Bihar’s Economic Dilemma: Growth Without Transformation

Paromita Das

New Delhi, 12th  November: Bihar stands at a crossroads, a state bustling with political promises and electoral enthusiasm, yet grappling with deep-rooted fiscal and structural challenges. Behind the rhetoric of growth and development lies a sobering reality: Bihar’s economic progress is ensnared in a cycle where debt fuels expenditure rather than investment—an imbalance that threatens to stall the state’s ambitions for genuine transformation.

The Fiscal Reality: A Treadmill of Debt and Dependence

For every hundred rupees that Bihar produces, nearly forty are owed in debt, a staggering ratio signaling not just financial fragility but systemic stagnation. The state’s revenue streams remain heavily reliant on central transfers, which dominate its fiscal receipts. Tax and non-tax revenues generated within the state barely constitute one-third of total income, leaving Bihar with limited fiscal autonomy. This dependence on borrowing funds recurrent expenditures such as salaries, pensions, and interest payments, rather than infrastructure or productive assets. In essence, Bihar is caught in a fiscal treadmill—running fast to merely stay in place.

Structural Challenges Undermining Growth

A significant factor undermining Bihar’s fiscal health is its predominantly informal economy and underdeveloped industrial base, which constricts the state’s tax collection capabilities. This results in a revenue model that functions mostly as a pass-through channel for central resources rather than a generator of wealth. Consequently, any tightening of central fiscal transfers risks shrinking Bihar’s policy space and welfare commitments.

Socio-Political Dimensions of Fiscal Dependence

Bihar’s welfare schemes and subsidies, notably those targeting women, have made commendable social progress, reflected in higher female voter turnout surpassing men in recent elections. Yet, this empowerment rests on precarious financial foundations. Without robust economic growth to sustain these initiatives, any fiscal shock or political change at the center threatens reversal of these gains.

The Urgent Need for Fiscal Muscle

The true challenge for Bihar is to build fiscal strength, enabling political promises to be grounded in productivity rather than borrowing. This calls for strategic reforms: increasing capital expenditure beyond 20% of total spending, rationalizing subsidies, expanding the tax base through compliance improvement, and fostering economic diversification.

Political Courage for Long-Term Transformation

Achieving this shift demands political will to eschew short-term populism that offers immediate but unsustainable relief, in favor of slow but steady institution-building and economic renewal. Bihar’s predicament, while severe, is instructive—highlighting how democracy without fiscal discipline devolves into a theatre of empty promises propped up by debt.

Breaking the Cycle of Borrowed Prosperity

Unless Bihar redefines growth through productivity and structural reforms, it risks remaining locked in a vicious cycle—a consumption-driven economy that redistributes rather than creates wealth. Breaking free from this borrowed prosperity is essential not only for economic health but to ensure that political power translates into genuine, sustainable progress for Bihar’s people.