Fiscal deficit in 17 major states remains elevated at 3.2% of GSDP; capex loses momentum: Crisil

The fiscal deficit of 17 major Indian states remained elevated at 3.2% of gross state domestic product (GSDP) in fiscal 2026, with wide variations in fiscal performance across states, according to a Crisil analysis based on Comptroller and Auditor General (CAG) data on Tuesday.

The states together account for nearly 90% of India’s gross domestic product and total state revenue expenditure, and around 85% of total state capital outlay, the report said.

While Jharkhand recorded the lowest fiscal deficit at 1.2% of GSDP, Bihar reported the highest at 5.8%. Ten of the 17 states had fiscal deficits above 3% of GSDP, unchanged from the previous fiscal. However, fiscal discipline improved on another measure, with 13 states meeting or bettering their fiscal deficit targets in FY26, compared with eight in FY25.

“Fiscal fortunes diverge,” Crisil said, noting that fiscal deficits remained particularly high in Bihar, Madhya Pradesh, Tamil Nadu, Uttar Pradesh and Telangana. Bihar and Madhya Pradesh, along with Punjab, West Bengal, Rajasthan and Kerala, also carried high debt burdens.

Aggregate state debt rose to 29.2% of GSDP in FY26, based on budget estimates, from 28.1% in FY24, remaining well above the recommended threshold of 20%, the report said.

Revenue position weakens

The revenue position of states also deteriorated marginally. The combined revenue deficit of the 17 states increased to 0.8% of GSDP in FY26 from 0.7% a year earlier, even as revenue expenditure moderated to 12.6% of GSDP from 12.8%.

The increase in the revenue deficit was “driven primarily by slower growth in revenue receipts”, Crisil said. Twelve states reported revenue deficits in FY26, compared with 11 in FY25. Andhra Pradesh, West Bengal, Punjab, Bihar and Tamil Nadu recorded the largest revenue deficits.

In contrast, Jharkhand, Odisha, Uttar Pradesh and Gujarat recorded revenue surpluses.

The report also highlighted the impact of the 16th Finance Commission’s decision to discontinue Post-Devolution Revenue Deficit grants. The move is intended to strengthen fiscal discipline and encourage states to address revenue shortfalls through their own tax and non-tax mobilisation efforts.

Capex loses momentum

Capital expenditure, considered critical for long-term economic growth, also lost momentum in FY26. Capex among the 17 states stood at 2.2% of GSDP, below both 2.3% in FY25 and the budgeted 2.9% for FY26.

Only Telangana, Karnataka and Haryana achieved their capex targets in FY26, compared with six states in the previous fiscal. Odisha, Madhya Pradesh and Uttar Pradesh recorded the highest capex as a share of GSDP, while Uttar Pradesh, Maharashtra and Gujarat were the largest spenders in absolute terms.