According to the Comptroller and Auditor General's (CAG) third annual review of state finances, 18 of India's 28 states exceeded the fiscal deficit ceiling of 3 per cent of gross state domestic product (GSDP) in FY25. The deterioration is comparable only to the increase seen during the Covid year of FY21, as reported by Business Standard. Meghalaya recorded the steepest fiscal deficit at 8.69 per cent of GSDP, followed by Nagaland at 6.14 per cent and Sikkim at 5.59 per cent. Additionally, 14 states, including Gujarat, Karnataka, Kerala, Maharashtra and Odisha, recorded an increase of more than 25 per cent in fiscal deficit in FY25 over FY24 in value terms. All 28 states reported fiscal deficits, with fiscal deficits ranging from 1.66% of GSDP in Goa to 8.69% in Meghalaya. As per EY India's D.K. Srivastava, among the 18 medium and large states (excluding Goa), eight had debt levels exceeding 30% of GSDP in 2024-25, indicating persistent fiscal stress. The report highlighted growing fiscal pressures in the region, with Assam, Meghalaya, Mizoram, Nagaland and Tripura recording a substantial increase in fiscal deficits compared to 2023-24.
The report revealed a significant decline in states' fiscal health indicators. The number of states with a revenue surplus declined to 13 in FY25 from 16 in FY24, as reported by Business Standard. Bihar, Mizoram and Telangana moved from revenue surplus to revenue deficit in FY25. Among the Northeastern states, Manipur remained in revenue surplus, while Tripura exceeded its target of a zero-revenue deficit and closed the year with a surplus. Assam and Mizoram were among nine states that had projected revenue surpluses but ultimately slipped into deficit, along with Bihar, Chhattisgarh, Haryana, Himachal Pradesh, Karnataka, Maharashtra and Telangana. The combined revenue deficit of the 15 deficit states stood at ₹3.46 lakh crore, while the net revenue deficit across all states was ₹2.19 lakh crore. Combined budgetary expenditure of states reached ₹51.20 trillion during the year, equivalent to 15.78% of their combined GSDP. Revenue expenditure 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.
According to the CAG report, total liabilities of states as on March 31, 2025, 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. During the period 2015-16 to 2024-25, total liabilities of all states combined as a percentage of GSDP increased from 24.19 per cent to 27.89 per cent. Considering the indicative debt ceiling target of 32.8 per cent of GSDP set by the Fifteenth Finance Commission, 13 states had total liabilities exceeding this ceiling. 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, highlighting growing contingent liabilities. Several states continued to rely heavily on ways and means advances and overdraft facilities from the Reserve Bank of India, indicating cash-management pressures. The CAG observed that states collectively have remained in fiscal deficit throughout the past decade, with renewed fiscal stress emerging in several regions, including parts of the Northeast, during FY25.
As reported by Business Standard, states' own tax revenue (SOTR) is the largest component of revenue receipts, rising significantly in absolute terms and increasing its share from about 49.55 per cent to nearly 50.13 per cent, although its buoyancy weakened in FY25 compared with FY24. State GST emerged as the single largest source, contributing 43.38% of its own tax revenue collections. The states' share in Union taxes grew markedly, reflecting higher tax devolution under the Fourteenth and Fifteenth Finance Commissions, while reliance on grants-in-aid and central assistance declined. Total revenue receipts stood at ₹40.52 trillion in FY25. 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. Nagaland recorded the highest committed expenditure ratio among all states at 74 per cent of revenue expenditure.
