**Executive Summary**
The Reserve Bank of India (RBI) released the report "State Finances: A Study of Budgets of 2025-26" on January 23, 2026. The report assesses the finances of State governments for 2025-26, considering actual and revised accounts for 2023-24 and 2024-25. This year's theme 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 after remaining below 3.0% for the prior three years.
* This increase is mainly due to 50-year interest-free loans from the Centre for capital investment, exceeding the normal net borrowing ceiling.
* States have budgeted a gross fiscal deficit of 3.3% of GDP in 2025-26.
* **Capital Expenditure:**
* Capital expenditure remained steady at 2.7% of GDP in 2023-24 and 2024-25.
* It is budgeted at 3.2% of GDP in 2025-26.
* **Liabilities:**
* The consolidated outstanding liabilities of States remained elevated post-pandemic.
* The budget estimate is 29.2% of GDP at end-March 2026.
* **Demographic Transition:**
* Indian States are in different stages of demographic transition, impacting their finances.
* Youthful states have opportunities due to a larger working-age population and potential for revenue mobilization.
* Aging states face shrinking tax bases and rising expenditure, necessitating reforms in healthcare, pensions, and workforce policies.
* Intermediate States need to balance growth priorities with preparations for aging.
* **Report Availability and Feedback:**
* The report is available on the RBI website (www.rbi.org.in).
* Comments can be sent to the Director, Division of State Finances, Department of Economic and Policy Research, Mumbai.
**Impact Analysis**
**State Governments**
* **Impact:** Understanding their fiscal position relative to others and identifying areas for improvement in revenue mobilization and expenditure management considering demographic transitions.
* **Action Required:** Review the report's findings and implement strategies to address fiscal challenges and leverage demographic opportunities.
**Reserve Bank of India (RBI)**
* **Impact:** Provides a basis for policy formulation and recommendations related to state finances, contributing to overall economic stability.
* **Action Required:** Monitor the fiscal performance of states and adjust monetary policy as needed.
Key Entities Referenced
Reserve Bank of India (RBI): The central bank of India, responsible for releasing the report on State Finances.
State Finances: A Study of Budgets of 2025-26: The title of the report released by RBI analyzing state government finances for 2025-26.
States: Refers to the individual state governments within India, whose finances are analyzed in the report.
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