Revdi Politics Wreaks Havoc with Finances of States: Report

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In 2025–26, twelve states are expected to collectively spend ₹1.68 lakh crore on populist schemes, with six of them already in revenue deficit.

By TRH News Desk

New Delhi, November 4, 2025 — At a time when states are gung-ho with politics of populism, a report sums up grim pictures of states’ finances — growing inequality, lower GST shares, reducing own revenue, and overall stress.

States are facing growing fiscal stress as revenues lag and committed expenditure continues to rise, according to a report by PRS Legislative Research on state finances. The report highlights that GST revenues have remained below pre-2017 levels of the taxes subsumed under the new regime, while income inequality across states has widened.

In 2023–24, states recorded a revenue deficit, with 53% of their revenue receipts spent on salaries, pensions, and interest payments, and 9% on subsidies. High committed expenditure and subsidies together accounted for 62% of states’ revenue receipts, leaving limited fiscal space for development spending. PRS noted that states collectively borrowed to finance recurring expenses, pushing aggregate outstanding debt to 27.5% of GDP as of March 2025 — well above the 20% level recommended by the FRBM Review Committee.

The report pointed out that GST revenues have fallen from 6.5% of GDP in 2015–16, before the tax’s rollout, to 5.5% in 2023–24. Most states continue to collect lower revenue under GST than they did from earlier taxes, with wide variation across states. The 15th Finance Commission had projected a medium-term GST-to-GDP ratio of 7%, a target that remains out of reach.

PRS also flagged a decline in untied transfers to states during the 15th Finance Commission period — down to 64% of total transfers from 68% under the 14th Finance Commission — reducing the flexibility of states to prioritise spending according to local needs.

Meanwhile, the report found that more states are turning to unconditional cash transfer schemes for women. In 2025–26, twelve states are expected to collectively spend ₹1.68 lakh crore on these schemes, with six of them already in revenue deficit. PRS cautioned that such recurring expenditures could further strain fiscal space for growth-enhancing investments.

Highlighting the widening gap between richer and poorer states, PRS said states with higher per capita income are generating more revenue and spending more on development, deepening income inequality across the country.

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