New Delhi . The financial needs of the states and union territories are increasing rapidly and to meet them, the state government is now becoming more dependent on market debt than before. State governments are raising money by issuing long-term bonds. Due to this, the burden of guarantees of the states is also increasing. In the study report of the state finance budgets 2025-26 released by the Reserve Bank of India, it has been estimated that about 76 percent of the total fiscal deficit (GFD) of the states will be met through borrowing from the market.
The report says that the debt level of many states remains a matter of concern. State debt had declined to 28.1 percent of GDP at the end of March 2024, but reached a peak of 31 percent in March 2021. However, at the end of the current financial year in March 2026, it is expected to increase again to around 29.2 percent.
The debt level in many states is still more than 30 percent of their economy, which is a matter of concern. At present, Tamil Nadu (1.23 lakh crore) and Maharashtra (1.23 lakh crore) are at the top in taking loans. At the same time, the debt of states like Madhya Pradesh, Jharkhand, Uttarakhand and Karnataka is increasing. After the year 2016-17, dependence on debt continued to increase.
In the Covid era, the importance of loans received from the Central Government, especially the 50-year interest-free loan given for GST compensation and capital expenditure, has also increased. At the same time, the share of borrowing from sources like financial institutions, public account and National Small Savings Fund (NSSF) has continuously decreased. At present only 3 states and 1 union territory are taking loans from NSSF.
The total market borrowing of states and union territories increased to Rs 10.73 lakh crore in the year 2024-25 from Rs 10.07 lakh crore in the financial year 2023-24. In this way there was an increase of 6.6 percent on the basis of financial year.
Decline in borrowing of Uttar Pradesh
Except Bihar, Chhattisgarh, Goa, Punjab and Uttar Pradesh, all other big states took more loans than the market in 2024-25. Especially a big decline was recorded in the borrowings of Uttar Pradesh during this period. Uttar Pradesh had taken a loan of Rs 49618 crore in the year 2023-24, which reduced to Rs 4500 crore in the last financial year. Similarly, the debt of Bihar has decreased from Rs 47612 crore to Rs 47546 crore.
However, during this period the debt of Uttarakhand is increasing significantly which has increased from Rs 6300 crore to Rs 10400 crore. Similarly, the debt of Jharkhand has also increased from Rs 1000 crore to Rs 3500 crore.
State governments issuing long term bonds
A total of 835 state government bonds were issued in 2024-25, out of which 100 old bonds were re-issued. Chhattisgarh, Jammu and Kashmir, Karnataka, Maharashtra, Puducherry, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal resorted to re-issue. The report shows that state governments are now issuing longer-term bonds than ever before. The share of bonds with a tenor of 10 years dropped to 14.5 per cent in 2024-25, while the remaining bonds were of tenor up to 35 years.
Some states like Kerala, Tamil Nadu, Telangana and Jammu and Kashmir have also issued bonds with tenures of more than 20 years. Of the total outstanding bonds at the end of March 2025, 7.2 per cent had a tenure of more than 20 years. One reason behind this is the decline in average interest rates. The average interest rate on state bonds has come down to 7.2 percent in the year 2024-25, which was 7.5 percent last year.