directorate of Economics and Statistics, Government of Bihar

• Economic Survey of India

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■ Extra Links:

• Bihar Economy: An Overview

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