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ARTHA

However, the aggregate picture masks significant The Debt Structure of States and
inter-state variation. An analysis of budget estimates for 18 Borrowing Patterns
major states in 2025–26, which accounts for almost 98.8
per cent of the total GDP of India, shows that several
states are breaching or nearing the upper bound of the Fiscal deficits are financed through different sources,
FRBM threshold. The highest fiscal deficits (as a share of including market borrowings, loans from the Centre,
GSDP) among these 18 states are observed in Madhya small savings, and other public account liabilities. Fiscal
Pradesh (4.7 per cent), Andhra Pradesh (4.4 per cent), deficits are financed through borrowing, leading to
Rajasthan (4.3 per cent), Punjab (3.8 per cent), and West accumulation of outstanding liabilities. Rising fiscal
Bengal (3.6 per cent), indicating persistent fiscal stress in deficit levels have increasingly translated into higher
these states. All these states have been showing high market borrowing by states, which has emerged as the
fiscal deficit trend over the years (from 2023-24), except dominant source of financing.
Punjab and West Bengal. In contrast, several larger states
remain closer to the 3 per cent mark, suggesting relatively Market borrowings as a share of GDP have risen steadily
better fiscal positioning. from 13.6 per cent in 2018–19, with a sharp jump during
the pandemic (18.7 per cent in 2020–21), followed by a
mild moderation and then a renewed increase in recent
The year-on-year changes in GFD as a percentage of
GSDP indicate a mixed pattern, with some high-deficit years (20.1 per cent in 2025–26 BE).This reflects a shift
states showing further deterioration while others are towards market-based financing, exposing state
consolidating. Madhya Pradesh and Rajasthan, already finances to interest rate cycles and refinancing risks.
among the highest in 2025–26 (BE), have seen increases
in their deficit ratios, pointing to sustained fiscal pressure.
In contrast, Punjab and West Bengal, despite remaining in The debt dynamics of states
the high-deficit category, have recorded notable are driven by underlying fiscal
reductions, suggesting partial consolidation. Chhattisgarh rigidities, rather than
shows a sharp correction, though its deficit remains temporary shocks
elevated, while Andhra Pradesh moderates slightly but
continues to stay above the FRBM threshold. Bihar’s
steep decline (–6.2 per cent) largely reflects a decline Market borrowings are expected to finance about 8.1
from an unusually high base in 2024–25, which was driven lakh crore, or 76 per cent of the consolidated GFD of
by a combination of front-loaded capital expenditure and states in 2025–26 (BE), up from around Rs 7.8 lakh crore
revenue shortfalls (including lower transfers/grants), in 2024–25. In parallel, gross market borrowings of
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rather than a sustained structural imbalance. States and UTs increased by 6.6 per cent to Rs 10.73 lakh
crore in 2024–25, indicating continued reliance on
The persistence of fiscal deficits directly feeds into market-based financing. The states of Bihar,
borrowing patterns, making the evolution of debt structure Chhattisgarh, Goa, Punjab, and Uttar Pradesh recorded
of states central to understanding the sustainability of lower market borrowings for this fiscal, while the other
state finances. The next section examines how these states recorded higher borrowings. For 2025-26 (BE),
deficits translate into changing borrowing patterns and the budgeted gross market borrowing of states is at Rs
debt dynamics across states. 12.45 lakh crore.

Loans and Liabilities of States

35.0 31.0
29.1 28.2 28.4 29.2 Market Loans
30.0 26.6 28.1
25.3 (% of GDP)
25.0
18.7 18.3 19.0 20.1 Total Outstanding
20.0 15.2 18.0 17.8
13.6 Liabilities
15.0 (% of GDP)
10.0
5.0
0.0
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26
(RE) (BE)

Source: RBI State Finances, January 2026
2 Total issuance, including rollovers, repayments and refinancing

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