State debt triples in a decade, touches Rs 59.6 lakh crore: CAG flags worrying trends

Punjab tops with 40% debt-to-GSDP; Odisha lowest at 8%

India’s states are sitting on a mountain of debt that has tripled in a decade, according to a first-of-its-kind decadal analysis by the Comptroller and Auditor General of India (CAG).

As reported by The Indian Express, the total public debt of all 28 states rose from Rs 17.57 lakh crore in 2013-14 to Rs 59.60 lakh crore in 2022-23. That means debt grew more than 3.3 times in ten years, eating up a bigger share of states’ economic output.

Measured against Gross State Domestic Product (GSDP), debt went up from 16.66 percent in 2013-14 to nearly 23 percent by 2022-23. The findings were released on Friday by CAG K Sanjay Murthy during the State Finance Secretaries Conference.

Where the burden is heaviest

Not all states are equally indebted. At the end of FY23, Punjab recorded the highest debt-to-GSDP ratio at 40.35 percent, followed by Nagaland (37.15 percent) and West Bengal (33.70 percent).

At the other end of the spectrum, Odisha kept its debt ratio at just 8.45 percent, while Maharashtra (14.64 percent) and Gujarat (16.37 percent) also managed relatively lower levels.

Overall, eight states had public debt above 30 percent of GSDP, six states below 20 percent and the rest between 20 percent and 30 percent, The Indian Express noted.

The states’ combined debt was equivalent to 22.17 percent of India’s GDP, which stood at Rs 268.9 lakh crore in FY23.

Why the numbers matter

Public debt isn’t just about headline figures—it shows how governments are funding their spending. According to the report, state debt as a share of revenue receipts has hovered between 128 percent and 191 percent in the past decade. On average, debt stood at around 150% of states’ annual revenues.

A sharp jump was seen in FY21, when debt rose to 25 percent of GSDP from 21 percent the previous year, largely because the Covid-19 pandemic hit economic activity, even as states borrowed more.

Much of the additional borrowing between 2020-21 and 2022-23 came from the Union government through back-to-back GST compensation loans and special assistance packages for capital expenditure.

Borrowing for day-to-day spending

The report also flagged a breach of the so-called 'golden rule' of borrowing, which says governments should raise debt only for investment, not to fund operating costs.

In FY23, 11 states, including Andhra Pradesh, Punjab, West Bengal, Kerala, Bihar, and Tamil Nadu, spent part of their borrowings on meeting revenue deficits instead of capital expenditure.

In Punjab and Andhra Pradesh, capital spending was as low as 26 percent and 17 percent of net borrowings, respectively. In Haryana and Himachal Pradesh, only about half of the debt went into capital projects.

States borrow in many ways, through market securities like bonds and treasury bills, loans from banks, Ways and Means Advances from the RBI, and funding from institutions like LIC and NABARD. Together, these form the public debt that CAG has mapped.