Indian Economy: State Finances and Fiscal Deficit
Today, the Comptroller and Auditor General released its “State Finances 2024‑25” report revealing that 13 states posted revenue surpluses while 15 states recorded revenue deficits. The findings come as the Fifteenth Finance Commission’s 3 % of GSDP fiscal deficit target leaves 18 states above the benchmark, underscoring widening fiscal imbalances across the federation. State own‑tax revenues accounted for 50 % of the combined ₹40.52 lakh crore receipts, with State GST alone contributing over 43 % of that total.
- •The Comptroller and Auditor General of India, K Sanjay Murthy, released a report on 'State Finances 2024-25' on June 16, 2026, highlighting the financial performance of various states in India.
- •According to the report, 15 states had a revenue deficit, while 13 states recorded a surplus.
- •The report also noted that 18 states targeted a revenue surplus, but only nine achieved this goal.
The Comptroller and Auditor General of India, K Sanjay Murthy, released a report on 'State Finances 2024-25' on June 16, 2026, highlighting the financial performance of various states in India. According to the report, 15 states had a revenue deficit, while 13 states recorded a surplus. The report also noted that 18 states targeted a revenue surplus, but only nine achieved this goal. The states that achieved a revenue surplus include Uttar Pradesh, Gujarat, Jharkhand, Manipur, and nine other states.
- ▸The aggregate revenue deficit of the 15 revenue-deficit states stood at ₹3,46,385 crore, which was 1.5% of their combined Gross State Domestic Product (GSDP).
- ▸The net revenue deficit, after adjusting the revenue surplus in 13 states, stood at ₹2,19,041 crore, 0.68% of the combined GSDP of all 28 states.
- ▸The report highlighted the growing importance of states' own tax revenues, which accounted for 50% of the combined total revenue receipts of ₹40.52 lakh crore across the 28 states in 2024-25.
- ▸State GST constituted more than 43% of the combined states' own tax revenues.
Fiscal Deficit and Revenue Surplus
The report also noted that if the indicative fiscal deficit target of three per cent of the GSDP, fixed by the Fifteenth Finance Commission for 2024-25, is considered, then 18 states were above the target. This highlights the need for states to focus on fiscal consolidation and reduce their fiscal deficits. The Fifteenth Finance Commission played a crucial role in determining the fiscal deficit targets for states. The Goods and Services Tax (GST) has also had a significant impact on state finances, with states relying heavily on GST revenues.
Challenges in Achieving Revenue Surplus
Achieving a revenue surplus is a challenging task for states, as it requires a combination of increased revenue collection and reduced expenditure. The report noted that some states, such as Goa, Jharkhand, Tripura, and Uttar Pradesh, were able to achieve a revenue surplus, while others, such as Punjab, Rajasthan, and Tamil Nadu, ended the year with a revenue deficit. The Right to Information Act 2005 can help in increasing transparency and accountability in state finances, which can, in turn, help in achieving a revenue surplus.
Did You Know? The National Institute of Public Finance and Policy (NIPFP) has been working with states to improve their fiscal management and achieve fiscal consolidation. This highlights the importance of institutional support in achieving fiscal discipline.
Way Forward
To achieve fiscal consolidation and reduce fiscal deficits, states need to focus on increasing their own tax revenues and reducing unnecessary expenditures. The report highlights the need for states to prioritize their spending and focus on essential sectors such as healthcare, education, and infrastructure. The Public Finance Management System can help states in achieving this goal. The Accountability and Transparency in state finances can also be improved through the use of technology and data analytics.
- ▸The State Finance Commissions can play a crucial role in advising states on fiscal management and revenue collection.
- ▸The Fiscal Responsibility and Budget Management (FRBM) Act can help states in achieving fiscal discipline and reducing their fiscal deficits.
- ▸The National Financial Management Information System (NFMS) can help states in tracking their finances and achieving fiscal consolidation.
Concepts Mentioned
Fiscal Responsibility and Budget Management (FRBM) Act, 2003
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, is a legislation aimed at promoting fiscal discipline and responsible budgeting in India. It sets out to achieve a fiscal deficit of 3% of GDP by 2008 and ensures that the government maintains a stable and sustainable fiscal policy. For instance, it led to a significant reduction in India's fiscal deficit from 5.1% in 2003 to 2.5% in 2007.
State Finance Commissions
A State Finance Commission is a constitutional body appointed by a state legislature in India to recommend distribution of tax revenues between the state and its local bodies. Its recommendations shape fiscal devolution, ensuring municipalities and panchayats receive adequate funds for local development. For example, the 2022‑23 commission in Karnataka advised a 30% increase in grants to urban local bodies.
Accountability and Transparency
Accountability and transparency refer to the responsibility of individuals and organizations to act openly and honestly. This concept is significant in governance and management. For instance, the Freedom of Information Act promotes transparency.
Public Financial Management System
Public Financial Management System is a framework for managing public funds. It is significant for efficient allocation and utilization of resources. India's PFMS is a concrete example.
National Institute of Public Finance and Policy (NIPFP)
The National Institute of Public Finance and Policy is a research institute that analyzes public finance issues. It plays a significant role in informing policy decisions. NIPFP is based in New Delhi.
Right to Information Act, 2005
The Right to Information Act, 2005, is a law granting citizens access to government information. It promotes transparency and accountability, enabling citizens to request and obtain information from public authorities. The Act applies to all government bodies.
Goods and Services Tax (GST)
GST is a consumption-based tax levied on goods and services. It signifies a unified tax system, replacing multiple indirect taxes. India implemented GST in 2017.
Fifteenth Finance Commission
The Fifteenth Finance Commission is a constitutional body that reviews India's fiscal situation. It has significant implications for resource allocation. The commission was chaired by N.K. Singh.
Log in to like, comment, and join the discussion.