The Modi–Nitish combine has done what many are calling the most unexpected election sweep in Bihar's recent history. Political strategists, journalists, and even experienced pollsters are left without any explanation. What caused the tsunami?
A very common voter response, particularly from women, has been recorded throughout the state: the ₹10,000 cash transfer that appeared in their accounts a few days before voting.
For many women, the story is very straightforward: “Modi ji sab de rahe hain.” But is he? And more importantly, can Bihar keep giving like that?
The ₹10,000 Question
The aid that was given to Jeevika workers and other beneficiaries has been the talk of the whole country. It wasn’t the only welfare program that received a push, multiple other schemes providing direct benefits to women and economically weaker sections were announced during the pre-election period.
On the ground, it was a brilliant political move that paid off tremendously. However, behind the party mood economists are posing an uncomfortable question:
Is Bihar setting itself up for a fiscal crisis?
An Economy Growing… But Not Earning Enough
Bihar's economy is estimated to reach ₹11 lakh crore by the end of this financial year. This is a pretty good figure for one of the least-developed states of India. At the same time, welfare spending is also going up substantially. The social security scheme allocations, according to Madhavi Arora of Emkay Global, are poised to reach ₹40,000 crore.
On paper, it stands for a bold developmental plan. However, there is a catch.
The ‘₹100 Earn, ₹109 Spend' Problem
For each ₹100 Bihar brings in, it spends ₹109.
Experts put the safe limit at ₹103. Anything over that hints at excessive borrowing.
That gap is getting bigger. Hence, today, Bihar has one of the highest state debts among Indian states.
Bihar has been hit hard by several reversals of revenue which have aggravated the state of affairs:
Prohibition has almost completely wiped out alcohol tax revenue, which was a major source of income.
Due to GST rate cuts, overall tax collections have decreased.
Bihar’s own revenues-generating capacity is still quite weak.
Freebies or Lifeline? The Coming Inflection Point
The political advantage of the cash transfers is very clear, yet the economic drawback is just as clear. Social programs are needed in a very poor state like Bihar, however, if they are funded through borrowing, there is a risk that they will eventually spiral into a debt trap.
Experts say that if the state continues to fund welfare schemes through loans, the day will come when development projects, infrastructure, and even the basic services will have to be cut to make room for debt repayment.
A Political Win. An Economic Mystery.
At the moment the Modi–Nitish alliance has a historic mandate. However, it is not clear whether the mandate will result in sustained economic security.
Bihar is standing at a crossroad
Would such a welfare-heavy model be able to raise the poor and accelerate growth? Or would it lead the state further into debt, leaving the future governments to pick up the tab? Next year’s budget and time will be the only judges.
