Context and RBI Assessment
- Poll-bound States reduced outstanding liabilities as a share of GSDP, maintaining development expenditure levels.
- Findings are based on the RBI Study of State Budgets 2025 and State of State Finances report.
- Data counters criticism of fiscal irresponsibility in Opposition-ruled States approaching elections.
Debt Trends Since 2021
- Assam, Kerala, Tamil Nadu, West Bengal, and Puducherry cut debt ratios by up to four percentage points.
- West Bengal recorded the highest debt-to-GSDP ratio at 39% in Fiscal 2025-26 estimates.
- West Bengal’s debt declined by 4.7 percentage points compared to 2021 levels.
- Kerala reduced outstanding liabilities by 4.8 percentage points to 35.5% of GSDP.
- Tamil Nadu’s debt stood at 29.2% of GSDP in 2025-26.
- Assam’s debt was 28% of GSDP, while Puducherry’s stood at 26% of GSDP.
FRBM Compliance and Fiscal Context
- Debt ratios remained above the FRBM Act limit of 20% across these States.
- RBI noted that State borrowing has exceeded FRBM thresholds consistently since 2016.
- This trend aligns with a global increase in government debt burdens.
- Governments assumed office during COVID-19 disruptions, prioritising mitigation over regular development.
Development and Social Expenditure Patterns
- Development, social sector, and capital outlay spending remained stable or marginally lower overall.
- West Bengal increased development expenditure from 10.3% of GSDP in 2023-24 to 12% in 2025-26.
- Kerala and Tamil Nadu maintained capital outlay at around 1% and 1.9% of GSDP.
- Assam limited social sector spending to not more than 11% of GSDP over three years.
Demographic and Fiscal Implications
- RBI highlighted varying demographic stages across States influencing fiscal pressures.
- Kerala and Tamil Nadu have over 20% population aged above 60 years.
- Youthful States should focus on human capital investment to harness demographic dividend.
- Ageing States need reforms in revenue capacity, healthcare, pensions, and workforce policies.