States face pressure to rein in deficits, boost revenue and increase capex: Crisil

New Delhi [India], August 11 (ANI): Indian states will need to focus on sustainable spending, stronger revenue mobilisation and a revival in capital expenditure to contain fiscal pressures, as elevated deficits and rising dependence on market borrowings continue to weigh on their finances, according to a Crisil report.
The report said the fiscal challenge for states is likely to intensify as they balance development priorities with fiscal prudence. With revenue growth remaining uneven, states will need to improve the quality of expenditure rather than simply increase spending, particularly as their debt levels remain elevated.
An analysis of 17 major states showed that their aggregate fiscal deficit remained high at 3.2 per cent of Gross State Domestic Product (GSDP) in fiscal 2026. Although 13 states met or bettered their fiscal deficit targets, up from eight in fiscal 2025, 10 states continued to report deficits above 3 per cent of GSDP.
State debt rose to 29.2 per cent of GSDP in fiscal 2026 from 28.1 per cent in fiscal 2024, remaining well above the recommended threshold of 20 per cent. Bihar recorded the highest fiscal deficit at 5.8 per cent of GSDP, while Jharkhand had the lowest at 1.2 per cent.
The revenue position also weakened, with the combined revenue deficit of the 17 states rising to 0.8 per cent of GSDP from 0.7 per cent a year earlier. Twelve states reported revenue deficits in fiscal 2026, compared with 11 in fiscal 2025, reflecting slower growth in revenue receipts.
Capital expenditure, a key driver of long-term growth, also lost momentum. State capex stood at 2.2 per cent of GSDP in fiscal 2026, below 2.3 per cent in fiscal 2025 and the budgeted 2.9 per cent. Only Telangana, Karnataka and Haryana achieved their capex targets.
At the same time, states increasingly relied on market borrowing to finance their deficits. The share of fiscal deficits funded through market loans rose to 76 per cent in fiscal 2026 from around half in fiscal 2017. Gross market borrowings surged 19 per cent year-on-year to Rs 12.76 lakh crore, exceeding the budgeted Rs 12.45 lakh crore.
The report noted that the combination of higher revenue deficits, weaker-than-budgeted capex and increased borrowing points to growing expenditure commitments amid uneven revenue growth. It said the key challenge for states will be to ensure that spending is not only higher, but also fiscally sustainable. (ANI)