The CAG reported highlighted that regardless of beneficial macroeconomic atmosphere, Tamil Nadu’s fiscal place remained underneath stress. “Whereas deficit ranges and debt ratios stay inside prescribed limits, the underlying fiscal construction is characterised by weak income buoyancy, excessive dedicated expenditure, rising subsidy dependence, and suboptimal utilisation of borrowings,” it famous.
The state’s capex elevated in absolute phrases, however constituted solely 12.14% of complete expenditure and 1.51% of GSDP, which is decrease than the all-States common. Development in income receipts lagged behind GSDP reflecting low income buoyancy and solely 33% of public debt receipts translated into capex. Excellent public debt elevated by 309% throughout the decade from 2015-16 to 2024-25, rising from ₹1,94,096 crore to ₹7,94,107 crore.
Quite a few different studies of the CA have flagged the same development throughout states. Take one other occasion—Kerala. A latest CAG report on the state’s funds for FY25 famous that complete expenditure grew by 8.97% throughout FY25, primarily pushed by a 9.32% (₹13,294.44 crore) improve in income expenditure.
Considerably, capex was at a decadal excessive of ₹17,886.78 crore in FY25.
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However the report flagged that Kerala continues to resort to important off-budget borrowings by means of two state public sector enterprises—Kerala Infrastructure Funding Fund Board and Kerala Social Safety Pension Ltd—that are serviced from the Consolidated Fund of the state however aren’t disclosed in its funds.
Equally, audit studies of states together with Haryana, Himachal Pradesh, Rajasthan and Jharkhand have additionally highlighted comparable points round falling capex at the same time as borrowings are rising and monetary consolidation is in danger.
Even in more moderen years of FY26 and FY27, analysts have flagged weakening fiscal well being of states.
A latest report by Crisil famous that the fiscal deficit of 17 main states remained elevated at 3.2% of GSDP in FY26, although efficiency different considerably throughout states. Income deficit elevated to 0.8% of GSDP from 0.7% a yr earlier amid moderating income progress, with extra states slipping into deficit, it additional stated, including that capital expenditure (capex) moderated, with solely three states reaching their capex targets, whereas market borrowing rose sharply.
“Capex, which is important for long-term progress, misplaced some momentum in fiscal 2026,” it stated. For the 17 states within the evaluation, state capex stood at 2.2% of GSDP, decrease than each 2.3% in fiscal 2025 and the budgeted 2.9% for fiscal 2026.
A latest report by Morgan Stanley additionally identified that whereas the mixture fiscal place of states has stabilised from pandemic-era stress, a number of structural challenges proceed to weigh on fiscal balances, inflicting combination state funds to plateau. States account for about 53% of complete authorities spending (Centre plus state) and thus have a significant impression on the financial system, it stated however famous that on the combination stage, the standard of expenditure has weakened on the margin, with complete spending moderating to fifteen.2% of GSDP in F2026.
During the last couple of years, the expenditure combine has been more and more directed in the direction of redistributive spending within the type of money transfers and welfare schemes, to assist the weak and marginalised sections of the group. It expects the mixture state fiscal deficit to be at 3.2% of GSDP in F2027, consistent with the previous two years.
“Over the medium time period, we imagine that the states might want to prioritize fiscal prudence to attain significant debt consolidation,” it stated, including that the sustainability of state funds would require sustained income progress by means of stronger tax buoyancy, alongside improved expenditure high quality with better emphasis on productive capex.
