State of State Finances 2025

The ‘State of State Finances 2025’ report has been released by PRS Legislative Research.

• The Report analyzes state budgets, audit reports, and economic data from all states for FY 2023–24 and FY 2024–25.

Key Findings of the Report

• Rising Committed Expenditure:
  • In 2023-24, states spent 62% of revenue receipts on salaries, pensions, interest payments, and subsidies, leaving little room for development expenditure.
  • Revenue deficit stood at 0.4% of GSDP, implying borrowing for day-to-day expenses.
• Reduction in GST Revenues:
  • Revenues from taxes subsumed under GST fell from 6.5% of GDP (2015-16) to 5.5% (2023-24).
  • States’ average SGST-to-GDP ratio over the GST years (2.6%) is lower than pre-GST tax collections (2.8%).
  • 19% of state capital outlay (2024-25) was funded by SASCI loans.
• Widening Inequality Among States:
  • Richer states (e.g., Maharashtra, Karnataka, Tamil Nadu) raise more own revenue and spend more per capita, creating a “virtuous cycle” of growth.
  • Poorer states (Bihar, UP, Jharkhand) have limited fiscal space, widening the income and development gap. 
• Unconditional cash transfer schemes for women:
  • 12 states now provide unconditional cash transfers to women (2025-26), costing ₹1.68 lakh crore (0.5% of GDP).
  • These transfers strain budgets — in several states (e.g., Karnataka, MP), surpluses turned into revenue deficits due to such schemes.
  • While socially beneficial, these schemes may crowd out capital expenditure and long-term development spending.
• Persistent High Debt Levels: States’ debt-to-GDP ratio (27.5%) remains above pre-pandemic levels; Only Gujarat, Maharashtra, and Odisha meet the FRBM’s 20% target.  
• Rising Interest payments: Interest payments grew 10% annually (2016–2025), outpacing revenue growth (9.2%), tightening fiscal space.
• High Subsidy Burden: Subsidies account for 9% of revenue receipts (2023-24), with 53% on power subsidies.
  • Punjab, Tamil Nadu, Rajasthan, Karnataka, and Gujarat are the top subsidy spenders.
• Fiscal Deficit Trends: States’ fiscal deficit in 2025-26 is budgeted at 3.2% of GSDP (2.8% excluding SASCI loans).

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