Incentives for industries have been rolled back and teachers have gone without salary for months as the state grapples with the after-effects of the ban
While speaking at a conference in Patna in June, economist Rothin Roy said that Chief Minister Nitish Kumar’s bid for total prohibition will jeopardise the state’s finances and warned that the health and social welfare sectors will be the first to bear the brunt of this misadventure. “No samosa tax can make up for the Rs 3,000-crore (Rs 30 billion) revenue loss,” he said.
Senior bureaucrats of the state government grinned sheepishly at his prophecy, and with good reason - every word he said seems to be coming true.
Earlier this month, when Kumar was rebutting the Opposition’s objections over the new Prohibition Bill in the Legislative Council , his finance minister, Abdul Bari Siddiqui, was tabling a special report in the lower house of the state’s bicameral legislature: it was about the state of Bihar’s finances and it was not good.
The state’s tax revenue in the first quarter of the current fiscal had plunged over 34 per cent - from Rs 5,733 crore (Rs 57.33 billion) collected last year to Rs 3,752 crore (Rs 37.52 billion) this year. Excise revenue nosedived from almost Rs 900 crore (Rs 9 billion) to just Rs 42 crore (Rs 420 million). Meanwhile, commercial tax income fell from Rs 3,666 crore (Rs 36.66 billion) to Rs 2,372 crore (Rs 23.72 billion).
The slump in tax collection has put a question mark on the state government’s ability to achieve this year’s revenue target. The state had a target of Rs 22,000 crore (Rs 220 billion) in commercial tax; the collection in the first quarter was just over 10 per cent of the target. And the excise revenue was 2 per cent of the annual target of Rs 2,100 crore (Rs 21 billion).
State government officers are sanguine that they’ll achieve the target by the end of the financial year. “The condition is not at all alarming,” says Development Commissioner Shishir Sinha, “Usually, our revenue picks up pace around the end of the second quarter.”
Analysts are not convinced. “The books are in deep red,” says an analyst, “Expenses are rising and income is shrinking. Unfortunately, this means the tax burden on the people is bound to go up in the coming days.”
This is the reason why the Bihar government is desperately seeking funds. Earlier this month, the state decided to raise the VAT (value added tax) rate on almost every item. It even brought real estate under the ambit of VAT: Bihar hopes all these steps to yield Rs 1,000 crore (Rs 10 billion) this year.
As a consequence, life saving medicine and items of daily use now cost more in Bihar than its neighbouring states. What’s more excruciating is that this was the second increase in VAT in just three months.
“We need this money,” Commercial Tax Minister Vijayendra Yadav said in the state Assembly. “The Seventh Pay Commission will burden us with Rs 7,000-8,000 crore (Rs 70-80 billion). In this condition, we have no option but to increase the tax rates.”
Last week, the state government further increased VAT on petrol and diesel by 1.5 per cent and 1 per cent, respectively. This is expected to yield almost Rs 270 crore (Rs 2.7 billion) for the exchequer, but is bound to have an inflationary impact on prices.
Salary blues
The impact of the fund crunch has started to pinch people. The salaries of panchayat teachers have got delayed by more than four months. Last week, the state government did clear Rs 886 crore (Rs 8.86 billion) for payment of salaries of teachers and librarians, but it will not be credited into their accounts before next month.
“Last year, during the run-up to the state Assembly polls, the government did raise our salaries. However, its payment has now become irregular. Last time we got our salary was around Holi; there has not been any payment after that,” says a teacher at a senior secondary school in Gaya on the condition of anonymity.
Honorariums of most of the contractual workers such as ASHA workers and Vikas Mitras have been delayed for a couple of months now. Last month, the state government declined a proposal to increase allowances of newly elected panchayat representatives. In the Assembly, the government accepted that the state doesn’t have money to fund this demand.
The biggest victim of this fund crunch has been the social sector. According to the state government data, it failed to spend any money on welfare schemes for the backward communities during the first quarter of the current fiscal.
The government recently stopped the scholarship of Rs 15,000 per year for SC/ST students pursuing technical education. A decline of more than 86 per cent has been recorded in the planned expenditure of the Minority Welfare Department.
The Food and Civil Supplies Department, responsible for implementation of the Food Security Act in the state, didn’t spend a single penny of its planned budget during the first quarter of the current financial year.
The expenditure of the Health Department slid more than a third in the last quarter compared to the same period last year. The expenditure by the Rural Works Department, responsible for the construction of rural roads, fell more than 31 per cent.
The ripple effect
Last month, the state government approved a new industrial promotion policy, under which the Industries Department has censored several tax rebates and incentives it earlier offered to investors. Even the proposal to create a venture capital fund for budding entrepreneurs has been indefinitely postponed. “We now want to focus more on improving facilities for them,” says Industries Minister Jai Kumar Singh.
“The desperation of the state government to get more money can be understood from the fact that it is calling a special session of the state legislature on Tuesday for the implementation of the Goods and Services Tax; it hopes the new tax regime will get the state coffers more than Rs 5,000 crore (Rs 50 billion),” says a senior officer who doesn’t want to be named.
However, despite the hardships faced by the masses, the state government is making sure that the ministers don’t feel the heat. Earlier this month, the Cabinet approved a plan to provide Rs 300,000 annually to every minister to renovate or decorate his/her official residence.
Photograph: Reuters
