States' liabilities rise to ₹90.5 tn in FY25, many breach fiscal gap limit: CAG

Total liabilities of all 28 Indian states combined reached Rs 90.51 lakh crore (approximately Rs 90.5 trillion) as of March 31, 2025, according to the CAG's ...

What Happened

Total liabilities of all 28 Indian states combined reached Rs 90.51 lakh crore (approximately Rs 90.5 trillion) as of March 31, 2025, according to the CAG's State Finances 2024-25 audit report.
Outstanding public debt of states — the component of liabilities comprising market borrowings, loans from the Centre, and other formal debt — stood at Rs 75.52 lakh crore, having more than tripled from Rs 23.92 lakh crore in 2015-16.
In the same period, aggregate state expenditure roughly doubled, meaning debt accumulation outpaced even the sharply rising spending trajectory — reflecting consistent and widening fiscal deficits across all states.
More than half the states breached the 3 per cent of GSDP fiscal deficit ceiling in FY25, indicating that the borrowing pace is not a one-off but a structural trend.

Static Topic Bridges

Structure of State Liabilities

State government liabilities consist of two broad categories. The first is public debt — comprising market borrowings (State Development Loans, or SDLs, issued through the Reserve Bank of India), Central government loans to states, and external borrowings. The second category is other liabilities — comprising small savings collections, provident funds, reserve funds, and deposits. In FY25, public debt (Rs 75.52 lakh crore) formed the dominant part of total liabilities (Rs 90.51 lakh crore), with the remainder representing these other liability categories. The growth in market borrowings has been especially sharp because states have increasingly relied on SDLs as the primary vehicle for financing deficits.

Total state liabilities FY25: Rs 90.51 lakh crore
Outstanding public debt FY25: Rs 75.52 lakh crore
Public debt in 2015-16: Rs 23.92 lakh crore — tripled in one decade
State Development Loans (SDLs) are the primary market borrowing instrument of states; auctioned through the RBI
Other liabilities include small savings, provident funds, reserve and deposit accounts

Connection to this news: The tripling of public debt in ten years — while total expenditure rose 131 per cent — means debt is growing faster than spending, implying that the deficit-financing gap itself has been widening.

Fiscal Responsibility and Borrowing Limits

Under the amended FRBM framework applicable to states, the central government sets annual borrowing limits for each state under Article 293(3) of the Constitution, which requires states to obtain Centre's consent for borrowing when they are indebted to it. In practice, the Fifteenth Finance Commission's fiscal consolidation roadmap set a 3 per cent of GSDP fiscal deficit ceiling for FY25, with additional conditional borrowing headroom of up to 0.5 per cent for states completing specified power-sector reforms. The NK Singh Committee on FRBM (2017) had recommended a debt-to-GDP target of 60 per cent total (40 per cent Centre, 20 per cent states) as a long-run anchor. With states' liabilities now at Rs 90.51 lakh crore against a combined GSDP of approximately Rs 3.24 lakh crore per annum, the sustainability of the debt trajectory is a growing concern.

Article 293(3): States cannot borrow abroad; must seek Centre's consent if indebted to it
15th Finance Commission fiscal deficit ceiling for FY25: 3% of GSDP for states
Conditional 0.5% extra borrowing available for states undertaking power sector reforms
NK Singh Committee (2017) recommended 20% of GDP as long-run state debt ceiling
15 states exceeded the 3% fiscal deficit benchmark in FY25; Meghalaya (8.69%), Nagaland (6.14%) were highest
States with substantial FY25 deficit increases include AP, Assam, Gujarat, Karnataka, Kerala, MP, Maharashtra, Meghalaya, Mizoram, Nagaland, Odisha, Tripura, Uttarakhand

Connection to this news: Persistent breaches of the 3 per cent ceiling compound over time: each year of excess borrowing adds to the stock of debt, making future compliance harder and debt service costs higher.

Debt Sustainability and Intergenerational Equity

Rising public debt has implications beyond immediate fiscal management. Debt service (interest + principal repayment) is a committed expenditure claim on future revenues. In FY25, interest payments alone accounted for a significant slice of states' committed expenditure (combined with salaries and pensions, this bloc exceeded 43 per cent of revenue spending). High debt loads constrain a government's ability to respond to future shocks — whether economic downturns, natural disasters, or public health emergencies — because the debt ceiling limits additional borrowing capacity. The concept of intergenerational equity in public finance holds that current generations should not finance current consumption by shifting debt burdens to future taxpayers.

Interest payments are among the largest committed expenditure items for high-debt states
Punjab and Himachal Pradesh are notable examples of states where high legacy debt severely constrains fiscal flexibility
Debt sustainability analysis typically looks at the primary deficit (fiscal deficit minus interest payments) and whether interest payments are growing faster than revenues
FRBM norms require states to put debt on a declining path as a share of GSDP

Connection to this news: The tripling of state public debt in a decade while revenues doubled raises genuine sustainability questions — particularly for smaller states where debt service is already consuming a large share of own revenues.

Key Facts & Data

Total state liabilities as of March 31, 2025: Rs 90.51 lakh crore (Rs 90.5 trillion)
Outstanding public debt (states): Rs 75.52 lakh crore
Public debt in 2015-16: Rs 23.92 lakh crore — more than tripled in ten years
15 states exceeded the 3% of GSDP fiscal deficit ceiling in FY25
Meghalaya: 8.69% of GSDP fiscal deficit (highest); Nagaland: 6.14%; Sikkim: 5.59%
All 28 states recorded fiscal deficits in FY25
Combined state expenditure FY25: Rs 51.20 lakh crore
15th Finance Commission fiscal deficit ceiling for states in FY25: 3% of GSDP
NK Singh Committee (2017) recommended state debt ceiling at 20% of GDP (combined Centre + state target: 60% of GDP)
Committed expenditure (salaries + pensions + interest): over 43% of combined state revenue expenditure
States' combined revenue receipts FY25: Rs 40.52 lakh crore