Why Bihar’s government finances are in doldrums

Remarks made at the G7 foreign ministers’ meeting in Canada

- 

For more than two decades, Nitish Kumar has been chief minister (CM) of Bihar. For about a dozen years, his deputy and finance minister was the late Sushil Kumar Modi of the BJP. Did these two stalwarts do justice to Bihar? Their financial management record reveals that Bihar has ended up as one of India’s most fiscally fragile states under them.

The CAG reported recently that Bihar has no utilisation certificates for over ₹70,000 crore of expenditure! This is extraordinary mismanagement of public resources. Other states leveraged their resources and central aid to build a stable base for growth. Bihar's trajectory has been one of weak revenue mobilisation, over-reliance on the Centre, and underinvestment in productive assets. These have locked Bihar into a cycle of low growth and limited capacity.

In 2025-26, Bihar’s own tax revenue is projected at just 5.4% of Gross State Domestic Product (GSDP), lower than the revised estimates of 2024-25. This weak tax effort leaves Bihar overwhelmingly dependent on the Centre; nearly 74% of its revenue receipts come from devolution and grants. Such dependence may cushion the exchequer in the short run, but it leaves Bihar exposed to fluctuations in central finances and vulnerable to Finance Commission formulas rather than reliant on its own economic dynamism.