State finances: ₹90.51 tn liabilities in FY25 CAG

Why state finances are back in focus

India’s state governments are facing tighter fiscal conditions, with debt rising and a growing number of states breaching commonly tracked fiscal thresholds. The Comptroller and Auditor General (CAG) has flagged that borrowing pressures have increased as states try to meet spending needs while maintaining fiscal discipline.

In its report State Finances 2024-25, the CAG said all 28 states reported fiscal deficits in FY25. The combined liabilities of states rose to ₹90.51 trillion as of March 31, 2025, underlining how debt has remained elevated well after the pandemic period.

What the CAG report said for FY25

The CAG’s assessment of FY25 highlights two core points. First, fiscal deficit is now a near-universal feature across states, rather than a problem limited to a few highly leveraged regions. Second, the breach of benchmark targets suggests the consolidation path set out in earlier frameworks is proving difficult for a wide set of states.

According to the report, 15 states recorded fiscal deficits above 3 percent of Gross State Domestic Product (GSDP) in FY25. And if the indicative 3 percent fiscal deficit target set by the Fifteenth Finance Commission for FY25 is used as the reference, 18 states were above the limit.

The headline numbers: liabilities and public debt

The report pegs total liabilities of states at ₹90.51 trillion as of March 31, 2025. It also places outstanding public debt at ₹75.52 trillion at the same cut-off date.

The longer trend is equally notable. CAG data cited in the report shows state public debt has more than tripled over the last decade, rising from ₹23.92 trillion in 2015-16. A separate decadal view in the material also shows a sharp climb from ₹17.57 trillion in 2013-14 to ₹59.60 trillion in 2022-23.

Fiscal deficit limits: what “3 percent” means in FY25

The 3 percent of GSDP mark is a widely used benchmark for state-level fiscal deficit, including in the consolidation path indicated by the Fifteenth Finance Commission for 2024-25. The CAG’s state-wise review shows many states exceeded this ceiling during FY25.

Some states, however, have budgeted for tighter deficit settings. The reporting notes that eight states, including Uttar Pradesh and Bihar, have set fiscal deficits at 3 percent of GSDP or below, signalling improved budget discipline relative to peers.

A decade of debt build-up across states

The CAG’s decadal analysis points to a sustained rise in debt levels rather than a one-off spike. Between 2013-14 and 2022-23, public debt increased from ₹17.57 trillion to ₹59.60 trillion. Over the same period, debt as a share of GSDP rose from 16.66 percent to 22.96 percent.

For FY24, the CAG noted outstanding public debt of states reached ₹67.87 trillion as of March 2024, equivalent to 23.42 percent of combined GSDP. It also highlighted that 13 states breached the indicative debt ceiling recommended by the Fifteenth Finance Commission, pointing to uneven fiscal resilience across the country.

State-wise divergence: debt ratios vary widely

The decadal data shows large differences in debt-to-GSDP ratios among states. In 2022-23, Punjab, Nagaland and West Bengal were among the most leveraged by this measure, while Odisha, Maharashtra and Gujarat were among the least leveraged.

The CAG also noted that in FY24, debt levels ranged from below 20 percent of GSDP in some states to over 50 percent in others. This spread matters because it affects how much room each state has to respond to shocks, expand capex, or absorb higher interest costs.

Other official reads: RBI and accounts data

Separately, the Reserve Bank of India (RBI) said states’ consolidated fiscal deficit widened to 3.3 percent of GDP in FY25 after staying at 3 percent for the previous three fiscals. The RBI attributed the widening to higher borrowing by states under the central government’s 50-year interest-free loans in the ‘Special Assistance to States for Capital Investment’. The RBI noted that access to funds under this scheme is over and above the normal net borrowing ceiling for states.

In its study of state finances, the RBI also said consolidated outstanding liabilities of states remained elevated in the post-pandemic period, with a budget estimate of 29.2 percent of GDP at March-end 2026.

The broader fiscal backdrop includes central government borrowing dynamics as well. A CAG report tabled in Parliament said Union government internal and external debt increased by 8.35 percent and 9.83 percent, respectively, compared to 2023-24. It reported internal debt at ₹159.26 trillion at the end of FY 2024-25, with market loans accounting for 69.96 percent of total internal debt.

Market impact: why investors track state deficits and liabilities

Higher state borrowing needs can affect the supply and pricing of State Development Loans (SDLs), a key segment of India’s bond market. When liabilities rise and more states breach deficit thresholds, investors often pay closer attention to state-level fiscal quality, especially in periods of heavy borrowing calendars.

Banks, insurers and debt mutual funds are large holders of government securities, including SDLs. So, changes in states’ borrowing profiles can influence portfolio allocations, auction demand, and risk premia between SDLs and central government securities, even when the overall macro environment is stable.

Key facts at a glance

What to watch next

The CAG’s FY25 findings place renewed emphasis on the pace of fiscal consolidation at the state level, especially for states already carrying high debt ratios. With many states above the 3 percent fiscal deficit benchmark and liabilities at ₹90.51 trillion, borrowing plans and deficit outcomes will remain a key monitorable for bond investors and equity markets that track public capex trends.

Future updates are likely to come from subsequent state budget documents, borrowing calendars, and further releases that track how states align with the consolidation path referenced by the Fifteenth Finance Commission and other official assessments.