last week three developments took place back-to- back in Bihar. The first was the passage of the new Bihar Prohibition and Excise Bill, followed by the State Government’s announcement of hiking Value Added Tax (VAT) on a number of goods and products. The third development came as a bolt from the blue in the shape of Central Statistical Office (CSO) report which suggested that Bihar, which had been boasting for years of its high growth rate, has lost its top ranking in the GDP.
These three developments are not supposed to be interlinked, still they are viewed as a fallout of total prohibition in Bihar implemented since the first week of April. The VAT hike, from .5 to 1 per cent on about 200 goods and products like two and four-wheelers, TV, fridge, medicines, cycles, matchbox, sand, iron, dairy products etc, is estimated to bring Rs 1,000 crore annual revenue.
Bihar is estimated to suffer annual revenue loss of more than Rs 5,000 crore due to total prohibition. Chief Minister Nitish Kumar however sternly said that he was not bothered about this loss and rather more concerned to stop the income from “immoral” trade.
The Opposition BJP alleged that VAT was increased to compensate for its “draconian” prohibition legislation. The Government however, pleaded that it had to take decision on VAT to cope with the recommendations of the seventh pay commission. Excise Minister Bijendra Prasad Yadav said, “We will be burdened by Rs 7,000 to Rs 8,000 crore on account of seventh pay panel’s recommendations.” He further said that the Centre was holding back BRGF funds of Rs 7,000 crore due to Bihar.
Bihar’s top entrepreneur Satyajit Singh criticized the Government for twice hike in VAT during the past six months and again on petrol and diesel and said, “The craziness of Government on prohibition will cost 11 crore population of Bihar.” A former financial scribe Vikant Sahay wondered that Bihr Government did not consider financial implications of the prohibition. He said the decision was wholly political eyeing the vote of 50 per cent population. Sahay said Gujarat afford to impose prohibition but the State has industries which Bihar has not and apprehended that pharmaceutical industry might turn into a drug industry as happened in Manipur.
The VAT hike is unlikely to compensate the revenue loss on account of prohibition. Furthermore, the State’s financial health seems to be turning critical. The Government admitted that the commercial tax revenue in the first quarter of the current fiscal (April to June 16) showed a fall of 35 per cent. The revenue earning during this period was only Rs 2,372 crore as against Rs 3,666 crore during the same period last year.
Though nothing to do directly with the losses due to liquor ban, the sharp fall in Bihar’s GDP, projected by Central Statistics Office of the Union government, has come as a shocker. From 13.02 per cent growth rate in 2014-15 it collapsed to 7.14 per cent in 2015-16. This is the first ever sharp fall of GDP during the past one decade.
Bihar is refusing to accept the CSO report and likely to challenge it. Commercial taxes minister Yadav said the figure was not correct and it would take another six months for a representative growth rate to emerge. Planning and development department officials said the CSO did not consider the data furnished by the Bihar government particularly on construction and industry sector and depended on statistics provided by some other agency.