An introduction to economy of Bihar

An introduction to economy of Bihar


  • The growth momentum of the Bihar’s economy, experienced in the last decade, was continued in the recent years also. Last year the Central Statistical Organisation has released a new series of GSDP, with 2011-12 as the base year for estimation of both national and state incomes.
  • The new GSDP estimates also utlises some fresh data sources. According to these new estimates, the medium term growth rate for GSDP (2011-12 to 2015-16) in Bihar was 7.6 percent, compared to 6.8 percent for the national economy. Consequently, the Per Capita Income in Bihar was about 35 percent of the national average in 2015-16, compared to about 33 percent a decade ago.
  • This high growth had obviously impacted the poverty scenario in the state and the poverty ratio had fallen from 54.4 percent in 2004-05 to 33.7 percent in 2011-12.
  • When the next round of poverty estimates will be made available, it is almost certain to record even lower incidence of absolute poverty in Bihar.
  • To supplement the gains from the economic growth, the state government has also initiated a number of welfare measures to improve the standard of living of the population.
  • The main development focus of the state government is now around seven resolves (Saat Nischay) which include
  1. welfare of the youth,
  2. women employment,
  3. supply of electricity to all households,
  4. clean drinking water,
  5. road connectivity,
  6. toilet facility
  7. Higher technical education

Resource Management in Bihar Economy

  • The revenue receipts of the state government come from both tax and non-tax sources.
  • The tax revenue consists of its own tax revenues and its share in the divisible pool of taxes and duties of the central government. Similarly, the non-tax revenues consist of the state government’s own non-tax revenue, as well as central grants for plan and non-plan purposes.
  • The own tax revenues of the state government include taxes on property and capital transactions, taxes on commodities and services, and taxes on agricultural income, the second component being by far the most important source.
  • The non-tax revenues of the state government are collected under general, social and economic services. These include interest receipts from loans and advances to various government companies, public sector and quasi-commercial undertakings and other bodies, dividends and profit from them, interest earned on the investment of cash balances of the state government, and receipts from various services classified under general, social and economic services.
  • Economic services contribute more significantly to the non-tax revenues than the other services.
  • The share of central taxes consists mainly of the shares of income tax, union excise duty, customs duty, service tax and wealth tax, which are collected by the central government, but the proceeds of which are shared with the state governments, under recommendations of the Finance Commissions, constituted every five years.
  • The distinction between plan and non-plan expenditure having been removed with effect from the current fiscal, grants from the central government which hitherto were separately given for plan and non-plan purposes will now be mostly at the discretion of the state government to spend on its own priority areas.
  • Further, the direct transfer of funds to the state implementing agencies related to the grants for the centrally sponsored schemes now being a thing of the past, the state government has more flexibility and maneuverability to use the central grants.
  • Coupled with the additional devolution awarded by the Fourteenth Finance Commission, these institutional changes have substantially augmented the resources available with and under the control of the state government.

Expenditure Management in Bihar Economy

  • The expenditure of the state government is classified under three major functional categories General Services, Social Services and Economic Services.
  • Apart from revenue expenditure and capital outlay on these services, the other areas of spending are repayment of loans and advances on the capital account, and grants to local bodies and autonomous institutions.
  • The state government also gives loans for various purposes to its Public Sector Undertakings, Urban Local Bodies, Panchayati Raj Institutions, and to its own employees.
  • It is to be noted that while the repayments of principal amounts of loans are made from the capital account, interest payment is made from the revenue account, under the General Services.

Quality of Expenditure in Bihar

The quality of expenditure can be judged by the proportion of expenditure devoted to the creation of social and physical infrastructure, proportion of developmental expenditure on social and economic services as opposed to the non-developmental expenditure on general services, and the proportion of plan expenditure as opposed to non-plan expenditure. Thus, the important parameters of quality in expenditure are :

  1. Ratio of capital outlay to total expenditure;
  2. Ratio of capital outlay to GSDP;
  3. Proportion of revenue expenditure on social and economic services;
  4. Proportion of non-salary expenditure incurred in these services;
  5. Ratio of plan to non-plan expenditure. The higher these ratios, the better the quality of expenditure would become


  • The state government has enhanced its development expenditure during the last five years and is utilizing 35 percent of its total expenditure on social services. Because of limited resources of the state government, the Per Capita Development Expenditure (PCDE) in Bihar has been low compared to the national average.
  • However, during the last five years, the PCDE of Bihar has grown at 16.4 percent, nearly the same rate (17.1 percent) at which it has grown at all-India level


  • Till March 2016, of the total of 6661 branches of commercial banks in Bihar, 55 percent were located in rural areas, compared to 60 percent in 2011.
  • In comparison with a record of 638 branches opened during 2013-14, the year 2015-16 saw only 364 new branches, with only 44 branches (12 percent) opened in rural areas, 224 branches (62 percent) in semiurban areas, and 96 branches (26 percent) in urban areas.
  • Bihar accounted for only 4.8 percent of all the bank branches in the country in June 2016, though its share in country’s population was about 8.6 percent.


  • The growth of an economy is largely dependent on the growth of its enterprises sector which includes both secondary (industrial) and tertiary (services) activities. This is because, with increase in income, the demand for non-agricultural goods and services keeps on growing. The overall Bihar economy has grown at 7.6 percent, the secondary sector has grown at 8.4 percent and the tertiary sector has recorded an even higher growth rate of 10.4 percent.
  • The mineral resources in Bihar are extremely limited, thus the importance of agro-based industries are relatively more in Bihar. The agro-based industries in Bihar are dominated by cereal-based industries (rice, wheat and maize). The number of food processing industries in Bihar in 2015-16 was 399, of which 266 (66.7 percent) were operational. By August, 2016, there were a few additions, resulting in 407 units, of which 278 (68.3 percent) were operational. No less than two-thirds of the agro-based industries in Bihar are engaged in processing of cereals. The total employment under the Food Processing Industry is 48.4 thousand.
  • The industrial sector in Bihar, as elsewhere in India, is very heterogeneous with industrial units ranging from tiny/small to large. There were 17.07 lakh economic enterprises in the state in 2013, after recording an increase of 39.4 percent over the number in 2005 (12.25 lakh). This increase of about 40 percent over a period of 8 years implies an annual growth of 4-5 percent, which may be considered as at least a modest growth rate. It is heartening to note that this growth in the number of economic enterprises is higher in the rural areas (43.7 percent) than in the urban areas (30.3 percent).


  • Development of the infrastructure sector has been a priority area for the state government and it has enhanced public investment in roads and bridges.
  • The investment in the road sector has increased three fold from Rs 2696 in 2007-08 to Rs 7696 in 2016-17, indicating an annual growth rate of more than 10 percent. In 2015-16, the expenditure on roads constituted 16.4 percent of the expenditure of the state government on economic sectors, 7.7 percent of development expenditure, and 1.5 percent of the GSDP of the state.
  • For inter-state road transportation, the National Highways is an extremely important mode. A total of 40 NHs, measuring 4621 kms were there in Bihar till September, 2016, as compared to 35 NHs (4321 kms) in 2014. A major share (72.4 percent) of the NHs is of double and multiple lane roads.
  • The State Highways (SH) connect the different districts in the state through roads. The total length of the SH in Bihar till September 2016 was 4253 kms. Around 67.8 percent of SH was double-lane roads, 13.5 percent intermediate lane roads, and 18.2 percent single lane roads. The multiple-lane roads constituted only 0.6 percent of the SH.
  • Major District Roads (MDR), mainly connect the villages to the urban centres. There was 11,054 kms of MDR in the state as on September, 2016, with a major portion (54 percent) of it being single-lane roads. Out of the total length of MDR, 5121 kms have been converted into intermediate or double lane roads.
  • The rural roads connect villages to one-another and to the nearest road of higher category (MDR, SH and NH). Till September 2016, rural road network of 60,503 kms have been constructed with an expenditure of Rs 31,589 crore in Bihar.
  • Ghar tak Pakki GaliNaliyaan’ has been included under seven commitments (Saat Nischaya) of the state government.


  • There has been significant improvement in power availability in Bihar from 1712 MW in 2011-12 to 3769 MW in 2016-17, registering a growth about 120 percent in six years. The peak deficit in power has been around 30 percent for several years till 2012-13; by 2015- 16, this deficit was reduced to around 16 percent.
  • Due to increased availability of power from an average of 6-8 hours to 14-16 hours in rural areas and from 10-12 hours to 20-22 hours in urban areas, the per capita consumption in the state has risen from 145 kwh in 2012-13 to 258 kwh in 2015-16, implying a growth of about 78 percent in three years.


  • Between 2004-05 and 2011-12, the poverty ratio in Bihar was reduced by 20.7 percentage points, from 54.4 percent in 2004-05 to 33.7 in 2011-12. It is heartening to note that this reduction in poverty level in Bihar was more than the reduction at all-India level (15.3 percentage points). Further, one may also note that the reduction in the poverty ratio in rural areas of Bihar (21.6 percentage point) was higher than in the urban areas (12.5 percentage points).
  • MGNREGS aims at enhancing livelihood security of rural workers by providing at least one hundred days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work.
  • JEEVIKA is an initiative of the state government to reduce poverty. It has organised 70.98 lakh households into 5.57 lakh Self-Help Groups (SHGs) till October, 2016. It has also formed 32,431 Village Organisations (VO) and 365 Cluster Level Federations.An introduction to economy of Bihar
  • The project emphasises on providing financial support to the SHGs by opening of saving bank account in different banks and ensuring their credit linkage. Till October 2016, 3.03 lakh SHGs have been linked with banks, and they were able to obtain a total loan of Rs. 2113 crore


  • Bihar is the least urbanised state in the country, with an urbanisation level of only 11.3 percent, according to census 2011. The state accounts for 8.6 percent of India’s total population, but it has only 3.1 percent of country’s total urban population.
  • Between 2001 and 2011, the increase in urbanisation was only 0.8 percentage point in Bihar, from 10.5 percent (2001) to 11.3 percent (2011). This slow pace of urbanisation in Bihar is indeed a long term phenomenon. Between 1961 and 2011, a span of half a century, the level of urbanisation in Bihar has increased by only 3.9 percentage point, from 7.4 percent (1961) to 11.3 percent (2011).
  • The Smart City Mission is an urban renewal programme initiated by the central government in June 2015. Three cities in Bihar were recognized for this initiative — Muzaffarpur, Bhagalpur and Biharsharif.
  • The smart city proposal is to be implemented at a cost of Rs. 1309.30 crore, with Rs. 1000 crore shared equally between the state government and central government, Rs. 214.81 crore through convergence with various schemes, and the remaining Rs. 94.49 crore through PPP funding.


  • The revenue surplus of Bihar has increased from Rs 4820 crore in 2011-12 to Rs 12,507 crore in 2015-16, the highest so far, exceeding the budgetary expectations of Rs 14,649 crore. This has allowed the state government to increase its capital spending by more than Rs 5800 crore during the year. This has also allowed the state government to limit its Gross Fiscal Deficit to only 2.9 percent of the new estimate of GSDP (2011-12 series), well within the FRBMA limits. If one uses the old estimate of GSDP (2004-05 series), then the ratio is even lower at 2.4 percent.
  • In 2015-16, the outstanding debt was Rs. 88,829 crore implying a Debt: GSDP ratio of 21.5 percent, well below the limit of 25 percent, specified by the Fourteenth Finance Commission. The ratio of interest payment to revenue receipts was at 9.3 percent in 2011- 12, which got reduced to 8.5 percent in 2015-16, again well below the upper limit of 10 percent, recommended by the Fourteenth Finance Commission. Thus, both conditions having been satisfied in addition to Bihar being a revenue surplus state for years together, the state government is eligible for an additional half percent fiscal deficit over and above its FRBMA target of 3 percent during the current fiscal. The budget estimates in fact indicates the fiscal deficit as 3.4 percent of new estimate of GSDP (2011-12 series). This clearly indicates that the debt problem is well under the control of the state government.
  • The revenue receipts of the state increased by Rs 17,706 crore, of which Rs 16,659 crore (94 percent) came from increases in tax revenues alone. The central grants increased by only Rs 420 crore and non-tax revenues by Rs 628 crore. During the five-year period from 2011-12 to 2015-16, the own tax revenue of the state government grew from Rs 12,612 crore to Rs 25,449 crore, implying a high annual growth rate of 19 percent. The transfers to the state government from the divisible pool of central taxes grew annually at 15 percent, while central grants recorded an annual growth rate of 19 percent.
  • The revenue expenditure in 2015-16 increased by Rs 11,046 crore over that in 2014-15, of which social services accounted for Rs 4230 crore (38 percent), economic services for Rs 5251 crore (48 percent), and the general services for Rs. 4564 crore (14 percent). The state government’s concern for social development is amply reflected in the increased allocation for this sector from Rs. 19,536 crore in 2011-12 to Rs. 38,684 crore in 2015-16.
  • Of the total capital outlay of Rs 23,966 crore in 2015-16, as much as Rs 17,609 crore (73 percent) was spent on economic services, Rs 2740 crore (11 percent) on social services and rest of Rs 3617 crore (15 percent) on general services.
  • The total development expenditure of the state government including capital outlay, stood at Rs 78,077 crore in 2015-16, about 70 percent of the total expenditure, compared to 68 percent in 2014-15. The state government is committed to maintain a high growth rate in development expenditure, both in revenue and capital account.


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