State Finances in Bihar: Revenue Dependence, Expenditure Priorities, and Fiscal Sustainability

Abstract

This paper examines the fiscal architecture of Bihar, one of India's most fiscally constrained states, through the lens of revenue composition, expenditure priorities, and sustainability indicators. Drawing on Bihar's Budget 2026-27, Economic Survey 2025-26, CAG audit reports, and NITI Aayog's fiscal analysis, the study finds that Bihar's own tax and non-tax revenues have persistently contributed only about one-fourth of total revenue receipts over the past two decades, with central transfers making up the remaining three-fourths. Although own tax revenue relative to GSDP has gradually risen to around 6.2 percent, non-tax revenue remains stubbornly stagnant at 0.6 to 0.7 percent of GSDP. Bihar's revenue balance has also weakened visibly, with its revenue receipts-to-expenditure ratio declining from 1.1 in 2019-20 to 0.9 in 2025-26. Debt outstanding stands at roughly 38.9 percent of GSDP, and the fiscal deficit reached 9.2 percent of GSDP in 2024-25, nearly double the national average. On the expenditure side, committed liabilities such as pensions, interest payments, and debt servicing are steadily crowding out discretionary development spending, which has remained stagnant at roughly two-thirds of total expenditure. The paper concludes that Bihar's fiscal challenge is fundamentally structural, requiring sustained reforms in own-revenue mobilisation, expenditure rationalisation, and reduced dependence on intergovernmental transfers.