Where Do Bihar's Fiscal Priorities Lie And How Its Election Year Budget Compares To The Budgets Of Similar States

The last budget before the 2025 Bihar assembly election is out. Deputy Chief Minister Samrat Chaudhary presented the budget amid an uproar from the opposition.

More than the budget, it was Chief Minister Nitish Kumar’s body language that was highlighted in the local media. Objective economic analyses of the budget remained largely absent.

Here are some key figures from the budget and how they compare to the corresponding metrics in other states.

Gross State Domestic Product (GSDP)

According to the government of Bihar, the state’s GSDP at current prices is projected to be Rs 10.97 lakh crore, which is 12.40 per cent more than last year’s projection of Rs 9.76 lakh crore.

This puts Bihar’s contribution to India’s GDP at less than 3 per cent, which itself has only been possible because the state has registered a double-digit growth rate (base effect), barring a few hiccups, in the last 20 years.

According to Census 2011, Bihar is the second-most populous state in India, after Uttar Pradesh. A population of more than 13.07 crore is spread over an area that ranks twelfth in the country, making Bihar the most densely populated state, at 1,102 persons per square kilometre (sq km).

In terms of population, Uttar Pradesh, Maharashtra, West Bengal, and Madhya Pradesh are close to Bihar. With respective GSDP estimates of Rs 25.48 lakh crore, Rs 42.67 lakh crore (2024-25), Rs 18.15 lakh crore, and Rs 15.22 lakh crore in 2024-25, these states have a wider financial bandwidth to distribute among their populations.

Whereas densely packed Bihar contributes less than 3 per cent to the national gross domestic product (GDP), states like Odisha, Gujarat, and Telangana, with far lower population densities, outperform Bihar on multiple parameters.

And then there are states whose economic might has left Bihar miles behind. For instance, Maharashtra, Tamil Nadu, and Gujarat, again, with far lower population densities, generate GDPs that are 4.7, 3.2, and 2.8 times that of Bihar, respectively.

Bihar’s challenges stem from its combination of extreme population pressure and underdeveloped economic infrastructure, which strains resources like land, water, and public services without the corresponding wealth creation.

While it is praiseworthy that its economy has surpassed that of smaller states like Odisha and Punjab in absolute terms, its per capita income (less than Rs 70,000) remains among the lowest in India.

Budget and GSDP Ratio

Bihar’s estimated expenditure is approximately Rs 3.17 lakh crore, which is 28.9 per cent of its GSDP.

Among the states with a comparable population, Uttar Pradesh’s estimated expenditure is approximately Rs 8.08 lakh crore, which is 26.26 per cent of its 2025-26 GSDP. It is the only state with a population higher than Bihar's.

Maharashtra follows Bihar in population terms. Although Maharashtra's budget for 2025-26 is yet to be announced, in 2024-25, its estimated expenditure was around Rs 6.12 lakh crore, accounting for 14.35 per cent of its GSDP (2024-25).

West Bengal has an estimated expenditure of Rs 3.89 lakh crore, making up 19.15 per cent of its GSDP. Madhya Pradesh’s estimated expenditure stands at Rs 3.26 lakh crore, which is 21.42 per cent of its GSDP (2024-25).

Capital Expenditure/GSDP

The Bihar government has allocated Rs 64,984 crore for capital expenditure (capex) in 2025-26, a significant 22.49 per cent increase from the previous year in absolute numbers.

This year’s capex is 20.48 per cent of the total budget of Rs 3.17 lakh crore and 5.92 per cent of Rs 10.97 lakh crore, the state's projected GSDP.

At 5.92 per cent of its GSDP, Bihar’s capex not only surpasses the national average of about 4-5 per cent of GDP, but also far exceeds the average capital-to-GSDP ratio for Indian states, which stands at less than 3 per cent.

These figures indicate the state government’s heightened focus on infrastructure development, which is a critical driver of long-term economic growth and a key agent of job and asset creation. In relative terms, Bihar looks like one of the few outliers among the Indian states.

However, this commendable effort is tempered by the state’s projected revenue expenditure of Rs 2.52 lakh crore, or 79.52 per cent of the total budget and 23 per cent of GSDP. According to the latest estimates, this figure is way higher than the national average. In the fiscal year 2024-25, states have budgeted their revenue expenditure at 14.6 per cent of GSDP, up from 13.6 per cent in 2023-24.

The significant divergence from the norm indicates Bihar’s chronic dependence on recurrent expenditures, which continue to yield diminishing returns but also keep mounting pressure on its ability to scale up productive investments.

A closer examination of Bihar’s fiscal composition reveals the source of this rigidity. In the financial year 2024-25, salaries alone accounted for 18 per cent of the state’s total revenue receipts, pensions made up 14 per cent, and interest payments 9 per cent — together consuming 41 per cent of all revenue inflows before any developmental spending could be considered.

In the wake of the Bihar Public Service Commission (BPSC) recruiting teachers in lakhs — again, with diminishing returns for at least half a decade — the expenditure is only set to rise.

Such a skewed distribution leaves limited scope for developmental expenditure, despite the state’s relatively low annual debt repayment burden compared to counterparts like West Bengal.

While the marginal decline in revenue expenditure as a share of the budget — from 80.97 per cent in 2024-25 to 79.52 per cent in 2025-26 — suggests a tentative shift towards capital outlays, it remains inadequate to meaningfully alter Bihar’s fiscal trajectory.

However, this subtle shift does signal a relative prioritisation of capex, in line with the central government’s broader push for states to enhance infrastructure spending — it gives interest-free loans to states for capital outlay — as a means of stimulating economic growth.

The question is that of its sustainability in the long run. Revenue expenditure in absolute numbers is only going to rise, and until more private investments kick in for capex, this is only going to remain a short blip in a state that has been facing a policy paralysis for a long time.

Bihar Vs Other States

A comparison with other states with similar population figures would be apt here. Uttar Pradesh is the only state in India with a larger population than Bihar's. With an estimated GSDP of Rs 30.77 lakh crore, the Yogi Adityanath government has earmarked Rs 1.66 lakh crore — 20.5 per cent of its budget worth Rs 8.08 lakh crore — for capex. The sum amounts to 5.38 per cent of its GSDP.

Although in absolute terms, Bihar’s capex as a proportion of GSDP is marginally higher, Uttar Pradesh leaves Bihar behind when it comes to absolute outlay. Both states, with their similar market rates of raw materials for infrastructure, are able to undertake more ambitious infrastructure projects with greater ease.

Uttar Pradesh’s capex is directed towards large-scale projects like expressways, industrial corridors, and urban infrastructure, which tend to have a multiplier effect on revenue, job creation, and the economy as a whole.

Its revenue expenditure — 79.5 per cent of its latest budget — does mirror Bihar's, but once again, the difference in the size of the economy places it above Bihar.

Then there is also the factor of Uttar Pradesh’s budget-population ratio not being comparable to that of Bihar. While its population is nearly 53 per cent more than Bihar’s, Uttar Pradesh’s budget for 2025-26 is 155 per cent more than that of its smaller neighbour.

The picture becomes clearer when we compare revenue expenditure as a percentage of GSDP. Uttar Pradesh spends 20.88 per cent of its GSDP on revenue expenditure, while the corresponding figure for Bihar is 23 per cent. The larger economic base spread over a less dense area of 829 persons per sq km, compared to Bihar’s 1,102 persons per sq km, helps the state allocate a lower proportion of its GSDP to revenue expenditure — offering greater fiscal flexibility for capital investments.

On the contrary, Bihar’s relatively small revenue base, lower private investment, and constrained revenue generation capacity limit the scalability of its infrastructure initiatives, despite the higher proportional allocation in relative terms.

Maharashtra, India’s wealthiest state, is yet to release its budget for 2025-26. However, its 2024-25 data also provides some crucial comparative insights for Bihar.

With a GSDP of Rs 42.67 lakh crore, Maharashtra allocated Rs 1.42 lakh crore — 21.28 per cent of its budget — to capex, equivalent to 3.34 per cent of its GSDP — 2.34 per cent less than that of Bihar.

In Maharashtra’s case, such a number is interpreted as a sign of a healthier economy, which relies on less government support.

The western state’s economic strength allows for sustained infrastructure expansion through private investment rather than direct state expenditure.

Its strength is buttressed by the fact that the state spends 77.6 per cent of its budget and 12.17 per cent of its GSDP on revenue expenditure. While the revenue expenditure-to-budget ratio is neck and neck with respect to Bihar, the gap of 10.83 per cent with respect to GSDP is notable.

Maharashtra spending a smaller portion of its economy on salaries, pensions, subsidies, and other recurring costs compared to Bihar is indicative of a more efficient public spending model, where the government does not need to intervene as heavily in service delivery or economic support.

In contrast, Bihar’s population remains disproportionately dependent on public expenditure, a reliance exacerbated by structural rigidities in its fiscal framework. The dominance of salaries, pensions, subsidies, and interest payments within the revenue receipts framework constrains its capacity to expand capital investment without incurring fiscal stress.

West Bengal, Bihar’s other neighbour, is one state whose finances do not look in better shape than Bihar’s, but even here, Bihar fails to capitalise on it, as structural issues have passed on from one government to another.

The Mamata Banerjee-ruled state has projected a GSDP of Rs 20.31 lakh crore for 2025-26. It has allocated Rs 0.87 lakh crore, or 22.37 per cent of its budget, to capex, amounting to 4.29 per cent of its GSDP.

However, Bengal’s problem is that of higher debt, nearly Rs 7.06 lakh crore, which keeps mounting exponentially and is expected to continue doing so as the assembly election approaches.

Although West Bengal’s capex-to-GSDP ratio is lower than Bihar’s, debt repayment, which consumes 12.26 per cent of its budget, constrains its fiscal capacity for capital investments. While its budget is just 22.71 per cent more than that of Bihar, the state will pay at least 50 per cent more debt than the Kumar-ruled state.

Bihar, with a comparatively lower debt burden, enjoys greater leeway in allocating funds to infrastructure projects of both rural and urban importance. West Bengal’s capex is predominantly directed towards social welfare, for which it reserved 13.9 per cent of its expenditure compared to the national average of 7.6.

On other parameters like health, education, and rural development, Bengal’s allocation (6.4 per cent) was above the national average (of 6.2 per cent) only in health. Bihar’s allocation was above the national average in all these parameters.

However, both states are struggling to yield results on all fronts. They are both frequently placed in the second half of any rankings indicative of sustainable development goals and human development indicators. Bihar has also been found at the bottom of the table.

Madhya Pradesh is another state with a comparable population to Bihar. It is also part of the quartet once called "BIMARU" (Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh).

The central Indian state is a compelling case study in capex efficiency. In 2024-25, the state allocated Rs 0.91 lakh crore, or 25.65 per cent of its Rs 3.56 lakh crore budget, to capex. This number is equivalent to 6 per cent of its estimated GSDP — the highest among the states with a comparable population to Bihar.

This aggressive push for infrastructure development is supported by a comparatively lower revenue expenditure, which constitutes less than 75 per cent of its budget. Madhya Pradesh’s capital investments are mainly channelled towards roads, irrigation, and industrial infrastructure. The government has reaped the benefits of their contribution to the state's recent economic growth.

Bihar also emphasises roads and rural infrastructure, but it fails to gather momentum in irrigation and industrial infrastructure — two sectors critical for agricultural productivity and economic diversification. With respect to irrigation, the state could do much more, but its achievements make it underrated.

Madhya Pradesh’s ability to maintain a high capex-to-GSDP ratio while exercising fiscal discipline offers valuable lessons for Bihar, particularly in terms of expansion with controlled revenue expenditure.

Structural Problems Hindering Bihar

Bihar’s higher capex-to-GSDP ratio is undoubtedly a positive indicator, but the quantum of the sum is not the principal challenge, especially against the backdrop of the Centre putting more emphasis on a new wave of development in the state.

Delays in project implementation, cost overruns, and inefficiencies in resource allocation have negative cascading effects on the potential economic benefits of its capital investments. For instance, road projects, especially in rural areas, frequently encounter delays due to challenges related to land acquisition and bureaucratic inertia.

In contrast, states like Maharashtra, Gujarat, Tamil Nadu, Madhya Pradesh, and recently Uttar Pradesh have streamlined their project execution processes — with varying degrees of effectiveness — ensuring that investors get timely returns on their investments.

The broader question is whether Bihar’s high capex-to-GSDP ratio — a relative anomaly in the Indian fiscal landscape — yields proportionate economic returns. Bihar’s divergence from the norm is not necessarily a structural advantage since capex cannot be assessed merely in terms of its magnitude, but it also has to be seen how effective it has been in transforming the lives of the people.

To put it in more pragmatic terms, a high ratio is of limited consequence if public investment fails to generate private sector confidence, economic productivity, and long-term fiscal sustainability.

Bihar’s fiscal trajectory is thus one of both promise and constraint. Its capex prioritisation is notable, yet it remains burdened by structural rigidities — low per capita income, high population density, and a weak industrial base.

At a time when most states in India struggle to allocate even 3 per cent of GSDP to capital investment due to revenue constraints, Bihar’s ratio of 5.92 per cent may sound praiseworthy, but it is more a function of an underdeveloped economy rather than deliberate fiscal prudence.

Though the government may intend something else from it, its effectiveness remains skewed towards maintaining the status quo rather than fostering economic expansion. One example is its heavy dependence on central transfers and grants.

The Bihar government still relies on the central government for 73 per cent of its budgetary expenditure. Pushpam Priya Chaudhary, leader of the Plurals Party, pointed out that Uttar Pradesh — once spoken of in the same vein as Bihar — seeks only 54 per cent of its budget from the central government.

The stark difference in the developmental and economic trajectories of both these states is a consequence of the last eight years of their politics. Under Yogi Adityanath, Uttar Pradesh enjoys relative political stability, a bureaucracy whose expansionary hands have not gone out of control, people who trust the government, and industrialists who keep an eye on these factors to make investment decisions.

On the other hand, Bihar’s image has taken a hit during these years, with Kumar’s flip-flops making political headlines, breaking bridges making infrastructure headlines, bizarre stealing making law and order headlines, and the restigmatisation of the Bihari identity making social headlines.

The consequences of the problems underlying these headlines are well reflected in the budget, which has a special emphasis — more than what a welfare state should ideally require after seven decades — on social sector investment.

Take, for instance, its spending on women’s welfare. Construction of pink toilets, opening of Mahila Haats in Patna, the start of a pink bus service (all drivers and conductors to be women), construction of hostels for working women, appointment of women tourist guides, financial assistance for purchasing e-rickshaws, increase in the number of women police personnel, and construction of 'Kanya Vivah Mandap' for the marriage of poor girls are some major initiatives in the budget.

The state is at least five years behind in at least five out of these eight announcements. Increasing the number of women police personnel, construction of hostels, and the introduction of pink buses have been advertised as women’s welfare, but if you read between the lines, they are a glaring commentary on the safety of women in the state.

Politics of the Budget

Moreover, announcing these initiatives in the election year budget has political ramifications. After seeing parties get electoral success by declaring women-specific freebies in different states, it was imperative to do so in Bihar. The political question is whether these moves will outpace the momentum Tejashwi Yadav is getting for his free cash announcement.

If trends from the last few elections are anything to go by, freebies will be announced as election dates approach. The question is whether Kumar will agree to the idea. Till date, Kumar’s idea of empowerment has not been based on handing out doles. He has put more emphasis on empowering women, Scheduled Castes and Tribes (SC/ST), and Other Backward Classes by giving them positions of power and representation.

For many, this kind of politics is now more conservative and traditional. His views on the budget have been similar. Kumar has always opposed using the budget as a tool of political messaging, the fine print of which can be seen in this year’s budget as well. It also helps his cause that the Bharatiya Janata Party’s (BJP's) idea of the budget is also the same.

It is not that there was no space for it.

Considering that this is an election year, Bihar’s emphasis on fiscal deficit seems odd. In its budget, its fiscal deficit target is 2.98 per cent of GSDP — 0.02 per cent less than the 2024-25 target of 3 per cent. Although the government mostly misses this target, the question is, why set such an ambitious target in an election year?

Keeping the fiscal deficit under 3 per cent in accordance with the Fiscal Responsibility and Budget Management (FRBM) Act is a recommendation that states can execute with a bit of flexibility. If the government wished, it could expand a bit on the debt front and make room for initiatives that would directly impact the lives of rural households in the state.

One initiative could be a revamp of the electricity metre, about which rural Bihar is absolutely miffed with the state government. Cash incentives tied to establishing or expanding businesses could also be something the government could look for, but did not.

The strict adherence to the FRBM framework does indicate better-managed state finances on the books, which may help in ratings, but then again, that aspect is diluted by the officer raj gobbling up the state’s investment prospects.

One example of bureaucracy-run administration is the Department of Education in Bihar. For the last two to three years, the department has been almost entirely led by officers who keep changing rules and recruiting new teachers.

In 2024 alone, nearly 1 lakh more teachers were recruited, increasing the burden on the department, which already spends more than 65 per cent on salaries, pensions, and other incentives like awards and benefits for the children of teachers, and transfer allowances.

In 2024-25, the department was allocated more than Rs 54,605 crore, which has now been increased to more than Rs 60,000 crore in 2025-26. The problem is that a very small share of this sum will be spent on incentivising parents to send children to schools. That is just one example of diverted expenditure.

A state budget rising in double digits, a high capex allotment, and a pumped up GSDP are typically the major headlines dominating the state’s budget for the last two decades. 

Is that enough? 

Yes, when the people of the state are thrust into keeping a tab on the politics of the state.

And a big no for those in Bihar who see the changes in the state, but also sees its achievements remaining subdued in comparison to other states.