State governments' revenue deficits are creating fiscal challenges, with Punjab leading at 3% of GSDP for six years until 2025-26, according to reports from Business Standard. While Himachal Pradesh was projected to have a higher revenue deficit at 3.9% in FY26 (RE), Punjab maintains a wider deficit over the longer horizon. Revenue deficit represents an excess of non-capital expenditure over non-capital revenues, indicating governments primarily borrow from markets to meet current expenditure without generating assets.
Punjab's fiscal structure shows the impact of high revenue deficits, with fiscal deficit at 4.7% in FY24 and projected to improve to 4.2% in FY26 (RE). As reported by Business Standard, this leaves only 0.8% of GSDP for asset generation in FY24, with part allocated for loan repayments. The state's revenue expenditure includes 19.6% spent on interest payments in FY25, projected to moderate to 19.2% in FY26 (RE). Salaries, pensions, and interest account for 62.7% of revenue expenditure in FY24 and 55.2% in FY26 (RE).
Punjab's decision to opt for the old pension system (OPS) over the new pension system (NPS) creates additional fiscal burden, according to Business Standard reports. OPS provides assured benefits to pensioners with no defined contribution, while NPS offers mostly no assured benefits but defined contributions. The Centre has introduced a unified pension system combining NPS and OPS features, which Punjab is evaluating, though this will also create state liabilities due to assured benefits, albeit less than OPS.
Multiple states including Himachal Pradesh, Rajasthan, West Bengal, and Kerala also run wide revenue deficits, though some project lower deficits in FY26 (RE) and FY27 (BE). As reported by Business Standard, Maharashtra's revenue deficit doubled in 2024-25 over the previous year due to welfare schemes like Chief Minister Ladli Behna Yojana, though it remains sub-one percent of GSDP. Conversely, Delhi, Odisha, and Gujarat maintain revenue surpluses for the past ten years, with Uttarakhand running surpluses since 2021-22.
