States on a borrowing spree: 18 states account for 95% of state debt

WITH JUST four months left in the current fiscal (FY25), state governments find themselves ensnared in a persistent financial quagmire, with their collective indebtedness steadfastly hovering around 31-32% of Gross State Domestic Product (GSDP). A comprehensive study by CRISIL Ratings, encompassing 18 states that account for a staggering 95% of state debt, paints a picture of relentless borrowing. Approximately ₹7.4 lakh crore in new debt is anticipated, fuelled by an ambitious ₹7.2 lakh crore surge in capital expenditures aimed at bolstering infrastructure — from sprawling road networks to vital water supply and sanitation systems — and a stubborn revenue deficit of around ₹1.1 lakh crore, a consequence of high revenue expenditures and tepid revenue growth. Yet, recent state elections show that in the power play, politicians are willing to sacrifice fiscal prudence at the altar of populism.