According to report, rising levels of committed expenditure are constraining the fiscal space of states, thereby squeezing their ability to undertake development-oriented spending.
Key findings of the Report
- High committed spending: States spent 62% of revenue receipts on salaries, pensions, interest, and subsidies in 2023-24.
- Lower GST revenue share: Revenue from GST-subsumed taxes fell from 6.5% of GDP (2015-16) to 5.5% (2023-24), leaving states with weaker own-tax capacity.
- 15th Finance Commission had estimated a medium-term ratio of 7% revenue from GST.
- Reduction in untied transfers: Untied transfers fell to 64% under the 15th Finance Commission, reducing states’ flexibility in spending priorities.
- High debt burden: Outstanding debt of states at 27.5% of GDP (2024-25) is far above the FRBM target of 20%; only Gujarat, Maharashtra, and Odisha meet the benchmark.
- Interest payments rising fast: Interest costs grew 10% annually (2016-17 to 2024-25), outpacing revenue growth.
- Unconditional cash transfers for women led to fiscal pressure: In 2025-26, the number of states providing unconditional cash transfers to women has increased to 12 states.
- Per-capita income gaps between states have increased: Because high-income states raise more revenue per capita and spend more on development.
Way Forward
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