Abstract

This study examines whether rule-based fiscal discipline in Bihar was accompanied by changes in the level and relative priority of social-sector expenditure. Using a source-reconciled annual dataset derived from audited government accounts, the study covers 2000-01 to 2023-24, while the inferential sample comprises 2001-02 to 2023-24 because 2000-01 was affected by Bihar’s reorganisation. The pre-BFRBM period covers 2001-02 to 2005-06 and the post-BFRBM period 2006-07 to 2023-24. Descriptive analysis, compound annual growth rates, Welch’s t-tests, Mann-Whitney tests, linear trends and segmented regression with robust standard errors are employed. Mean Social Services expenditure increased from 7.38% to 9.92% of GSDP and from 29.02% to 38.01% of total expenditure, with both differences statistically significant. Debt/GSDP was also substantially lower in the post-BFRBM period. However, segmented regressions identify neither a significant immediate level change nor a significant change in trend at the BFRBM intervention point. The evidence therefore indicates that fiscal consolidation and rising social-sector expenditure priority coexisted in Bihar, but it does not establish that BFRBM caused the increase in social spending. The findings support a balanced assessment of fiscal prudence and developmental expenditure under state fiscal rules.