**Executive Summary**
The Reserve Bank of India (RBI) released a report titled ‘State Finances: A Study of Budgets of 2025-26’ on January 23, 2026. The report provides a comprehensive assessment of state government finances for 2025-26, set against the backdrop of actual and revised/provisional accounts for 2023-24 and 2024-25. The theme of the year's report is 'Demographic Transition in India - Implications for State Finances'.
**Key Points / Main Content**
* **Fiscal Deficit:**
* States' consolidated gross fiscal deficit increased to 3.3% of GDP in 2024-25, exceeding the previous three years' below 3.0%.
* The deficit exceeding 3% is related to interest-free loans from the Centre for capital investment.
* States have budgeted a gross fiscal deficit of 3.3% of GDP in 2025-26.
* **Capital Expenditure:**
* Capital expenditure was sustained at 2.7% of GDP in 2023-24 and 2024-25.
* Capital expenditure is budgeted at 3.2% of GDP in 2025-26.
* **Liabilities:**
* Consolidated outstanding liabilities of States remained elevated in the post-pandemic period.
* The budget estimate is 29.2% of GDP at the end of March 2026.
* **Demographic Transition and State Finances:**
* Indian States are at different stages of demographic transition, influencing their finances.
* Youthful States have growth opportunities through an expanding working-age population.
* Aging States face challenges due to shrinking tax bases and rising expenditure.
* Intermediate States need to balance growth priorities with early preparation for ageing.
**Impact Analysis**
**State Governments**
* **Impact:** Their financial performance is assessed, and the report highlights key trends and challenges related to fiscal deficit, capital expenditure, and liabilities. Demographic transitions will impact revenue mobilization, and States will need to take this into account for their finances.
* **Action Required:** Take note of the report's findings to inform financial planning and policy decisions for 2025-26 and beyond, including addressing demographic challenges.
**Reserve Bank of India (RBI)**
* **Impact:** The report informs the RBI's understanding of state government finances, which is relevant to its role in monetary policy and financial stability.
* **Action Required:** Use the report's insights to inform policy decisions and research activities related to state government finances.
**General Public / Researchers**
* **Impact:** The report provides insights into the financial health of state governments, which ultimately impacts the services and infrastructure available to the public.
* **Action Required:** Access the report on the RBI's website (www.rbi.org.in) for detailed information on state finances. They can also send comments on the publication to the Director, Division of State Finances, Department of Economic and Policy Research.
Key Entities Referenced
State Finances: A Study of Budgets of 2025-26: The title of the RBI report assessing the finances of State governments for 2025-26.
Reserve Bank of India (RBI): The publisher of the report on State Finances.
Mumbai: Location of the RBI Central Office where the report was issued.
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