Indian States Are Drowning in Debt, Says CAG Report

In 10 Years, State Borrowings Have Tripled

September 22, 2025

A report released by the Comptroller and Auditor General (CAG) shows that India’s states have accumulated around 60 trillion (60 lakh crore) rupees in debt by 2022–23, more than three times what they owed a decade ago. It shows that many states are no longer borrowing mainly for development, but are now depending on loans just to fund their basic governance.

Here, “debt” means the money that state governments borrow, either by issuing bonds that are bought by investors like banks and pension funds, or by taking loans from institutions such as the central government or public sector banks, with a commitment to repay it over time. Just as a household might take a loan to build a house or buy a car, governments borrow to fund development projects, build infrastructure, or in some cases, to meet everyday running costs. The concern here is about both the amount of borrowing and the reason for which it is being done.

Between 2013-14 and 2022-23, the combined debt of all Indian states rose from 17.5 trillion (17.5 lakh crore) rupees to nearly 60 trillion (60 lakh crore) rupees, as reported by The Times of India. This is more than a threefold increase in just 10 years. The steep rise shows that borrowing has not been modest or occasional; it has become a regular and growing feature of state finances.

Another way economists track debt is by comparing it to the size of a state’s economy, through Gross State Domestic Product (GSDP). There was a rise in the debt-to-GSDP ratio from 16.6 percent in 2013-14 to 23 percent in 2022-23. This means that debt is growing faster than the income or output of the states. It is similar to a family’s income staying the same while their loans keep increasing. At some point, this puts pressure on their ability to repay, and makes them financially vulnerable.

Punjab’s debt level is now over 40 percent of its economy, which is quite severe. For every 100 rupees Punjab earns as economic output, it carries a burden of 40 rupees in debt. Nagaland’s debt has crossed 38 percent of its economy and West Bengal’s is over 37 percent, putting both among the most heavily indebted states. Odisha, by contrast, has kept its debt around 8 percent of its economy, showing tighter control over its finances. Maharashtra and Gujarat have also seen sharp rises, with debt now above 20 percent of their state economies, which shows that this pattern of rising debt extends even to states with stronger economic bases.

The purpose of borrowing is equally important. Ideally, states borrow to invest in roads, schools, hospitals, or other long-term projects that improve the economy and help repay the debt later. But the CAG report shows that several states, including Andhra Pradesh, Punjab, West Bengal, Kerala, Bihar and Tamil Nadu, are using loans just to cover their everyday expenses. This includes paying salaries, pensions and electricity bills. To draw a comparison, it is like taking a loan not to buy a house or start a business, but to buy groceries and pay rent every month. This creates a cycle where fresh borrowing becomes necessary just to stay afloat, which weakens long-term financial stability.

Spending borrowed money on regular expenses is against sound financial practice. Most financial rules suggest that governments must keep their day-to-day spending within their income from taxes and other sources. If they borrow, it should be for development, not routine functioning. Ignoring this discipline makes state finances fragile and can cause long-term harm.

There are also other consequences. High debt means higher interest payments. A larger chunk of a state’s budget must go toward paying interest on past loans, leaving less money for education, healthcare or infrastructure. It also affects the creditworthiness of states, making future borrowing more expensive. Investors become wary, and the central government may be forced to step in to help states in financial distress, which puts pressure on national finances as well.

There’s a need for stronger financial discipline, better planning and stricter oversight.

The threefold rise in states’ debt over 10 years shows that India’s public finances are under rising stress. It suggests that many state governments have not been able to raise enough revenue to meet their growing expenses, leading them to borrow heavily year after year. This can point to deeper issues such as weak tax collection, high spending commitments and limited financial support from the central government. Over time, this pattern can reduce the flexibility of states to respond to emergencies, fund development or manage economic slowdowns, because more of their budget gets locked into repaying past loans.

The opposition Congress party has claimed that the central government is not giving states their fair share of funds and is instead using its financial power to control them. The party called it “coercive federalism,” which means that although India is meant to follow a federal system where both the Centre and the states have certain powers and responsibilities, the Centre is allegedly using its control over money to pressure states or limit their freedom. According to the Congress, the Centre is collecting large amounts of tax revenue but not sharing it with the states as it should, which is forcing many states to borrow more just to manage their basic expenses.

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