Indian states' debt stays elevated

While two industrial hubs lead in fiscal discipline, Punjab and West Bengal struggle with debt-to-GSDP above 40 percent

Feb 26, 2026, 14:10 IST1 min

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State debt inches up: State debt levels surged during the pandemic, peaking at 31 percent of GSDP in FY21, before gradually easing. But the consolidation has been slow—aggregate debt is projected to inch back up to 29.2 percent in FY26, remaining well above pre-pandemic levels.

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Only two states under debt limit: Punjab and West Bengal carry the heaviest debt burden among Indian states, at 46.9 percent and 40 percent of GSDP, respectively. At the other end, Gujarat and Maharashtra remain relatively fiscally lean. Debt-to-GSDP ratios in 15 of the 17 states currently surpass the 20 percent threshold established by the FRBM Review Committee in 2018.

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Deficit above threshold: States' fiscal deficit spiked to 4.1 percent of GSDP in FY21 as pandemic spending surged. While consolidation followed, the deficit has stabilised around 3.3 percent in FY25 and FY26—it is still above the 3 percent threshold recommended by the 15th Finance Commission.

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Seven states with higher deficit ratios: Bihar, Andhra Pradesh, Chhattisgarh and Madhya Pradesh posted the highest fiscal deficits in FY25, each exceeding 4.5 percent of GSDP. Gujarat and Uttar Pradesh were the most fiscally conservative, suggesting wide variation in how states are managing their expenditure against revenues.