CAG State Finances FY25: 18 States Breach 3% Cap

Report release and what it tracks

India’s state finances came under fresh focus after the Comptroller and Auditor General (CAG) released the report State Finances 2024-25, unveiled by CAG Sanjay Murthy. The review captures how the 28 states performed on key budget health indicators such as revenue balance, fiscal deficit and debt. The headline message is that fiscal pressure remained elevated in FY25, with many states crossing commonly cited consolidation thresholds. The report also links the FY25 deterioration to earlier episodes of stress, including the Covid period.

Fiscal deficit: all states in the red, many above 3%

The report notes that all 28 states reported fiscal deficits in FY25, meaning their total spending exceeded total receipts. More importantly, 18 states overshot the indicative fiscal deficit ceiling of 3% of gross state domestic product (GSDP). This 3% marker is tied to the fiscal consolidation framework referenced by the Fifteenth Finance Commission for 2024-25. The CAG review described the deterioration in fiscal position as comparable only to the rise seen during the Covid year of FY21.

Revenue balance splits: 13 surplus states, 15 in deficit

On the revenue account, the report said 13 states recorded a revenue surplus in FY25 while 15 were in revenue deficit. A revenue surplus indicates that revenue receipts exceeded revenue expenditure, while a deficit indicates that routine spending was not fully covered by regular revenues. The count of revenue-surplus states fell to 13 in FY25 from 16 in FY24, showing a broad weakening in state-level revenue balances. The report also noted that Bihar, Mizoram and Telangana shifted from revenue surplus in FY24 to revenue deficit in FY25.

States named for revenue surplus and deficit

While the report discusses aggregates for all states, some state outcomes were highlighted in summaries of the findings. Gujarat, Odisha, Madhya Pradesh, Jharkhand and Goa were cited among states that recorded revenue surpluses in FY25. In contrast, Maharashtra, Karnataka, Kerala, Haryana and Telangana were cited among those ending the year with revenue deficits. Separately, Uttar Pradesh, Gujarat, Jharkhand and Manipur were mentioned among states recording surplus revenues, along with nine other states.

Revenue deficit totals: gross versus net after offsets

The CAG report provided consolidated deficit numbers to show the scale of stress across states. For the 15 states that recorded a revenue deficit, the combined revenue deficit (without offsetting the surpluses of other states) was ₹3,46,385 crore. After adjusting for the revenue surplus generated by the 13 surplus states, the net revenue deficit for all 28 states worked out to ₹2,19,041 crore. The report pegged this net revenue deficit at 0.68% of the combined GSDP of all 28 states.

Debt pile: combined state liabilities climb to ₹9,051,000 crore

Beyond annual deficits, the report flagged the longer-run build-up in state debt. Combined liabilities of India’s 28 states rose to ₹90.51 trillion in 2024-25, which is equivalent to ₹9,051,000 crore. Rising liabilities can increase committed expenditure in the form of interest payments, narrowing fiscal room for discretionary spending. The report’s assessment adds to the picture of sustained borrowing needs, especially when revenue balances weaken.

Cash-flow signals: Ways and Means Advances despite surpluses

The review also pointed to cash-flow and liquidity management challenges in several states. It noted that some revenue-surplus states still resorted to Ways and Means Advances (WMA), which are short-term funding facilities typically used to manage mismatches between receipts and payments. This detail is significant because it suggests that even states with a positive revenue balance can face timing issues in cash collections and expenditure outgo. Such pressures can influence the pattern of market borrowings during the year.

What drove the stress: echoes of the Covid fiscal shock

The report reiterates that the Covid pandemic placed severe fiscal strain on state governments, marked by sharp declines in revenue and higher expenditure commitments. The FY25 deterioration was compared to the scale of slippage seen in FY21, underlining how state finances can weaken quickly during periods of disruption. While FY25 is not presented as a repeat of the pandemic shock, the comparison signals that fiscal buffers remain limited in many states. The broader message is that post-pandemic normalisation has not fully restored pre-stress fiscal comfort for a large set of states.

Key numbers at a glance

Market and policy relevance for investors

For bond markets and bank lenders, higher state deficits and rising liabilities can translate into sustained gross borrowing requirements. For equity investors, the report helps frame the state-level spending environment, since capital outlays and revenue expenditure patterns influence demand for infrastructure, public services and state-linked procurement. The findings also matter for assessing the risk of crowding out, where higher government borrowing can affect financing conditions for the private sector. Finally, the trend of fewer revenue-surplus states highlights why fiscal consolidation remains a key policy objective.

Conclusion

The CAG’s State Finances 2024-25 report shows that FY25 remained a difficult year for state budgets, with 18 states exceeding the 3% fiscal deficit ceiling, only 13 in revenue surplus, and combined liabilities rising to ₹9,051,000 crore. The report’s deficit and debt metrics reinforce the importance of monitoring revenue balances, cash-flow management and borrowing needs across states. The next set of state budget updates and fiscal outcome statements will be closely watched for whether the share of revenue-surplus states improves and whether deficit numbers move closer to recommended thresholds.