Rising Revenue Expenditure, Falling Capital Spending Raise Concern Over States’ Finances

New Delhi, : The financial position of several states has emerged as a matter of concern, with revenue expenditure continuing to rise while the pace of capital expenditure remains subdued, according to findings highlighted in recent CAG reports.

The growing burden of salaries, pensions, interest payments, subsidies and various welfare schemes is putting additional pressure on state finances. At the same time, expenditure on infrastructure and other productive assets such as roads, irrigation, electricity and water projects has not increased at the desired pace.

The reports indicate that states are increasingly dependent on borrowing to meet their financial requirements. The rising debt burden, coupled with higher committed expenditure, could pose a major challenge to fiscal management in the coming years.

A recent CRISIL report has also flagged concerns over the growing dependence of states on debt. According to the report, the fiscal deficit of 17 major states stood at around 3.2 per cent of their combined GSDP in 2025-26. Their revenue deficit also increased to around 0.8 per cent of GSDP, compared with 0.7 per cent a year earlier.

The situation in Tamil Nadu has also drawn attention. According to the figures cited in the report, the state’s total government expenditure increased substantially over the past decade. However, the share of capital expenditure remained relatively low at around 12.14 per cent of total expenditure.

The report further noted that Tamil Nadu’s capital expenditure stood at around 1.51 per cent of GSDP, despite the need for greater investment in infrastructure and development-oriented projects.

The increasing share of revenue expenditure means that a larger portion of state budgets is being consumed by expenses that provide immediate benefits but may have limited long-term economic returns. In contrast, capital expenditure creates infrastructure and productive capacity that can support economic growth and employment.

Experts believe states need to increase revenue mobilisation while reducing non-essential expenditure and giving greater priority to capital investment. Strengthening infrastructure and productive sectors, they said, is essential for maintaining sustainable economic growth.

The growing debt burden and rising revenue expenditure could otherwise constrain the ability of states to undertake development projects in the future and may eventually have a wider impact on the economy.