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When India’s nationalist auditor, the Comptroller and Auditor General (CAG), released a decadal investigation connected States’ macro-fiscal health, 1 header someway travelled faster than thing other highlighted successful the survey — Uttar Pradesh, agelong labelled arsenic a backward State lagging successful fiscal performance, was said to person recorded a gross surplus of ₹37,000 crore.
This number, which is much than treble of Gujarat’s surplus, was hailed arsenic impervious that India’s astir populous State had turned a corner. However, by simply focussing connected the number, 1 missed the bigger picture. Narrowing down connected conscionable arithmetic surpluses whitethorn beryllium limiting analytical mentation if not studied much holistically with the form, operational mechanics and choices made for a State’s governance.
Economists often impulse higher superior spending for growth, portion keeping regular costs successful check. These numbers determine whether one’s neighbourhood infirmary has caller ventilators; whether a schoolhouse gets capable teachers; and whether colony roads volition beryllium repaired this year. India’s States tally immoderate of the largest budgets successful the satellite — bigger successful existent presumption than galore countries. Cumulatively, owing to the law separation of powers, they walk much than the Union authorities connected wellness and welfare. One indispensable inquire though: bash States gain capable to wage their bills? Or are they borrowing?
Uneven revenue
In the aboriginal 2000s, States were often heavy successful deficit, spending overmuch much than they earned. Reforms, amended taxation collection, and booming maturation helped galore crook the country by the precocious 2010s, with a fewer adjacent reporting surpluses. But the pandemic was a turning constituent — taxation revenues shrank portion exigency spending soared, pushing astir each State back. Today, the representation is mixed. While immoderate States look comfortable, overmuch of their stableness rests connected volatile sources specified arsenic lotteries, mining royalties oregon onshore sales.
India’s States inhabit starkly antithetic fiscal worlds, overmuch similar its divers ethno-linguistic identities. Maharashtra raised astir 70% of its receipts internally successful 2022-23, portion Arunachal Pradesh managed lone 9%. Uttar Pradesh, contempt a surplus, generated conscionable 42% connected its own, relying connected Union transfers. In economical terms, this is referred to arsenic a vertical imbalance — affluent States money themselves, portion poorer ones thin connected Delhi.
Kerala’s lottery manufacture earned astir ₹12,000 crore successful 2022-23; Odisha drew 90% of its non-tax income from mining royalties; and Telangana sold onshore worthy ₹9,800 crore. However, lotteries hinge connected sales, royalties connected planetary prices, and onshore can’t beryllium sold twice.
Gross indebtedness borrowings
Let’s analyse the numbers from the CAG’s decadal investigation report. When States walk much than they earn, they thin to get more. They concern that shortage chiefly done loans oregon bonds that indispensable beryllium repaid with interest. The CAG, done its audited State Finances reports, brings america a consolidated nationalist picture, portion the RBI’s State Finances: A Study of Budgets report provides a accordant model for comparison. Taken together, these sources amusement that borrowing patterns betwixt 2016-17 and 2022-23 person diverged sharply successful India.
Table 1 deals with States specified arsenic Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Chhattisgarh and Goa. Andhra Pradesh tripled its borrowings to ₹1.86 lakh crore, portion Bihar doubled it, making indebtedness a regular instrumentality adjacent for poorer States. By contrast, Goa kept a choky lid connected borrowings, lasting retired arsenic a uncommon conservative. Yet the liabilities information shows the value of these choices: Andhra Pradesh’s indebtedness load swelled to 35% of its Gross State Domestic Product (GSDP) by 2023, and Bihar’s hovered around 39%, among the highest successful India. Assam’s accelerated borrowing was cushioned by growth, with liabilities easing somewhat to 22% of GSDP, portion Goa stayed astatine 27%, inactive precocious for a tiny State.
Table 2 deals with Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Kerala, and Madhya Pradesh. Here, borrowings roseate successful a measured but persistent way. Haryana jumped from ₹28,170 crore successful 2016-17 to ₹80,649 crore successful 2022-23, astir tripling its borrowings contempt being 1 of the richer States; its liabilities besides climbed to astir 31% of GSDP. Gujarat moved gradually upward, from ₹27,668 crore to ₹52,333 crore, portion keeping its indebtedness load dependable adjacent 19-20% of GSDP. Madhya Pradesh besides astir doubled its borrowings, from ₹29,847 crore to ₹58,867 crore, with liabilities rising to astir 29%.
The pandemic brought volatility. Karnataka’s borrowings spiked to ₹84,828 crore successful 2020-21, earlier being chopped backmost to ₹44,549 crore; adjacent aft retrenchment, its liabilities stood adjacent to 28% of GSDP. Kerala peaked astatine ₹69,735 crore and aboriginal eased to ₹54,007 crore, though its indebtedness load stayed stubbornly high, astatine astir 37% of GSDP. Smaller States remained humble — Himachal Pradesh’s liabilities reached astir 48% of its GSDP, portion Jharkhand’s borrowings hovered betwixt ₹7,000–₹13,500 crore with a steadier load of 27% of GSDP.
Table 3 deals with Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, and Punjab. This clump highlights extremes. Maharashtra borrowings bulged from a debased of ₹26,025 crore successful 2018-19 to a surge of ₹1,18,516 crore successful 2020-21, earlier moderating to ₹94,702 crore successful 2022-23. However, its ample system kept the indebtedness load contained astatine astir 20% of GSDP. Punjab remained persistently high, with borrowings ranging betwixt ₹83,627 crore successful 2016-17 and ₹89,544 crore successful 2022-23; its liabilities climbed to astir 45% of GSDP, showing chronic stress. Odisha bucked the trend, cutting borrowings from ₹11,223 crore to conscionable ₹5,347 crore acknowledgment to mining windfalls, and its liabilities fell to astir 15% of GSDP, the lowest successful India.
Manipur’s borrowings grew from ₹1,551 crore to ₹11,116 crore; Meghalaya from ₹1,210 crore to ₹6,221 crore; Mizoram from ₹756 crore to ₹4,019 crore; and Nagaland from ₹5,444 crore to ₹7,159 crore. Though tiny successful implicit numbers, these States transportation immoderate of the heaviest burdens, with liabilities ranging from astir 40-60% of GSDP, marking rising fiscal dependence.
Table 4 showcases Rajasthan, Sikkim, Tamil Nadu, Telangana, Tripura, Uttar Pradesh, Uttarakhand, and West Bengal. Rajasthan and Tamil Nadu emerged arsenic dense borrowers. Rajasthan quadrupled its borrowings, from ₹43,889 crore successful 2016-17 to ₹1,60,565 crore successful 2022-23, 1 of the steepest climbs nationwide, and its liabilities climbed to astir 40% of GSDP. Tamil Nadu moved steadily upward from ₹66,143 crore to ₹1,01,062 crore, portion its indebtedness ratio roseate to astir 33%. Telangana surged from ₹44,819 crore to ₹1,26,884 crore, though beardown maturation kept its liabilities mean astatine astir 28%.
West Bengal showed mean growth, from ₹37,524 crore to ₹70,243 crore, with liabilities remaining precocious astatine 37% of GSDP. In contrast, Uttar Pradesh somewhat reduced borrowings, from ₹67,685 crore successful 2016-17 to ₹66,847 crore successful 2022-23, holding its liabilities dependable astatine astir 31%. Uttarakhand’s borrowings besides dipped from ₹10,592 crore to ₹9,431 crore, but liabilities were inactive implicit 32% of GSDP, portion Tripura shrank from ₹1,140 crore to conscionable ₹877 crore but carried a indebtedness load supra 30%. Sikkim remained marginal throughout, nether ₹2,100 crore, though its indebtedness stood astatine astir 24% of GSDP.
Borrowings spiked everyplace during the pandemic. But what happened afterwards differed: immoderate States similar Andhra Pradesh, Rajasthan, and Telangana kept expanding their borrowings; Karnataka, Kerala, and Maharashtra chopped back; and a fewer similar Odisha, Uttar Pradesh, and Tripura reduced their borrowings adjacent further, revealing precise antithetic fiscal strategies.
The payment paradox
While immoderate States amusement surpluses, successful reality, they thin heavy connected cardinal transfers, off-budget loans, and delayed GST compensation. A batch of these States aren’t sufficiently spending connected payment priorities and truthful immoderate reported surplus whitethorn person accounting gains without developmental gains. Also, States similar Punjab wrestle with chronic debt; Kerala relies connected volatile revenues from lotteries; portion Andhra Pradesh and Uttar Pradesh, done escaped powerfulness and workplace waivers, spot their costs deferred into the opaque machinery of guarantees and peculiar intent vehicles.
Corporate taxation cuts, GST cesses, and rebranded societal spending disguise the existent burden, leaving fiscal prudence a mirage. With the caller GST rejig and a higher fiscal gross nonaccomplishment expected, 1 tin hardly cognize its broader interaction connected fiscal spending by States connected their already frugal payment budgets. Yet, wrong this fragility, payment schemes successful immoderate centralised backing schemes person proliferated: PM-KISAN deposits, Ujjwala cylinders, and Ayushman Bharat cards circulate similar tokens of governmental theatre successful projecting the ruling dispensation and its person arsenic the look of India’s payment populist base.
It is precisely this tension, of a State that spends lavishly portion its revenues strain, that frames India’s existent payment paradox. The federation has constructed 1 of the largest payment states successful the satellite portion sustaining 1 of the thinnest fiscal bases among middle-income economies portion being excessively babelike connected borrowings. The paradox reflects a nation-state projecting bonzer promise, with constrained and inhibitive fiscal capacity, where, a spectacle of attraction is built connected the brink of fiscal scarcity.
Deepanshu Mohan is Professor and Dean, O.P. Jindal Global University (JGU)and Visiting Professor, LSE and Research Fellow, University of Oxford. Geetaali Malhotra and Aditi Lazarus, probe analysts with CNES, JGU respectively, contributed to this article.
