Tale of two states: Bihar, Andhra Pradesh carry a high debt legacy

Bihar joins AP in taking fiscal stress in recent years, but lags far behind the southern state in prosperity

Bihar and Andhra Pradesh, the two states demanding special-category status or special economic packages on account of their ruling parties’ heft in the central government, run high debt as a proportion of their gross state domestic product (GSDP) even as their level of prosperity differs.

For instance, sovereign debt constituted 39 per cent of the GSDP of Bihar in 2022-23, while it was projected to be 32.4 per cent in the Revised Estimates (RE) of Andhra Pradesh.
 

Both states have projected their debt to constitute at least 33 per cent of their respective GSDP for 2023-24 (Budget Estimates).
 

If one takes the last 10 years, debt remained manageable from 2014-15 to 2017-18 in Bihar despite prohibition from 2016-17, which hit the exchequer by around Rs 1,500 crore or around 5 per cent of the state’s own tax revenues (OTR) in the first year of the liquor ban. The state ran a revenue surplus till 2019-20.
 

It was only since the Covid-hit year of 2020-21 that Bihar has been running a revenue deficit, which is projected to widen over three times in 2023-24 (RE) compared to the previous year. This means whatever debt accrued in the six years from 2014-15 was raised to fund capital generation. Though debt crossed 30 per cent of GSDP from 2018-19 this was not quite bad economics per se till the next year.
 

On the other hand, sovereign debt remained at least 28 per cent of GSDP for the last 10 years in Andhra Pradesh. Besides, the state never generated a revenue surplus in any of these years. So part of the debt raised funded current expenditure.
 

This deficit was 3.3 per cent in 2022-23 and was projected to come down to 2.2 per cent in the RE for 2023-24.
 

Besides, capital outlay, part of the expenditure that is used for generating assets, was quite low in Andhra Pradesh compared to Bihar both in terms of proportion of expenditure and GSDP. Also, capital outlay remained low in Andhra Pradesh compared to that in Bihar also in absolute terms. For instance, it was just Rs 7,244.13 crore during 2022-23, which was projected to rise around four times to Rs 27,308.12 crore in 2023-24 (RE) in Andhra Pradesh.

 

In the case of Bihar, it was Rs 31,520 crore in FY23, which was projected to grow to Rs 39,623 crore in FY24. This is also the story for 10 years more or less.
 

This is despite the fact that the own tax revenue (OTR) of Andhra Pradesh has constituted 45-52 per cent of its GSDP in these 10 years whereas this percentage has been 20-26.5 per cent in the case of Bihar.
 

However, Andhra Pradesh is far ahead of Bihar in terms of prosperity if per capita income is a parameter for that. Its per capita income has always been higher than the national average during these 10 years with the gap increasing from a bit over 8 per cent in the first year (2014-15) to over 32 per cent in the tenth (2023-24).
 

Bihar has been a laggard on this parameter. Its per capita income has been one-third or even less than that of the national average these years. The gravity of the situation can be gauged from the fact that Bihar’s per capita income, at Rs 54,111 during 2022-23 (the latest year for which the data is available), was just 62 per cent of the national average at Rs 86,647 in 2014-15, the first year under review.
 

One-third of Bihar’s population was in multi-dimensional poverty during 2019-21 though better than the 50 per cent during 2015-16. Andhra scored much better on this parameter.
 

The same holds true of the female literacy rate and the infant mortality rate. However, when it comes to the sex ratio, Bihar has a much higher score on this count than the national average and that of Andhra Pradesh.
 

The performance of both the states on male literacy is less than the national average but Bihar is not far behind Andhra Pradesh on this count.
 

Bihar was bifurcated, with Jharkhand carved out on November 15, 2000, and Andhra Pradesh was separated from Telangana on June 2, 2014.
 

The division was the main reason for Andhra Pradesh demanding special status or a package and one of the key reasons for Bihar doing so.