Statsguru: Six charts explain state of stressed finances in India

Last week, a Reserve Bank of India (RBI) study highlighted the rising debt burden of some states. In light of a few of India’s neighbours staring at a debt trap, the central bank drew attention to the reality of some Indian states, too, which are facing severe fiscal stress.

The state finances report, which was released last year, showed that the states’ own revenues had barely increased between 2015-16 and 2020-21. In fact, as a proportion of their gross state domestic product (GSDP), Indian states’ own revenues had declined from 7.7 per cent in 2017-18 to 7.4 per cent in 2020-21 (revised estimates) (see chart 1).

The RBI study turned the spotlight on 10 states that were reeling from financial stress and on their growing inability to service their debt. Punjab, for instance, had 53.3 per cent debt as a proportion of its GSDP.

The report further highlighted that the interest payment to revenue receipts (IP-RR) ratio, a measure of debt servicing burden on states’ revenues, in eight of these states was more than 10 per cent. Punjab’s IP-RR ratio was the highest at 21.3 per cent (see chart 2).

The committed expenditures of these states, including salaries, pensions and other administrative expenses, were also high. Six of the 10 states had a committed expenditure ratio of more than 30 per cent (see chart 3).

Their subsidy bills had also risen. For all states, subsidy expenditure had increased 11.2 per cent in 2021-22 (RE) compared to the previous year. The growth for the worst five states was even higher, at 29.2 per cent. Pension outgoes have also increased (see chart 4). 

Data from RBI’s state finances study shows that all states and Union Territories were expected to spend Rs 4.07 trillion in 2021-22, compared to Rs 2.04 trillion spent in 2015-16 (see chart 5). 

The debt to GSDP burden of states will increase by a percentage point between 2019-20 and 2026-27. The average increase would be 4.2 per cent for six of the 10 stressed states (see chart 6).

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines