Inside the Finances of Indian States: A Reality Check

This includes taxes like SGST (the state’s share of GST), excise duties on alcohol, property stamp duties, and vehicle taxes. The good news is that states’ tax collections have become stronger since the pandemic. Tax buoyancy—a measure of how tax revenue grows with the economy—has improved from 0.86 before the pandemic to 1.44 now. This means state

States need money to cover their deficits, and the way they raise this money has changed significantly. In 2005-06, only 17% of their deficit financing came from the market (like bonds). Now, it’s a massive 79%. This shift means states are relying less on traditional sources like the National Small Savings Fund and more on selling bonds—financial i

The RBI’s report highlights three priorities for states:

1. Control Subsidies: States need to rethink their freebies and focus on sustainable spending.




2. Rationalize Expenditure: Invest more in future development rather than daily operations.




3. Improve Transparency: Standardized reporting and robust data systems are essential.

But here’s the twist: while the fiscal deficit is under control, state debts remain high. Currently, state debt is at 28.5% of GDP, far above the recommended level of 20%. High debt means states are borrowing heavily, which could become a problem if their revenues don’t grow fast enough.

Power Sector (DISCOMs)

Electricity distribution companies, or DISCOMs, are a financial black hole for many states. Despite multiple reforms, DISCOM debt has grown by 8.7% annually since 2016-17. By 2022-23, accumulated losses hit ₹6.5 lakh crore—2.4% of GDP. Six states account for 75% of these losses. The Centre has offered states additional borro