Uttar Pradesh Grabs Fiscal Headline Comfort and Hides Fragility
Uttar Pradesh Chief Minister Yogi Adityanath (Image credit UP Info dept)
Unless UP leverages its surpluses to invest more aggressively in education, health, and infrastructure—while broadening its own revenue base—the fiscal discipline it showcases will remain a hollow virtue.
By P SESH KUMAR
NEW DELHI, September 29, 2025 — Uttar Pradesh (UP) is India’s largest state economy after Maharashtra, and in fiscal terms it presents a paradox. On paper, it has consistently reported revenue surpluses — ₹74,000 crore in FY 2022–23, ₹83,000 crore in FY 2023–24 (RE), and again in FY 2024–25 (BE). Yet, beneath these surpluses lurk structural vulnerabilities: low per-capita revenue effort, heavy dependence on Union transfers, and poor expenditure quality with under-investment in human development.
The AJNIFM PFPI 2023–24 ranks UP 44.9 out of 100, placing it in the lower middle tier of general category states, reflecting weak revenue mobilization, low capex intensity, and fragile debt management. The picture is of a fiscally “safe” state that still underperforms in building the foundation for long-term growth.
CAG’s 2022–23 Picture
The CAG’s State Finances 2025 volume recorded UP as one of the few states with a healthy revenue surplus of ~3.2% of GSDP in 2022–23. Fiscal deficit was modest at 3.2% of GSDP, below the FRBM ceiling of 3.5%. Debt-GSDP stood at 25.1%, well under the XV Finance Commission’s 33.3% benchmark. At first glance, UP looked like a fiscal model student.
But two shadows were evident. First, own-tax revenue-to-GSDP ratio was only ~7%, far below peers like Maharashtra or Tamil Nadu, showing that surpluses were underpinned by Union tax devolution and GST compensation rather than state effort.
Second, capital outlay remained a small fraction of total spending, while human development metrics (literacy, health outcomes, female workforce participation) lagged behind the national average. The CAG’s tables hinted that UP’s fiscal comfort was more about conservative spending than developmental drive.
The Arun Jaitely National Institute of Financial Management (PFPI) Verdict
The PFPI (Public Financial Performance Index) 2023–24, which evaluated states across 23 parameters for the decade 2011–12 to 2021–22, scored UP at 44.9 out of 100, one of the lowest among major general category states.
Resource mobilization: UP scored poorly—low tax effort, weak non-tax revenues, heavy dependence on central devolutions.
Expenditure quality: A high share of revenue expenditure relative to capital outlay dragged down its ranking.
Deficit management: While headline fiscal deficits stayed within FRBM norms, PFPI penalized UP for profligacy risk—because large revenue surpluses were not translating into growth-oriented outlays.
Debt management: UP’s debt ratio was moderate (25% of GSDP), but contingent liabilities from guarantees and opaque borrowings via SPVs added to hidden risks.
In sum, PFPI ranked UP as a state with formal fiscal discipline but weak substance, stuck in a comfort zone of surpluses without sufficient developmental push.
Budgets 2023–24 and 2024–25: Surpluses Without Muscle
2023–24 (RE): UP projected a revenue surplus of ~₹83,000 crore and fiscal deficit at 3.1% of GSDP. Actual collections undershot GST targets, but transfers from the Centre cushioned the blow.
2024–25 (BE): The state again budgeted for a revenue surplus (~₹78,000 crore) and fiscal deficit of 3%. Debt-GSDP is projected at 27%, still below national ceilings.
But the quality of spending remains questionable. Education and health outlays hover below the all-India average as % of GSDP. Social sector indicators confirm the gap: despite headline surpluses, UP’s infant mortality, female literacy, and per-capita income lag far behind fiscal peers.
The Human Development Deficit Behind the Surpluses
On paper, Uttar Pradesh’s surpluses look enviable. But numbers alone don’t educate a child, heal a patient, or give a woman her rightful space in the labour market. A closer look shows that UP’s revenue discipline has not translated into proportional human development dividends.
Education: UP’s budgetary allocation to education has hovered at 2.6–2.8% of GSDP, below the all-India average and far below the 6% benchmark recommended by the Kothari Commission and reiterated in NEP 2020. CAG reports and PRS analyses show recurring surrenders of education funds, especially in secondary and higher education, due to slow project execution and teacher vacancies.
The result is visible: literacy rates improved, but at 69.7% (Census 2011) UP still lags behind India’s 74% average; female literacy is worse, at 59.3%. Recent NFHS-5 (2019-21) data reveal that while school enrolment is near universal at the primary stage, dropout rates spike in secondary grades, reflecting poor retention.
Health: The state spends just around 1.2% of GSDP on health, among the lowest in India. Health infrastructure is inadequate: NFHS-5 shows stunting among children under five at 39.7%, much higher than the national average (35.5%). Maternal Mortality Ratio (MMR) and Infant Mortality Rate (IMR) in UP are also above the national averages.
In 2022, the SRS pegged UP’s MMR at 167 (India’s average was 103), while IMR stood at 38 (against India’s 28). This underlines how fiscal comfort has not been channelled into life-saving investment.
Female workforce participation: Perhaps the starkest gap is in women’s economic engagement. As per PLFS (2022–23), UP’s Female Labour Force Participation Rate (FLFPR) was barely 20.8%, compared to the national average of ~27%. This is despite the state having a large surplus in its revenue account. Low spending on skill development, inadequate child-care infrastructure, and socio-cultural barriers all feed into this outcome. Without deliberate investment, UP’s demographic dividend risks turning into a demographic drag.
Why this matters fiscally
Here lies the paradox: while the treasury books show surpluses, the social deficit is glaring. Fiscal “prudence” has been achieved by squeezing capital outlay and social spending, rather than by expanding the revenue pie or investing in transformative sectors. The AJNIFM PFPI penalises UP exactly on this count: expenditure quality. It is not enough to have a surplus; what matters is whether that surplus is building future capacity. UP’s numbers suggest it is not.
Uttar Pradesh’s fiscal story is, thus, one of headline comfort and hidden fragility. The CAG’s 2022–23 audit and subsequent budgets show a state that can claim surpluses, low debt, and FRBM compliance.
Yet, the AJNIFM PFPI reminds us that fiscal health is not just about balances—it’s about resource effort, spending quality, and sustainability. By that measure, UP is under-performing: PFPI’s score of 44.9 places it among India’s laggards, a state coasting on transfers rather than building its own fiscal muscle.
Unless UP leverages its surpluses to invest more aggressively in education, health, and infrastructure—while broadening its own revenue base—the fiscal discipline it showcases will remain a hollow virtue.
(This is an opinion piece, and views expressed are those of the author only)
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