11 States’ debt-to-GSDP ratio expected to cross 35% in FY26

Arunachal Pradesh has highest debt-GSDP ratio followed by Punjab and Himachal Pradesh. Odisha features at the bottom of the list. 
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As many as 11 States are estimated to see debt as a ratio of GSDP (Gross State Domestic Product) to touch 35 per cent or more in the current fiscal year (2025-26), data presented in Rajya Sabha on Tuesday showed.

Data, as part of a written response by the Minister of State in the Finance Ministry, Pankaj Chaudhary, showed that Arunachal Pradesh has highest debt-GSDP ratio followed by Punjab and Himachal Pradesh. Odisha is at the bottom of the list. Although the government did not give any reason for high debt-GSDP ratio in various States, two reasons are often cited for this. First, own tax revenue in these States are low and second, expenditure, especially on the revenue side, is on the rise.

Meanwhile, Chaudhary said that all States have enacted their Fiscal Responsibility and Budget Management (FRBM) Act. Compliance to the State FRBM Act is monitored by the respective State legislatures. “The Department of Expenditure, Ministry of Finance, generally follows the fiscal limits mandated by the accepted recommendations of the Finance Commission while exercising the powers to approve borrowings by States under Article 293 (3) of the Constitution of India,” he said.

Further, the normal net borrowing ceiling (NBC) of each State is fixed by the Union government in the beginning of each financial year. Adjustments for over-borrowing by States during previous years, if any, are made in the borrowing limits of subsequent year, he added.

Fund devolution

Chaudhary highlighted that instances of borrowings by certain State public sector companies, special purpose vehicles (SPVs) and other equivalent instruments, where principal and/or interest are to be serviced out of the State budgets, had come to the notice of the Finance Ministry.

“Considering the effect of bypassing the NBC of the States by such borrowings, from the financial year 2021-22, borrowings by State Public Sector companies/corporations, Special purpose vehicles (SPVs) and other equivalent instruments, where principal and/or interest are serviced out of the State Budgets and/or by assignment of taxes/cess or any other State’s revenue, are considered as borrowings made by the State itself for the purpose of issuing the consent under Article 293(3) of the Constitution of India,” he said.

Meanwhile, Chaudhary informed that Centre has followed the practice of regular monthly release of information with respect to devolution of States’ share in Central taxes and duties over the last five financial years. States’ share devolved are initially determined based on budget estimates (BE) and revised estimates (RE) of the collections. These releases are further ascertained and certified by the Comptroller & Auditor General. “Any change in initial amounts devolved to States are determined based on the C&AG certificate,” he said.

Funds due to be devolved to States are worked out based on the stipulations contained in the Constitution. However, cesses and surcharges are not distributed between the Union and the States. In view of this Constitutional position, there are no State-wise dues to be devolved on account of cesses and surcharges. “To enhance the spirit of cooperative fiscal federalism, the government has taken steps such as advancement of release date of devolution from 20 to 10 of a month beginning April 2022, advance release of States’ shares during this financial year (11 instalments have been released during 9 months of this FY), etc,” Chaudhary said.

Published on December 16, 2025