Syllabus:

GS3: Indian Economy and issues relating to planning, mobilization of resources, growth, development.

GS2: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels.

Context: 

The states’ total debt in 2022-23 was 22.17% of the country’s Gross Domestic Product (GDP) as per the CAG Report. 

More on the news

• The State Finances Publication 2025 is released by the Comptroller and Auditor General of India (CAG). 
• It is a first-of-its-kind report by the CAG that provides a decadal analysis on fiscal health of states.

Key Highlights of the Report

Public Debt of states: The combined public debt of all 28 states nearly tripled over a decade, rising from ₹17.57 lakh crore in 2013–14 to ₹59.60 lakh crore in 2022–23, equivalent to 22.96% of their aggregate GSDP of ₹2,59,57,705 crore.

Debt-to-GSDP ratio: At the end of 2022-23, the highest debt-to-GSDP ratio of was recorded in Punjab (40.35%), Nagaland (37.15%) and West Bengal (33.7%s)

• The lowest ratio was recorded in Odisha (8.45%), Maharashtra (14.64%) and Gujarat (16.37%).

The Public Debt of states includes: 

• Loans raised from open market through securities, treasury bills, bonds, etc.
• Loans from state bank of India and other banks.
• Ways and means advances (WMA) from Reserve Bank of India.
• Loans from financial institutions such as Life Insurance corporation of India (LIC) and National bank for agriculture and rural development (NABARD).

Gross State Domestic Product (GSDP): It is the value of all finished goods and services produced within a state’s geographical boundaries.

Capital expenditure: It is the long-term investments made toward creating assets that enhance production capabilities and operational efficiency and generate revenue over time. It increases employment opportunities, strengthen economies, and increase future production capacities. E.g. Investment in roads, industrial corridors, export hubs, renewable energy projects.

Revenue expenditure: It refers to the money spent on everyday operations needed to keep their activities running, i.e. employee salaries, infrastructure maintenance, utility payments, and other essential expenses for providing public services.

State’s Expenditure: 

• In 11 states, capital expenditure was less than the net public debt receipts in FY 2022-23. This could be due to part of debt receipts meeting the revenue deficit.
• In FY 2022–23, states’ committed expenditure on salaries, pensions, and interest consumed about 43.5% of total revenue expenditure, with salaries being the largest share. This share ranged from 74% in Nagaland to 32% in Maharashtra.
• Subsidies accounted for 8.6% of revenue expenditure.

States Total Debt: 

• On an average, public debt of the states has been about 150% of their revenue receipts / total non-debt receipts.
• As percentage of revenue receipts, the states’ total debt ranged between 128% (FY 2014-15) and 191% (FY 2020-21).
• As percentage of total non-debt receipts, the states’ total debt ranged between 127% (FY 2014-15) and 190% (FY 2020-21).
• The report highlighted that 11 states used borrowed money to finance their current expenditures.

Sources:
Indian Express
Indian Express