New Delhi: Finances of Indian states are under strain, with rising debt levels and many breaching fiscal discipline norms, indicating greater borrowing pressures to meet spending needs.
The combined liabilities of India’s 28 states rose to ₹90.51 trillion in 2024-25, while 18 states overshot the 15th Finance Commission’s fiscal deficit ceiling of 3% of gross state domestic product (GSDP), according to the Comptroller and Auditor General’s () State Finances 2024-25 report released on Tuesday.
The report presents a mixed picture of state finances, with revenues continuing to grow but debt levels, fiscal deficits and committed expenditure remaining elevated.
As of 31 March 2025, total liabilities – which includes public debt and other obligations such as provident fund and unpaid dues of states stood at ₹90.51 trillion, while outstanding public debt reached ₹75.52 trillion. Public debt has more than tripled over the past decade, rising from ₹23.92 trillion in 2015-16, reflecting growing borrowing requirements across states.
The combined liabilities of states stood at ₹81.94 trillion in FY24, ₹72.66 trillion in FY23, ₹65.96 trillion in FY22 and ₹59.15 trillion in FY21, as per the CAG report.
The rise in total liabilities is largely linked to increased borrowing by states to fund expenditure and capital investments.
Against meeting’s backdrop
The report assume significance against the backdrop of the recently-held 11th Governing Council meeting of , where states were urged to prepare their own Viksit Bharat roadmaps to drive economic growth and attract investments.
Fiscal indicators showed persistent stress. While 13 states recorded revenue surpluses during 2024-25 (FY25), 15 remained in revenue deficit. States such as Maharashtra, Karnataka, Kerala, Haryana and Telangana were among those that ended the year with revenue deficits, while Gujarat, Odisha, Madhya Pradesh, Jharkhand and Goa recorded revenue surpluses.
While releasing the third edition of the publication, Comptroller and Auditor General of India K. Sanjay Murthy said that the report had emerged as an important reference point on the fiscal health and financial management of states. Referring to concerns around off-budget borrowings, he said, “Improving transparency and reporting standards in this area would remain an important focus.”
The publication provides a consolidated assessment of the finances of all 28 states over the decade from 2015-16 to 2024-25, based on audited annual accounts.
Geeta Menon, deputy CAG and chairperson of Government Accounting Standards Advisory Board (GASAB), said, “The growing focus on fiscal transparency, accountability and comprehensive fiscal reporting has brought the issue of off-budget borrowings to the forefront of discussions on fiscal governance.”
“The issue of off-budget borrowings needs to be examined from multiple vantage points so that we can develop a deeper understanding of the challenges and opportunities that lie ahead.”
All report deficits
All 28 states reported fiscal deficits, with 18 exceeding the 3% fiscal deficit threshold recommended by the 15th Finance Commission. Fiscal deficits ranged from 1.66% of in Goa to 8.69% in Meghalaya.
“The CAG report is important in highlighting the varying levels of fiscal stress across states. Among the 18 medium and large states (excluding Goa), eight had debt levels, including public account liabilities, exceeding 30% of GSDP in 2024-25. From the perspective of fiscal sustainability, a group of eight medium and large states, along with seven North Eastern and Himalayan (NEH) states, continues to exhibit fiscal stress,” said D.K. Srivastava, chief policy advisor, EY India.
The report also noted that 13 states exceeded the Finance Commission’s indicative debt ceiling of 32.8% of GSDP. Several states continued to rely heavily on ways and means advances and overdraft facilities from the , indicating cash-management pressures.
“The state finances of almost all states barring a few like Odisha are under stress. The allocations towards social protection by way of cash transfers, additional food subsidy at state level and electricity subsidies amongst others are constraining the limited flexible headroom available,” said Ranen Banerjee, partner and leader, economic advisory, PwC India.
“The states will be unable to bring down their outstanding debt and their debt to GSDP ratio would push up. The situation has been exacerbated by the lower state tax revenue collection growth with the consumption growth and inflation being muted. This will also impact the debt consolidation planned by the central government by nullifying any improvements at the central level in the debt to GDP ratio,” he said.
“The impending implementation of the [8th] Pay Commission at the central government level and the cascading impact at the state level will make the state finances further challenged,” he said.
As per the report, despite these challenges, states’ revenues showed improvement over the decade. Total revenue receipts stood at ₹40.52 trillion in FY25, with states’ own tax revenue accounting for 50.13% of the total. State emerged as the single largest source, contributing 43.38% of its own tax revenue collections.
Grant-in aid share falls
Meanwhile, the share of grants-in-aid in total revenue receipts declined to 9.97% from 17.2% a decade ago, indicating greater reliance on states’ own resources and tax devolution from the Centre.
Combined budgetary expenditure of states reached ₹51.20 trillion during the year, equivalent to 15.78% of their combined GSDP, as per the report. Revenue expenditure, or the government’s day-to-day spending, continued to dominate state budgets, accounting for 83.4% of total spending, while capital expenditure accounted for 16.6%.
The report noted an increase in capital spending in recent years, supported in part by the Centre’s Special Assistance to States for Capital Investment (SASCI) scheme, under which states have received substantial interest-free loans for infrastructure projects.
A major concern highlighted by the report was the burden of committed expenditure. Salaries, pensions and interest payments together amounted to ₹18.40 trillion in 2024-25, accounting for 43.07% of total revenue expenditure. Subsidies totalled ₹4.37 trillion, while grants-in-aid for salaries stood at ₹3.36 trillion. Together, these components absorbed ₹26.12 trillion, or 61.17% of total revenue expenditure, limiting fiscal flexibility, it said.
The report also pointed to growing contingent liabilities. Outstanding guarantees issued by states increased from ₹3.62 trillion in 2015-16 to ₹12.96 trillion in 2024-25, equivalent to 3.99% of combined GSDP.