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Debt-to-GDP ratio of Indian states in 2023

Have you ever wondered why some states in India seem to be doing better than others? One of the factors is their debt-to-GDP ratio. In this article, we explore the reasons behind their varying degrees from state to state

Published: Sep 22, 2023 04:35:38 PM IST
Updated: Sep 22, 2023 04:42:34 PM IST

Debt-to-GDP ratio of Indian states in 2023

The debt-to-GDP ratio of India is a fundamental economic metric in assessing India’s ability to manage its debt burden and overall economic well-being. However, the debt-to-GDP ratio of India as a whole doesn't provide a complete picture of the economic well-being of individual states or regions within the country. This is where the debt-to-GDP ratio of Indian states reflects each state's specific financial situation and policies.

Debt-to-GDP Ratio in Indian States in 2023-24

The debt-to-GDP ratio of Indian states influences credit ratings, budgetary decisions and fiscal strategies. By monitoring and managing this ratio effectively, states can maintain long-term financial stability, ensure responsible fiscal management, and make informed economic policy choices.

The debt-to-GDP ratio of Indian states is calculated by dividing the total outstanding debt of a specific state by its Gross Domestic Product (GDP) and multiplying by 100 to express it as a percentage. Here's the formula:

Debt-to-GDP Ratio for States = (Total State Debt / State GDP) * 100

State Projected Debt-to-GDP (%) in FY 2023-24
Projected GSDP (Rs Lakh Crore) (FY 2023-24)
Arunachal Pradesh 53 0.37
Punjab 46.8 6.98
Nagaland 41.6 0.37
Manipur 40 0.45
Meghalaya 39.9 0.46
Himachal Pradesh 39 2.14
Bihar 37.8 8.59
Mizoram 37.8 0.35
West Bengal 37.7 17.19
Rajasthan 36.8 15.7
Kerala 36.6 11.3
Andhra Pradesh 33.3 14.49
Goa 32.2 1
Uttar Pradesh 32.1 24.39
Sikkim 31.5 0.42
Madhya Pradesh 30.4 13.87
Uttarakhand 28.2 3.33
Jharkhand 27 4.23
Tamil Nadu 25.6 28.3
Haryana 25.5 2.96
Assam 24.4 5.67
Telangana 23.8 14
Chattisgarh 23.8 5.07
Karnataka 23 25
Maharashtra 18.2 38.79
Gujarat 14.9 25.62
Odisha 13.1 8.65
GDP and Debt to GDP data are sourced from PRS Legislative Research and compiled by Forbes India based on 2023-24 budget estimates

Why do states see an increase in the debt-to-GDP ratio?

The debt-to-GDP ratio of Indian states can increase due to several reasons, such as:

  1. Spending on infrastructure development, social welfare programs, and public services.
  2. Budget deficits when revenue generation is less than expenditure.
  3. Economic shocks and unforeseen circumstances.
  4. Political pressures lead to populist spending.
  5. Limited revenue-raising powers of the state government.

Due to these circumstances, debt accumulation arises to bridge fiscal gaps, stimulate growth, and address the diverse demands of India's vast population.

Factors affecting variation in debt-to-GDP ratios of Indian states

Overall, the state-wise debt in India varies due to the following reasons-

  1. Economic Disparities: States with higher GDPs tend to have lower debt-to-GDP ratios.
  2. Fiscal Policies: Prudent fiscal practices can lead to lower debt burdens.
  3. Demographic Factors: Population size and growth influence revenue generation and social spending, affecting the ratio.
  4. External Shocks: Natural disasters and economic shocks may lead to increased borrowing.
  5. Political Decisions: Governance quality impacts responsible debt management.
  6. Regional Disparities: Variations in regional economic conditions and historical debt burdens add complexity to these ratios

As we saw in the table above, Indian states with a high debt-to-GDP ratio include Arunachal Pradesh at the top, followed by Punjab, Nagaland, Manipur and Meghalaya.

This is because of factors such as:

  1. In Arunachal Pradesh and other North-Eastern states, economic disparities, limited industrialisation, rugged terrain and sparse population.
  2. The agricultural sector struggles in Punjab, coupled with a history of populist policies.

Conversely, the states in India that have better debt-to-GDP ratios include Chhattisgarh at the top, followed by Karnataka, Maharashtra, Gujarat, and Odisha. This is because of factors such as:

  1. Chhattisgarh's robust economic growth is driven by mining and agriculture.
  2. Karnataka's growth is driven by its thriving information technology and industrial sectors.
  3. Maharashtra's diverse and dynamic economy is centred around Mumbai.
  4. Gujarat's industrialisation and efficient tax collection mechanisms.
  5. Odisha’s mineral resources and a growing manufacturing sector.

Implications of High Debt-to-GDP Ratios of Indian States

A high debt-to-GDP ratio signifies a state's debt burden is substantial compared to its economic output. This indicates financial vulnerability and reduced fiscal flexibility. High debt levels can increase interest payments, crowding out other critical expenditures like healthcare and education. It may also raise concerns among investors and credit rating agencies, resulting in higher borrowing costs.

States with elevated debt levels face several challenges:

  1. Budget constraints: High-interest payments on debt reduce funds for critical services like education and healthcare.
  2. Reduced fiscal flexibility: Elevated debt levels hinder the ability to respond to economic downturns or emergencies.
  3. Investor confidence: High debt erodes investor confidence, raising borrowing costs and hindering economic growth.
  4. Credit rating impact: It leads to credit rating downgrades, indicating higher credit risk and intensifying financial pressures.

States must implement austerity measures, fiscal reforms, and debt reduction strategies to address these challenges effectively.

State Case Studies

In the past, how have states with increasing debt-to-GDP ratios dealt with arising issues? Let’s look at some examples:


Despite Kerala’s commendable social and human development indicators, Kerala has one of the highest debt-to-GDP ratios among Indian states, mainly due to heavy spending on social welfare programs and infrastructure investments. This elevated debt level has increased interest payments, constraining budget allocations for critical services. Kerala implemented policy measures such as fiscal consolidation, revenue enhancement through taxes and non-tax revenue sources, and austerity measures to tackle this issue.


After Arunachal Pradesh, Punjab has the highest state-wise debt in India.  The reasons include excessive spending on agriculture subsidies, pension obligations, and infrastructure development. This put immense pressure on the state's finances, reducing education and healthcare funds. Punjab initiated policy measures to address this challenge, including the Punjab Fiscal Responsibility and Budget Management Act, to curb fiscal deficits and limit debt accumulation. The state also sought to diversify its revenue sources, enhance tax collection, and rationalise subsidies.

Debt Sustainability and Management

Debt sustainability refers to a government's ability to meet debt obligations without risking a financial crisis. Effective debt management means lowering the debt-to-GDP ratio of Indian states and involves controlling borrowing, optimising debt structure, and ensuring funds are used efficiently.

Strategies to improve the high debt-to-GDP ratio of Indian states include:

  1. Fiscal Discipline: Reduce budget deficits to curtail debt accumulation.
  2. Revenue Enhancement: Boost revenue through effective taxation policies.
  3. Prudent Borrowing: Implement responsible borrowing practices.
  4. Debt Restructuring: Refinance existing debt to secure lower interest rates.
  5. Economic Growth: Invest in productive sectors to stimulate GDP growth.
  6. Enhanced Creditworthiness: These strategies can improve credit ratings.
  7. Lower Borrowing Costs: Resulting in reduced interest payments.
  8. Sustainable Finances: Ensuring long-term fiscal stability.

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