**Executive Summary**
On January 23, 2026, the Reserve Bank of India (RBI) released a report titled ‘State Finances: A Study of Budgets of 2025-26'. The report provides an assessment of state government finances for 2025-26, considering the actual/revised accounts for 2023-24 and 2024-25. The report's theme is 'Demographic Transition in India - Implications for State Finances'.
**Key Points / Main Content**
* **Fiscal Deficit and Debt**
* States' consolidated gross fiscal deficit increased to 3.3% of GDP in 2024-25, after remaining below 3.0% in the previous three years.
* The deficit exceeding 3% mainly reflects interest-free loans from the Centre under Special Assistance to States for Capital Investment.
* In 2025-26, States have budgeted a gross fiscal deficit of 3.3% of GDP.
* The consolidated outstanding liabilities of States remained elevated in the post-pandemic period, with a budget estimate of 29.2% of GDP at end-March 2026.
* **Capital Expenditure**
* Capital expenditure remained steady at 2.7% of GDP in 2023-24 and 2024-25.
* Capital expenditure is budgeted at 3.2% of GDP in 2025-26.
* **Demographic Transition**
* Indian States are at different stages of demographic transition, impacting their finances.
* Youthful States have opportunities due to expanding working-age populations and revenue mobilization.
* Ageing States face fiscal pressures from shrinking tax bases.
* Intermediate States need to balance growth priorities with preparation for ageing.
* **Publication Information**
* The publication was prepared by the Division of State Finances in the Department of Economic and Policy Research.
* The report is available on the Reserve Bank’s website (www.rbi.org.in).
**Impact Analysis**
**State Governments**
* **Impact**: The report provides an analysis of their financial performance, highlighting strengths and areas needing improvement.
* **Action Required**: States should use the insights to refine their fiscal strategies, address demographic challenges, and optimize resource allocation.
**Policymakers/RBI**
* **Impact**: The report provides valuable data and insights for policymaking related to state finances and the overall economy.
* **Action Required**: Use the report to inform decisions on fiscal policies, inter-governmental transfers, and economic development strategies.
**General Public/Researchers**
* **Impact**: The report provides insights into the financial health of state governments, which can affect public services and economic stability.
* **Action Required**: The report is available online.
Key Entities Referenced
State Finances: A Study of Budgets of 2025-26: Report released by the Reserve Bank of India providing a comprehensive assessment of the finances of State governments for 2025-26
Reserve Bank of India (RBI): Releasing agency of the report on state finances
States: Applicability of the report's findings to the finances of different states.
प्रेस प्रकाशनी PRESS RELEASE
भारतीय ररज़र्व ब ैंक
RESERVE BANK OF INDIA
वेबसाइट : www.rbi.org.in/hindi संचार वर्भाग, केंद्रीय कायाालय, शहीद भगत ससिंह मागा, फोटा, म िंबई - 400 001
Website : www.rbi.org.in Department of Communication, Central Office, Shahid Bhagat Singh Marg, Fort,
ई-मेल/email : helpdoc@rbi.org.in Mumbai - 400 001 फोन/Phone: 022 - 2266 0502
January 23, 2026
State Finances: A Study of Budgets of 2025-26
Today, the Reserve Bank of India (RBI) released the Report ‘State Finances: A
Study of Budgets of 2025-26’. The theme of this year’s Report is ‘Demographic
Transition in India - Implications for State Finances’. It provides a comprehensive
assessment of the finances of State governments for 2025-26 against the backdrop of
actual and revised/provisional accounts for 2023-24 and 2024-25, respectively.
Highlights:
i. States’ consolidated gross fiscal deficit increased to 3.3 per cent of gross domestic
product (GDP) in 2024-25, after remaining below 3.0 per cent during the previous
three years. The deficit exceeding 3 per cent mainly reflects 50-year interest free
loans from the Centre under Special Assistance to States for Capital Investment,
which is over and above the normal net borrowing ceiling of the States. In 2025-
26, States have budgeted a gross fiscal deficit of 3.3 per cent of GDP.
ii. The thrust on capital expenditure was sustained as capital expenditure remained
steady at 2.7 per cent of GDP in 2023-24 and 2024-25 and is budgeted at 3.2 per
cent of GDP in 2025-26.
iii. The consolidated outstanding liabilities of States remained elevated in the post-
pandemic period with a budget estimate of 29.2 per cent of GDP at end-March
2026.
iv. Indian States are at different stages of demographic transition, which increasingly
shape their finances. Youthful States have a wider window of opportunity due to
an expanding working-age population and stronger revenue mobilisation, which
can be harnessed through higher investment in human capital. In contrast, ageing
States face a narrowing window, with fiscal pressures arising from shrinking tax
bases and rising committed expenditure, calling for higher revenue capacity and
reforms in healthcare, pensions and workforce policies. Intermediate States need
to balance growth priorities with early preparation for ageing.
This publication has been prepared in the Division of State Finances in the
Department of Economic and Policy Research. The current issue, along with past
issues of the Report, are available on the Reserve Bank’s website (www.rbi.org.in).
Comments on this publication can be sent to the Director, Division of State Finances,
Department of Economic and Policy Research, Amar Building (6th Floor), Reserve
Bank of India, Sir Pherozshah Mehta Road, Mumbai - 400 001. Comments can also
be forwarded via e-mail.
(Brij Raj)
Press Release: 2025-2026/1982 Chief General Manager